DWARKA GEMS LTD.,JAIPUR vs. DCIT, JAIPUR

PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 27th October, 2016 pertaining to Assessment Year 2008-09. The assessee has raised the following grounds of appeal :-

1.1 That, the Ld. CIT(A) has further erred in upholding the assessment completed by Ld. AO u/s r.w.s. of Income Tax Act,

2 ITA No. 71/JP/2017 M/s. Dwarka Gems Ltd., Jaipur.

1961 merely on the basis of statements of a third party Sh. Bhanwar Lal Jain without bringing any corroborative material on record and without making proper enquires in the matter to ensure that any income of assessee has escaped assessment. Thus, appellant prays completion of assessment u/s 147 r.w.s. 143(3) must be held bad in law.

1.2. That, the Ld. CIT(A) has further erred in ignoring the fact that the assessment in the case of appellant stood completed u/s 143(3) where after making necessary enquires, provisions of section 145(3) were invoked and income was estimated, thus the re-opening of completed assessment on account of alleged unverifiable purchases is change of opinion and thus the order passed is without any authority of law and thus the additions made deserves to be deleted.

2.1. That, the Ld. CIT(A) has further erred in confirming the action of Ld. AO by alleging the purchases of Rs. 31,40,818/- as unverifiable solely on the basis of statement of a third party Sh. Bhanwar Lal Jain who is completely unknown/ unrelated to assessee and who has not been allowed to be cross-examined by assessee. Thus, the action of Ld. CIT(A) in confirming the purchases as unverifiable deserves to be ignored and excluded.

2.2. That, the Ld. CIT(A) has further erred in upholding the order passed by Ld. AO treating the concerned purchases of Rs. 31,40,818/- as unverifiable on the basis of statements of a third party Sh. Bhanwar Lal Jain by completely ignoring that in his statements recorder during search at his business premises, he has nowhere mentioned that the sales to assessee were bogus. Thus, the action of Ld. CIT(A) in confirming the said purchases as bogus deserves to be held bad in law.

3 ITA No. 71/JP/2017 M/s. Dwarka Gems Ltd., Jaipur.

3.1. That, the Ld. CIT(A) has further erred in confirming the impugned addition made by Ld. AO by alleging the purchases made from two parties as bogus by ignoring the fact that in appeal filed against the assessment order passed u/s 143(3), the Ld. CIT(A), had already upheld the trading addition of Rs. 3,00,000/- after due consideration of unverifiable purchases, thus the further addition on same account deserves to be deleted.

The assessee is a company and engaged in the business of manufacturing of

silver/gold ornaments and articles. The assessee filed its return of income on

14.10.2008 on which scrutiny assessment was completed on 27.12.2010. The AO

while completing the assessment under section 143(3) of the IT Act made an

addition of Rs. 1,27,15,683/- on account of unverifiable/bogus purchases made by

the assessee from 12 parties. The matter against the original assessment was finally taken to the Hon’ble High Court and vide its order dated 23rd May, 2017 the Hon’ble

High Court has set aside the matter to the record of the AO for fresh consideration.

In the meantime, the AO proposed to reopen the assessment by issuing a notice

4 ITA No. 71/JP/2017 M/s. Dwarka Gems Ltd., Jaipur.

under section 148 on 21.11.2014. The AO proposed to assess the income on

account of purchases made by the assessee from two parties, namely M/s. Meridian

Gems and M/s. Millennium Stars as bogus purchases as per the information received

from the Investigation Wing, Mumbai. The AO accordingly completed the reassessment under section 143(3) read with section 147 on 31st March, 2015

making a trading addition of Rs. 7,85,204/-. The assessee challenged the action of

the AO before the ld. CIT (A) and raised the objection against the reopening of the

assessment. The ld. CIT (A) though confirmed the validity of reopening of

assessment, however, restricted the trading addition to Rs. 4,71,123/- as against Rs.

7,85,204/- made by the AO.

reasons recorded by the AO for reopening of the assessment, it can be observed

that the assessment is reopened merely on the basis of information received from

Investigation Wing Mumbai without arriving at the objective conclusion drawn after

examining the so called information, the basis has been formed on the basis of

conclusion drawn by the DGIT Mumbai in some other case that the said person was

engaged in providing bogus bills. Further, it is submitted that the AO ought to have

considered the issue objectively and not on the so called information received from

other official. Therefore, the action of the AO in reopening the completed

assessment without independent application of mind is not valid and bad in law. The

ld. A/R of the assessee has relied upon the decision of Hon’ble Gujarat High Court in

the case of Seth Brothers vs. CIT, 169 CTR 519 (Guj.) and submitted that there was

no material with the AO for having the reason to believe that the income chargeable

to tax has escaped assessment. The ld. A/R has further contended that the

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reopening is after the expiry of four years from the end of the assessment year and,

therefore, the AO cannot invoke the provisions of section 147 without satisfying the

condition that the assessee has failed to disclose fully and truly all material facts

necessary for assessment. He has also relied upon the series of decisions on the

point that the opinion formed by the AO based on the conclusion of other person is

not valid and, therefore, the AO was not having jurisdiction to invoke the provisions

of section 147/148.

3.1. On the other hand, the ld. D/R has submitted that after completing the

original assessment, the AO received fresh information and material regarding the

bogus purchases made by the assessee from these two parties and, therefore, the

reopening is valid and proper. He has relied upon the orders of the authorities

below.

record. There is no dispute that the original assessment was completed under section 143(3) on 27th December, 2010 after an addition on account of

unverifiable/bogus purchases was made by the AO. Thus it is manifest from the

record that the AO while completing the original assessment under section 143(3)

has conducted an enquiry in respect of the purchases made by the assessee and

finally concluded that the purchases made by the assessee from the 12 parties were

not verifiable and accordingly an addition of 25% of such purchases were made by

the AO. Therefore, the issue of genuineness of purchases was duly examined by the

AO while completing the scrutiny assessment under section 143(3). The AO,

thereafter, issued a notice under section 148 on 21.11.2014 which is after four years

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from the end of the assessment year under consideration. The reasons recorded for

reopening of the assessment are as under :-

“As per information it had been established that bogus sales entries were made in favour of M/s Dwarka Gems on various dated during F.Y. 2007-08 i.e. A.Y. 2008-09 total amounting to Rs. 31,40,818/-. These entries were provided by M/s Meridian Gems & M/s Millenium Stars which are some of the bogus concerns of Bhanwar Lal Jain & Group.”

Thus it is clear that the reopening of the assessment is based on the information

received and to assess the income in respect of the purchases made by the assessee

which was examined by the AO during the original scrutiny assessment under

section 143(3). The AO after an enquiry and investigation during the original

assessment proceedings held that the purchases made from 12 parties are not

verifiable/genuine. Thus except the purchases made from those 12 parties, the AO

has accepted the genuineness of the purchases including the two parties, namely

M/s. Maridian Gems and M/s. Millennium Star. Even if the subsequent information

received from the DIT Investigation Wing Mumbai renders the assessment order

passed under section 143(3) defective and erroneous for want of proper verification

and investigation, the same would not turn the case in the category that the

assessee has failed to disclose fully and truly all the particulars necessary for

assessment. It is not the case of the AO that the assessee has not furnished the

requisite documents and details of purchase rather the AO conducted a detailed

enquiry during the original assessment on the issue of genuineness of purchases.

Thus the information received by the AO from Investigation Wing Mumbai would not

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amount to non disclosure of particulars by the assessee, rather it was the subject

matter of enquiry by the AO in the original assessment. Therefore, if the AO failed to

conduct proper enquiry regarding the genuineness of the purchases, the same would

not give jurisdiction to the AO to review the order or remove the defect based on

subsequent information. The statute has provided segregation of powers and

jurisdiction between the hierarchy of the taxing authorities and, therefore, the power

and jurisdiction vested with one authority cannot be assumed by the other authority.

Section 263 is a provision of check and balances and, therefore, in case of failure on

the part of the AO to conduct a proper enquiry as revealed by a subsequent material

and information came to the knowledge of the Commissioner, the provisions of

section 263 can be invoked by the revisionary authority. Therefore, the remedy for

any defect or default in the order of the AO is provided under section 263 of the Act

and not under section 147. The reopening after four years from the end of the

assessment year completed under section 143(3) is not permissible without

satisfying the condition precedent as provided under the provisions of section 147 of

the Act. The subsequent information received by the AO cannot remove or relax the

said condition provided under the provisions of section 147 that the assessee failed

to disclose fully and truly all the material necessary for assessment. In the case in

hand, when the AO has already conducted an enquiry on the issue and the assessee

is not expected to furnish more than what was already furnished during the

assessment proceedings, then the reopening based on the information from the

Investigation Wing on the same issue is nothing but change of opinion and to review

the order passed by the AO under section 143(3) which is not permissible under law.

Accordingly, in the facts and circumstances of the case, we hold that the reopening

8 ITA No. 71/JP/2017 M/s. Dwarka Gems Ltd., Jaipur. is not valid and, therefore, the reassessment framed by the AO is without jurisdiction and consequently the reassessment order passed is quashed. 5. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 27/03/2018.

Sd/- Sd/- ¼ foØe flag ;kno ½ ¼ fot; iky jkWo ½ (VIKRAM SINGH YADAV) ( VIJAY PAL RAO ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 27/03/2018. das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant-M/s. Dwarka Gems Ltd., Jaipur. 2. izR;FkhZ@ The Respondent- The DCIT Circle-7, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 71/JP/2017} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत