NARENDRAKUMAR BIRDICHAND JAIN,SURAT vs. ITO, WARD 3(2)(6), SURAT, SURAT

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ITA 446/SRT/2024Status: DisposedITAT Surat29 October 2026AY 2018-196 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the validity of Section 147 and the notice under Section 148 were justifiable, dismissing Ground No. 1. The AO had received information, provided details of alleged bogus purchases and sales, and given the assessee an opportunity to be heard during assessment proceedings. The addition was based on the reasons recorded. However, regarding Ground No. 2, concerning the merits of the additions for bogus sales and purchases, the Tribunal found that both the AO and CIT(A) had not properly verified the details filed by the assessee. Therefore, the matter was remanded back to the file of the AO for proper verification of the details and adjudication of the issues on merit as per the Income Tax Act. The assessee was to be given an opportunity of hearing following the principles of natural justice. Ground No. 2 was partly allowed for statistical purposes.

What were the facts?

The assessee, Narendra Kumar Birdichand Jain, filed an appeal against the order of the CIT(A) for Assessment Year 2018-19. The Assessing Officer (AO) reopened the case under Section 147 and issued a notice under Section 148. The AO made additions of Rs. 12,32,57,207/- for alleged bogus sales and Rs. 1,24,71,101/- for alleged bogus purchases, relying on an investigation wing report that identified transactions with Blooming Star Diamond P. Ltd., Clair Diamond P. Ltd., and Center Point Gems P. Ltd. as bogus accommodation entries. The CIT(A) passed an ex-parte order dismissing the assessee's appeal.

What were the issues?

1. Whether the reopening of the case under Section 147 and the issuance of notice under Section 148 of the Income Tax Act, 1961, are valid, considering alleged procedural lapses by the AO in conducting inquiries under Section 148A and providing materials to the assessee. 2. Whether the additions of Rs. 12,32,57,207/- for alleged bogus sales under Section 68 and Rs. 1,24,71,101/- for alleged bogus purchases under Section 69C are justified, especially when the assessee's books of account were not rejected and the profit on sales was already taxed, leading to potential double taxation. Assessee's Arguments: - The reopening and notice under Section 148 are bad in law due to the AO's failure to conduct required inquiries under Section 148A(a) and provide materials under Section 148A(b). The AO relied on incorrect information in the Section 148A(b) notice. - The notices under Section 148 were issued by a JAO, not a Faceless Officer as required. - For sales additions, the profit was already taxed, leading to double taxation. For purchase additions, the AO did not reject the books of account, which is a prerequisite for such additions. - Relied on decisions in M/s. Key Components (P) Ltd., Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., Pr. CIT vs. G&G Pharma India Ltd., Sart Sarthak Sarthak Securities Co. (P) Ltd., Pr. CIT vs. RMG Polyvinyl (I) Ltd., CIT vs. M.K. Bros., Ushakant N. Patel vs. CIT, Common Cause vs. UOI, and CIT vs. Vallamji Ravjibhai Patel. Revenue's Arguments: - The reasons recorded for reopening were justifiable, and the AO properly inquired into the information related to the companies mentioned. - The amounts added were approximately the same as those in the investigation report, validating the reopening.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 148A,Section 68,Section 69C,Section 115BBE,Section 144(B)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI

Pronounced: 29.10.2026

PER : SUCHITRA KAMBLE, J M:

The appeal filed by the assessee is against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short “CIT(A)”] dated 19.02.2024 for the Assessment Year (in short “AY”) 2018-19. 2. The assessee has raised the following grounds of appeal: “1. The Ld. AO has erred in reopening of the case u/s 147 of the Act and also erred in issuing the notice u/s 148 of the and also the Ld. CIT(A) has erred in confirming the same.

2.

The Ld. AO has erred in making addition of alleged bogus sales for 12,32,57,207/- u/s 68 of the Act and also the Ld. CIT (Appeals) has erred in confirming the same. 3. The Ld. AO has erred in making addition of alleged bogus purchase for ₹ 1,24,71,101/- u/s 69C of the Act and also the Ld. CIT (Appeals) has erred in confirming the same. 4. The appellant reserves the right to add, alter, amend or withdraw any grounds of appeal.” 3. The assessee is engaged in the trading of rough and polished diamonds and had fled his original return of income for A.Yr 2018-19 on 31.10.2018 Vide Ack No.366973641311018 declaring total current year income of Rs.5,44,685/-. A notice under section 148 of the Income Tax Act, 1961 (in short “the Act”) was issued on 30-03-2022 and received by the assessee. In response to which the assessee had fled his return of income and submitted the same to Assessing Officer (in short the “AO”) vide his submission dated 27-04-2022. But the AO refused to accept any of the grounds of the assessee and issued an Assessment Order under section 144(B) r.w.s. 147 of the Act dated 20.03.2023 which was received by the assessee on 22.03.2023. The AO relied on the report of the Investigation wing which has stated that the purchase transaction with Blooming Star Diamond P. Ltd and Clair Diamond P. Ltd and sale with Blooming Star Diamond P. Ltd and Center Point Gems P. Ltd are bogus. Further the AO has taken the ground that as per the investigation report the above two parties are bogus so as a result all the sale and purchase transactions are only accommodation entries and added the whole amount of both the sale and purchase value of the three parties. The AO made addition of Rs.12,32,57,207/- as unexplained sales and also addition of Rs.1,24,71,101/- u/s 69C r.w.s. 115BBE as unexplained purchases.

4.

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) passed ex-parte order and dismissed the appeal of the assessee.

5.

The Ld. Authorised Representative (in short “the Ld. AR”) submitted that the reopening and notice issued u/s 148 of the Act are bad in law. The notice u/s 148 of the Act was issued on the information received from DDIT-1, Surat. The AO has not conducted the required inquiry as required u/s 148A(a) of the Act. Further, the assessee has replied to the notice issued u/s 148A(b) of the Act and said that the allegations are wrong and the party has both purchase and sales transactions with the above-referred parties. At this stage, also the AO has not thought fit to conduct inquiries; instead, passed the order u/s 148A(d) of the Act on information without inquiry and verification. The AO has not conducted any inquiry as prescribed u/s 148A(a) of the Act, has not provided any materials to the assessee as required by section 148A(b) of the Act, and, without any material on record, concluded the income escaped. Based on the submission made by the assessee on 19.01.2023, the AO had issued the show cause notice dated 20.02.2023. In the Company Blooming Star Diamond P Ltd., the AO has information that the assessee had a purchase of Rs.6,51,97,301/-, whereas the assessee has made sales and made a purchase to the tune of Rs.73,73,657/-. In the Company Centre Point Gems P Ltd., the AO has information that the assessee had a purchase of Rs.5,42,86,845/-, whereas the assessee has made sales for Rs.5,80,89,906/- and made no purchase. It is clear from the above that the AO has provided the wrong information in the notice issued u/s 148A(b) of the Act; hence, the notice issued u/s 148A(b) has to be quashed. It is clear from the above that the reopening was made on purchases, but additions are made for sales, and amounts are not correct in some instances. The reopening of the case is bad in law. Further, the notices u/s 148 of the Act were issued by JAO and not by the Faceless officer as required by the law.

5.1 As regards section ground relating to addition of bogus sales u/s 68 of the Act and bogus purchases u/s 69C of the Act the Ld. AR submitted that the alleged sales have already been shown in the profit and loss account, and profit on such sales has already been taxed, and to make an addition would be tantamount to double taxation. The purchases and sales from these three parties are treated as bogus by the AO, but other purchases and sales are treated as genuine, so purchases made against alleged bogus sales have been treated as genuine; similarly, sales made against alleged bogus purchases have been treated as genuine. The books of account of the assessee were not rejected by the AO, and it is well settled law that no addition for bogus purchases and sales can be made without rejecting the books of accounts. Though the transaction with three parties has been treated as bogus in the assessment of the assessee, however, in the assessment of the said three companies, the transactions with the assessee have been treated as genuine in the scrutiny assessment by the central circle. The Ld. AR relied upon the following decisions:

1.

(2019] 70 ITR (Trib.) 211 (Delhi) M/s. Key Components (P) Ltd. vs. the Income Tax Officer ITA. No.366/Del./2016. 2. Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. [395 ITR 677] (Del.) 3. Pr. CIT vs. G&G Pharma India Ltd. (2016) [384 ITR 147] (Del.) 4. Sart Sarthak Sarthak Securities Co. (P) Ltd., 329 ITR 110 (Del.) 5. Pr. CIT vs. RMG Polyvinyl (I) Ltd. (2017) [396 ITR 5] (Del.) 6. CIT vs. M.K. Bros. (1987) 163 ITR 249 (Guj.) 7. Ushakant N. Patel vs. CIT - [2006] 154 Taxman 55 (Guj) 8. Common Cause (A registered Society) vs. UOI – [2017] 394 ITR 220 (SC) 9. CIT vs. Vallamji Ravjibhai Patel - Tax Appeal No. 1813 of 2006 (Gujarat HC) 6. The Ld. Departmental Representative (in short “Ld. DR”) relied upon the assessment order and the order of the CIT(A). The Ld. DR further submitted that the reasons recorded were justifiable. From the perusal of the reasons recorded the AO has properly inquired as relates to the information in case of M/s. Glorious Diamond Pvt. Ltd. and related to STRs in the case of M/s. Blooming Star Diamonds Pvt. Ltd., Center Point Gems Pvt. Ltd. and Clair Diamond Pvt. Ltd. The amount mentioned also is approximately the same amount which has been added in assessee’s case.

Therefore, the reasons for reopening were valid and ground No.1 of the assessee’s appeal be dismissed. 7. We have heard both the parties and perused all the relevant materials available on record. The AO has received information and has given the details of bogus purchases and details of sales which was set out in reasons recorded and has further given the opportunity to the assessee during the assessment proceedings and addition is also based on the reasons recorded itself. Therefore, validity of section 147 in respect of notice u/s 148 was justifiable. Thus, ground No.1 is dismissed.

8.

As relates to Ground No.2 which is regarding the merits of the case, the AO as well as the CIT(A) has not verified the details filed by the assessee properly and therefore it will be appropriate to remand back the matter on merit to the file of the AO for proper verification of the details and adjudicate the issues on merit as per Income Tax Act. Thus, Ground No.2 is partly allowed for statistical purpose. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice.

9.

In result, appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the open court on 29.10.2026

Sd/- Sd/- (B.M. BIYANI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat; Dated: 29.10.2026 //True Copy// * Kishore, Sr. P.S.

Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned

4.

DR, ITAT, Surat 5. Guard File By order, HEMA KISHORE Digitally signed by HEMA KISHORE JAKKA JAKKA Date: 2026.10.29 17:57:52 +05'30' Assistant Registrar/Sr.PS/PS ITAT, Surat Bench

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