SHWET DIAM,MUMBAI vs. THE INCOME TAX OFFICER WARD 19(3)(1), MUMBAI

The grounds raised by the assessee are reproduced below: 1.01 The Learned Commissioner of Income Tax (Appeals) (CIT(A) for brevity) has erred in not considering the Ground of the Assessee that apart from the report of the DDIT (Inv.) Mumbai, the Learned Assessing Officer (LAO for brevity) has not made any further independent inquiry in the matter and has not called for further information from any independent sources to verify the details received from the DDIT (Inv), thereby making notice u/s 148 as invalid and Assessment Order as Void-ab-initio. 2.01 The LAO and Learned CIT(A), both failed to provide copies of the statements of Shri Bhanwarlal Jain, which was recorded under Oath by the Income Tax Department, and which formed the basis for reopening of the assessment. Despite specific requests made several times by the Assessee during the course of reassessment proceedings, such statements were not furnished, nor was any opportunity of cross-examination of the said Shri Bhanwarlal Jain was granted. The reliance placed on such statements, without affording the Assessee an opportunity to rebut the same, is in gross violation of the principles of natural justice and renders the entire assessment proceedings invalid and unsustainable in law. 3.01 The LAO and Learned CIT(A) failed to appreciate the fact the statement based on which the re-assessment proceedings were initiated was retracted by Shri Bhanwarlal Jain and which was in the knowledge of the LAO as well as the Learned CIT(A). Hence, re-assessment proceedings based on retracted statement is void-ab-initio and liable to be quashed. 4.01 The learned CIT(A) erred in law and on facts in upholding the reassessment order passed by the LAO, who wrongly invoked jurisdiction under section 147 of the Act instead of issuing notice under section 153C. where the information forming the basis of reassessment emanated from a search action on a third party, proceedings under section 153C were mandatory, rendering the reassessment under section 147 jurisdictionally defective and legally unsustainable. 5.01 The learned CIT(A) erred in law and on facts in upholding the reassessment order passed by the LAO in making the addition without issuing any show cause notice or affording an opportunity of being heard to the Assessee. The addition so made is, therefore, bad in law, illegal, and liable to be deleted, as it is in clear violation of the principles of natural justice. 6.01 The Learned CIT(A) erred in law and on facts in upholding the reassessment order passed by the LAO who had issued the assessment order without specifying the Document Identification Number (DIN) as mandated under CBDT Circular No. 1/2019 dated 01.04.2019. The assessment order, being without DIN, is not deemed to have been issued by any Income-tax Authority and is void ab initio, rendering the entire assessment, including additions made therein, illegal and

The information alleged that the assessee had obtained accommodation purchase entries aggregating to Rs.1,73,52,386/- from Maru Diamond, Luckey Export and Nice Diamond. The amounts attributed to these concerns were Rs.21,70,692/-, Rs.69,22,141/- and Rs.82,59,553/-, respectively. The assessee disputed the reopening and the allegation that its transactions were non-genuine. During the reassessment proceedings, it furnished documents in support of the purchases. Paragraph 11 of the assessment order records the furnishing of the stock register, sales register, purchase register, details of corresponding sales, ledger copies, purchase invoices, acknowledgements, tax audit reports and bank statements of the three concerns, together with sales invoices, shipping bills, insurance documents and airway bills.

The Assessing Officer relied upon the findings of the Investigation Wing and statements concerning the alleged accommodation entry operations of the Bhanwarlal Jain Group. He held that the documentary evidence did not establish the genuineness of the impugned purchases. Rejecting the book results, he disallowed the entire purchases of Rs.1,73,52,386/- and determined total income at Rs.2,05,73,896/- by the order dated 23.12.2019 passed under section 143(3) read with section 147 of the Act.

The assessee is in further appeal before us.

The learned Authorized Representative (AR) challenged the assumption of jurisdiction under section 147. Inviting our attention to the recorded reasons at pages 51 and 52 of the paper book, he submitted that paragraph 6, specifically captioned as the basis for forming the reason to believe and details of escapement of income, alleged an accommodation entry in the form of a loan. The assessee had not obtained any such loan. Its transactions with the named concerns were purchases which it maintained were genuine. According to the learned AR, the reasons failed to disclose a consistent and independently formed belief concerning the transaction alleged against the assessee.

The learned AR referred to the objections dated 18.11.2019, wherein the assessee denied having obtained accommodation loans, explained the nature of its purchase transactions and sought copies of the statements and Investigation Wing report relied upon. He also referred to the further letter dated 21.12.2019 reiterating the request for the statements and evidence. He 5

The learned AR further submitted that paragraph 2 of the reasons expressly referred to incriminating documentary evidence gathered during the search, while paragraph 3 referred to documents forwarded by the Investigation Wing. The foundation of the proposed action was, therefore, the search and the material gathered therein. He contended that proceedings against the assessee, being a person other than the searched person, were required to be taken in accordance with section 153C read with section 153A, instead of sections 147 and 148. For this proposition, he relied upon the judgment of the Hon’ble jurisdictional High Court in Sejal Jewellary v. Union of India [2025] 171 taxmann.com 846 (Bombay), dated 18.02.2025, and prayed that the reassessment be quashed.

The learned Departmental Representative relied upon the orders of the lower authorities and sought time to file written submissions. However, no written submissions have been received till date. We, therefore, proceed to adjudicate the appeal after considering the rival oral submissions and the material available on record. The matter is being decided on its merits; the absence of written submissions by the learned DR is not being treated as a concession.

We have heard the rival submissions and perused the material placed before us. Since grounds 1.01 and 4.01 question the validity of the assumption of jurisdiction and go to the root of the reassessment, we take them up first. The principal question is whether, on the foundation expressly recorded by the Assessing Officer, recourse to sections 147 and 148 was permissible in light of the judgment of the Hon’ble jurisdictional High Court in Sejal Jewellary (supra). The inconsistencies in the reasons and in the disposal of objections also require examination in that context.

Paragraph 4 is captioned “Enquiries made by the A.O. as sequel to information received”. However, the text under that heading merely states that the Director of Income Tax (Investigation)-II, Mumbai conducted the search and shared the relevant documents. It does not identify any distinct inquiry undertaken by the Assessing Officer or any source of information independent of that search material. Paragraph 6 again refers to the same search and the provision of relevant documents. On a reading of these passages together, the stated foundation of the reopening is the incriminating documentary evidence gathered during the search and the material forwarded by the Investigation Wing.

There is a further internal inconsistency. Paragraph 1 records that the return was processed under section 143(1) on 17.02.2013, whereas paragraph 7 states: “No processing/scrutiny assessment was made and the only requirement to initiate proceedings u/s. 147 is reason to believe which has been recorded above in Paragraphs 2 to 6.” 20. Processing under section 143(1) and completion of a scrutiny assessment are distinct matters. Although no scrutiny assessment is shown to have been completed, the statement that there had been no processing is inconsistent with paragraph 1 of the reasons themselves. We do not treat the processing of the return under section 143(1) as precluding reopening. The relevance of this discrepancy is that it bears upon the care with which the assessee’s actual record was considered.

The order disposing of the objections contains an additional and more striking reference. Paragraph 4.7, appearing at page 60 of the paper book, states:

We have not overlooked that the expression “sales” in the table in paragraph 3 describes the entries from the alleged suppliers’ perspective, whereas the corresponding transactions are described as purchases in the assessee’s hands. That description, by itself, is not inconsistent. The material discrepancies are the assertion of an accommodation loan as the basis of belief, the inaccurate statement concerning processing of the return, and the subsequent reference to penny stock transactions while rejecting the objections. Read together, these passages do not demonstrate a coherent, case-specific consideration of the objection raised by the assessee. The direction that the assessee should establish genuineness during reassessment does not answer its anterior objection to the jurisdiction invoked.

The issue concerning the appropriate statutory provision is governed by the judgment in Sejal Jewellary (supra). In that case, the recorded reasons relied upon incriminating evidence found during a search and subsequent inquiries concerning alleged accommodation loans. The Hon’ble High Court examined the departmental record, the overriding clauses in sections 153A and 153C, and the distinct operation of those provisions and sections 147 and 148. In paragraph 21, the Court expressly agreed with the reasoning of the 9

The material findings of the Hon’ble jurisdictional High Court in paragraphs 22 to 24 are reproduced below: “22. Applying the principles of law as discussed hereinabove, we are of the clear opinion that the foundation of the present case was certainly a search action which was undertaken by the Revenue against one Shilpi Jewellers Pvt. Ltd. and in such search and seizure action, materials were seized and such materials were further explored and enquired. Such enquiry revealed significant information in regard to M/s. Green Valley Gems Pvt. Ltd., which according to the Revenue had provided accommodation entries to the petitioner, in which it was also revealed that Green Valley Gems Pvt. Ltd. was a shell company. We do not find that the record would indicate something which is not on the basis of such new materials gathered under the search and seizure action under Section 132. If this be the case, then certainly the provisions of Section 153C read with Section 153A would be applicable, as held by the Supreme Court in Abhisar Buildwell (P) Ltd. (supra) when the Court interpreted the effect and purport of Section 153C and 153A, as also held by the Rajasthan High Court in Shyam Sunder Khandelwal (supra). 23. Insofar as Mr. Suresh Kumar’s contention supporting the proceedings under Section 147 and 148 of I.T. Act are concerned, for the aforesaid reasons, such contention would in fact go contrary to the intention of the legislature as depicted by the provisions of Section 153A and 153C of the I.T. Act. There would not be any difficulty in accepting the proposition as canvassed by Mr. Suresh Kumar, referring to the decision of the Supreme Court in Phool Chand Bajrang Lal (supra), however, the facts in the present case are distinct. There cannot be any doubt on the position in law when the Revenue intends to proceed purely on materials relevant for an action under Section 148 read with Section 147. We have already observed that the provisions of Sections 147, 148 vis-a-vis Section 153A and Section 153 are quite compartmentalized. To avoid any overlapping of these provisions, the legislature in its wisdom has thought it appropriate to provide for an independent effect, to be given under Section 153A read with Section 153C by incorporating the ‘non-obstante’ clause, in these provisions, which carves out an exception to any normal/regular action being resorted under Section 147. 24. In this view of the matter, we are of the clear opinion that the impugned notice under Section 147 of the I.T. Act and all actions consequent thereto are required to be held to be without jurisdiction and bad in law. The petition is accordingly allowed in terms of prayer clauses (a) and (b).” 10

In the present case, the Assessing Officer’s own reasons expressly refer to incriminating documentary evidence gathered during the search, identification of beneficiaries through such evidence, forwarding of documents, and examination of those documents to identify the assessee’s transactions with the named concerns. These are the Revenue’s stated grounds for initiating action. No separate source of material, detached from the search and the documents so forwarded, is identified in the recorded reasons. The Assessing Officer cannot rely upon that documentary foundation to allege escapement while treating the special procedure governing such material as irrelevant. On the departmental case as recorded, the proceedings concern material gathered in the search of another person and attributed to the assessee’s transactions. The jurisdictional principle laid down in Sejal Jewellary (supra) therefore applies.

The fact that the ultimate addition concerns purchases, whereas Sejal Jewellary (supra) concerned alleged loans, does not provide a material distinction on this jurisdictional question. The governing consideration is the source and character of the material constituting the foundation of the proceedings. Further investigation of such material does not change that 11

We are conscious that the search referred to in the present record took place on 03.10.2013, whereas the search in Sejal Jewellary (supra) took place on 04.10.2018. The earlier search date does not, by itself, exclude the operation of section 153C. In Income Tax Officer v. Vikram Sujitkumar Bhatia [2023] 149 taxmann.com 123 / 453 ITR 417 (SC), the Hon’ble Supreme Court, in paragraph 11, held that the amendment to section 153C by the Finance Act, 2015 “shall be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of the amendment.” At the same time, we are not importing the extended-year provisions applicable to a later search into this appeal or adjudicating the validity or limitation of hypothetical proceedings under section 153C. Our decision concerns the recourse actually taken under sections 147 and 148 on the documentary search foundation expressly asserted by the Assessing Officer. No direction for initiation of fresh proceedings is being issued.

The CIT(A)’s reasoning that information from the Investigation Wing constituted tangible material does not answer this objection. The existence of material capable of suggesting escapement and the statutory route by which such material may be acted upon are separate questions. The CIT(A) examined whether a prima facie belief could be formed but did not address the effect of the documentary search foundation on the invocation of section 147 in light of the jurisdictional judgment. Further, describing the reference to loans as a minor inaccuracy does not resolve the cumulative inconsistencies noticed above, particularly the wholly unrelated reference to penny stock transactions while rejecting the objections.

Accordingly, respectfully following the judgment of the Hon’ble jurisdictional High Court in Sejal Jewellary (supra), we hold that the notice dated 16.03.2019 issued under section 148 and the consequential reassessment order dated 23.12.2019 passed under section 143(3) read with section 147 cannot be sustained. The reassessment order is quashed. Grounds 1.01 and 4.01 are allowed in the terms stated above. Consequently, the addition of Rs.1,73,52,386/- made in that reassessment does not survive.

In view of the above conclusion, grounds 2.01, 3.01, 5.01 and 6.01 concerning the other legal and procedural objections, and grounds 7.01 to 13.01 concerning the purchases and the alternative quantum of addition, are rendered academic and are left open without adjudication on merits. Ground 14.01 is general in nature and requires no separate adjudication.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 16-10-2026.