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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 2,21,13,012/- made under section 69C for alleged bogus purchases. The reassessment was initiated based on information from the DGIT(Inv.) Mumbai concerning the Bhanwarlal Jain group.
Held
The Tribunal upheld the CIT(A)'s decision, finding that the reassessment was based on a "borrowed satisfaction" and a "change of opinion" as the same material was considered during the original assessment. Additionally, the notice issued under section 148 was found to be time-barred.
Key Issues
Validity of reassessment proceedings initiated on borrowed satisfaction and the timeliness of the notice issued under section 148.
Sections Cited
69C, 143(3), 148, 148A
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
ORDER PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 15.09.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14, raising following grounds:
1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to delete the Nimesh Pravinchandra Mehta Nimesh Pravinchandra Mehta addition of Rs. 2 addition of Rs. 2,21,13,012/- made u/s 69C towards undisclosed made u/s 69C towards undisclosed income on account of bogus purchases from concerns of income on account of bogus purchases from concerns of income on account of bogus purchases from concerns of Bhanwarlal Jain group, based on credible information received Bhanwarlal Jain group, based on credible information received Bhanwarlal Jain group, based on credible information received from DGIT(Inv.) Mumbai? from DGIT(Inv.) Mumbai? 2. "Whether on the facts and in the circumstances of the case and 2. "Whether on the facts and in the circumstances of the case and 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), has erred in directing the AO to delete the aw, the Ld. CIT(A), has erred in directing the AO to delete the aw, the Ld. CIT(A), has erred in directing the AO to delete the bogus purchases made by the AO when the primary issue that bogus purchases made by the AO when the primary issue that bogus purchases made by the AO when the primary issue that whether the purchase party is bogus or purchase is bagus has not whether the purchase party is bogus or purchase is bagus has not whether the purchase party is bogus or purchase is bagus has not been examined because if the purchase party is bogus and been examined because if the purchase party is bogus and been examined because if the purchase party is bogus and purchase is genuine then estimation is correct but if purchase is genuine then estimation is correct but if purchase is genuine then estimation is correct but if purchase is bogus then the entire purchase amount deserves to be added?" bogus then the entire purchase amount deserves to be added?" bogus then the entire purchase amount deserves to be added?" 3. "Whether on the facts and in the circumstances of the case and 3. "Whether on the facts and in the circumstances of the case and 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), erred in not setting aside the issue to the in law, the Ld. CIT(A), erred in not setting aside the issue to the in law, the Ld. CIT(A), erred in not setting aside the issue to the lower authorities for examination of the primary fact of whether authorities for examination of the primary fact of whether authorities for examination of the primary fact of whether the purchase party is bogus or the entire purchase is bogus? the purchase party is bogus or the entire purchase is bogus? the purchase party is bogus or the entire purchase is bogus? 4. "Whether on the facts and circumstances of the case and in law, 4. "Whether on the facts and circumstances of the case and in law, 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), was perverse in not considering the recent the Ld. CIT(A), was perverse in not considering the recent the Ld. CIT(A), was perverse in not considering the recent judgment of the Hon'ble High Court of Bombay in the case of f the Hon'ble High Court of Bombay in the case of f the Hon'ble High Court of Bombay in the case of Kanak Impex, which is based on similar facts wherein the Kanak Impex, which is based on similar facts wherein the Kanak Impex, which is based on similar facts wherein the assessee failed to prove genuineness?" assessee failed to prove genuineness?"
2. Briefly stated, facts of the case are that assessee, an individual Briefly stated, facts of the case are that assessee, an individual Briefly stated, facts of the case are that assessee, an individual was carrying on the business of trading was carrying on the business of trading in cut and polished in cut and polished diamonds as proprietor of M/s Minestar Diam. For the year under diamonds as proprietor of M/s Minestar Diam. For the year under diamonds as proprietor of M/s Minestar Diam. For the year under consideration, the assessee filed his return of income on consideration, the assessee filed his return of income on consideration, the assessee filed his return of income on 24.09.2013 declaring total income at Rs.6,89,630/ 24.09.2013 declaring total income at Rs.6,89,630/- -. The return of income filed by the assessee was selected for scrutiny and income filed by the assessee was selected for sc income filed by the assessee was selected for sc assessment u/s 143(3) of the Act assessment u/s 143(3) of the Act was completed. was completed. In the said scrutiny assessment, the Assessing Officer examined purchase from scrutiny assessment, the Assessing Officer examined purchase from scrutiny assessment, the Assessing Officer examined purchase from six parties in the light of information that those parties in the light of information that those parties allegedly in the light of information that those parties belonging to Bhawarlal Jain group and restricted t belonging to Bhawarlal Jain group and restricted the addition to the he addition to the extent of profit margin @ 3% on such purchases extent of profit margin @ 3% on such purchases, which was worked which was worked out to Rs.9,35,729/-. .
Nimesh Pravinchandra Mehta Nimesh Pravinchandra Mehta Subsequently, the Assessing Officer again relying on the Subsequently, the Assessing Officer again relying on the Subsequently, the Assessing Officer again relying on the same information, which was , which was received from the search proceeding in the received from the search proceeding in the case of Shri Bhawarlal Jain case of Shri Bhawarlal Jain group, recorded reasons to believe that recorded reasons to believe that income escaped assessment and issued notice u/s 148 of the Act income escaped assessment and issued notice u/s 148 of the Act income escaped assessment and issued notice u/s 148 of the Act under the old provisions as extended by the TOLA on 30.06.2021. under the old provisions as extended by the TOLA on 30.06.2021. under the old provisions as extended by the TOLA on 30.06.2021. The assessee again filed return of income in response to notice u/s n filed return of income in response to notice u/s n filed return of income in response to notice u/s 148 of the Act declaring the income of Rs.6,89,627/-. Thereafter, 148 of the Act declaring the income of Rs.6,89,627/ 148 of the Act declaring the income of Rs.6,89,627/ the Assessing Officer, the Assessing Officer, following the mechanism prescribed by the following the mechanism prescribed by the Hon’ble Supreme Court in Hon’ble Supreme Court in Union of India & Ors. v. Ashish Agarwal Union of India & Ors. v. Ashish Agarwal in Civil Appeal No. 3005/2022 dated 04.05.2022, after considering Appeal No. 3005/2022 dated 04.05.2022, after considering Appeal No. 3005/2022 dated 04.05.2022, after considering the submission of the assessee, the submission of the assessee, the AO passed an order under the AO passed an order under Section 148A(d) and issued a fresh notice under Section 148 on Section 148A(d) and issued a fresh notice under Section 148 on Section 148A(d) and issued a fresh notice under Section 148 on 17.07.2022.
2.2 Thereafter, the assessment was transferred to faceless Thereafter, the assessment was transferred to faceless Thereafter, the assessment was transferred to faceless assessment unit wherein the Assessing Officer considered the total essment unit wherein the Assessing Officer considered the total essment unit wherein the Assessing Officer considered the total amount of the purchases amounting to Rs.2,21,13,012/- as amount of the purchases amounting to Rs.2,21,13,012/ amount of the purchases amounting to Rs.2,21,13,012/ unexplained expenditure u/s 69C of the Act and total income was unexplained expenditure u/s 69C of the Act and total income was unexplained expenditure u/s 69C of the Act and total income was determined at Rs.2,28,02,639/ determined at Rs.2,28,02,639/- by way of order u/s 143(3) r.w.s. by way of order u/s 143(3) r.w.s. 147 of the Act dated 22.05.2023. the Act dated 22.05.2023.
2.3 On appeal, the Ld. CIT(A) quashed the assessment both on On appeal, the Ld. CIT(A) quashed the assessment both on On appeal, the Ld. CIT(A) quashed the assessment both on legal grounds (jurisdiction and limitation) and on (jurisdiction and limitation) and on merits merits. Aggrieved, before us the Revenue is in appeal by way of raising grounds as before us the Revenue is in appeal by way of raising grounds as before us the Revenue is in appeal by way of raising grounds as reproduced above.
We observe that while the Revenue has assailed the deletion We observe that while the Revenue has assailed the deletion We observe that while the Revenue has assailed the deletion on merits, it has not effectively rebutted the jurisdictional findings on merits, it has not effectively rebutted the jurisdictional findings on merits, it has not effectively rebutted the jurisdictional findings of the Ld. CIT(A). It is a settled canon of tax jurisprudence that if of the Ld. CIT(A). It is a settled canon of tax jurisprudence that if of the Ld. CIT(A). It is a settled canon of tax jurisprudence that if the very initiation of reassessment is legally infirm, the resulting the very initiation of reassessment is legally infirm, the very initiation of reassessment is legally infirm, assessment order is assessment order is void ab initio. As far as legal ground is s far as legal ground is concerned, the Ld. CIT(A) has rejected the said grounds observing concerned, the Ld. CIT(A) has rejected the said grounds observing concerned, the Ld. CIT(A) has rejected the said grounds observing as under:
“This case was re This case was re-opened on the basis of inputs of the opened on the basis of inputs of the Investigation Wing. Even if the contention of the Investigation Wing. Even if the contention of the appellant that the appellant that the case was re-opened on borrowed satisfaction and the judgement opened on borrowed satisfaction and the judgement opened on borrowed satisfaction and the judgement of the Hon'ble Jurisdictional High Court in the cases of Pr. CIT of the Hon'ble Jurisdictional High Court in the cases of Pr. CIT of the Hon'ble Jurisdictional High Court in the cases of Pr. CIT vsShodiman Investments 422 ITR 337 (Bom); Reynolds Shirtings vsShodiman Investments 422 ITR 337 (Bom); Reynolds Shirtings vsShodiman Investments 422 ITR 337 (Bom); Reynolds Shirtings Ltd. vs ACIT 135 taxmann.com 78 (Bom); Sociedade Ltd. vs ACIT 135 taxmann.com 78 (Bom); Sociedade de Formonto Industrial P. Ltd. vs ACIT 464 ITR 261 (Bom.) are squarely Industrial P. Ltd. vs ACIT 464 ITR 261 (Bom.) are squarely Industrial P. Ltd. vs ACIT 464 ITR 261 (Bom.) are squarely applicable to the present case is not accepted, it is an undisputed applicable to the present case is not accepted, it is an undisputed applicable to the present case is not accepted, it is an undisputed fact that there was no fresh material for re fact that there was no fresh material for re-opening of the case and opening of the case and whatever material was available was considered whatever material was available was considered whatever material was available was considered during the course of original assessment. Added to the fact was the course of original assessment. Added to the fact was the course of original assessment. Added to the fact was the procedural irregularity where notice u/s 148 was issued by the procedural irregularity where notice u/s 148 was issued by the procedural irregularity where notice u/s 148 was issued by the JAO, instead of the FAO, in view of CBDT's notification no. JAO, instead of the FAO, in view of CBDT's notification no. JAO, instead of the FAO, in view of CBDT's notification no. 18/2022 dated 29.03.2022. Also, the said notice was time barred 18/2022 dated 29.03.2022. Also, the said notice was time barred 18/2022 dated 29.03.2022. Also, the said notice was time barred in view of decision of Hon'ble Supreme Court in Union of India Vs. n view of decision of Hon'ble Supreme Court in Union of India Vs. n view of decision of Hon'ble Supreme Court in Union of India Vs. Rajeev Bansal, 2024 SCC Online SC 2693. The addition has been Rajeev Bansal, 2024 SCC Online SC 2693. The addition has been Rajeev Bansal, 2024 SCC Online SC 2693. The addition has been made for purchases without rejecting books of accounts, which, made for purchases without rejecting books of accounts, which, made for purchases without rejecting books of accounts, which, strictly speaking, leads to double addition of the same amount. strictly speaking, leads to double addition of the same amount. strictly speaking, leads to double addition of the same amount. The AO has started the computation of income from the returned he AO has started the computation of income from the returned he AO has started the computation of income from the returned income declared by the appellant, which has been arrived at after income declared by the appellant, which has been arrived at after income declared by the appellant, which has been arrived at after considering the purchases and sales reflected in the books of considering the purchases and sales reflected in the books of considering the purchases and sales reflected in the books of accounts and bank statements of the appellant. Considering the accounts and bank statements of the appellant. Considering the accounts and bank statements of the appellant. Considering the overall facts of the case, I am of the considered opinion that the rall facts of the case, I am of the considered opinion that the rall facts of the case, I am of the considered opinion that the assessment cannot survive both on law and on merits. The same assessment cannot survive both on law and on merits. The same assessment cannot survive both on law and on merits. The same is, therefore, cancelled. is, therefore, cancelled. Subject to the above discussion, the appeal is allowed. Subject to the above discussion, the appeal is allowed. Subject to the above discussion, the appeal is allowed.”
We have heard rival submissions of the parti We have heard rival submissions of the parti We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. We find that firstly . We find that firstly, the Ld. CIT(A) has allowed the appeal of the assessee on the ground that has allowed the appeal of the assessee on the ground that has allowed the appeal of the assessee on the ground that Nimesh Pravinchandra Mehta Nimesh Pravinchandra Mehta reopening was based on reopening was based on ‘borrowed satisfaction’ and ‘change of opinion’. In the case while . In the case while completing the assessment u/s 143(3) of the assessment u/s 143(3) of the Act also the Assessing Officer referred the information received the Act also the Assessing Officer referred the information received the Act also the Assessing Officer referred the information received in the case of Shri Bhawarlal Jain group and after considering the in the case of Shri Bhawarlal Jain group and after considering the in the case of Shri Bhawarlal Jain group and after considering the submission of the assessee, he restricted the submission of the assessee, he restricted the disallowance disallowance @ 3% of such purchases. Again su such purchases. Again subsequently, the Assessing Officer has bsequently, the Assessing Officer has reopened the assessment on the very same information which was reopened the assessment on the very same information which was reopened the assessment on the very same information which was already available with the Assessing Officer during the original already available with the Assessing Officer during the original already available with the Assessing Officer during the original assessment proceedings u/s 143(3) of the Act. assessment proceedings u/s 143(3) of the Act.
4.1 Thus, the record reveals that the mater he record reveals that the material relied upon for ial relied upon for reopening, information from the Investigation Wing regarding the reopening, information from the Investigation Wing regarding the reopening, information from the Investigation Wing regarding the Bhanwarlal Jain Group Bhanwarlal Jain Group, was the exact same material considered , was the exact same material considered during the original scrutiny assessment under Section 143(3). The during the original scrutiny assessment under Section 143(3). during the original scrutiny assessment under Section 143(3). Hon'ble Supreme Court in Hon'ble Supreme Court in CIT v. Kelvinator of India Ltd. (320 ITR of India Ltd. (320 ITR 561) held that "reason to believe" cannot be a "reason to suspect" or held that "reason to believe" cannot be a "reason to suspect" or held that "reason to believe" cannot be a "reason to suspect" or a mere "change of opinion." Reopening on the same set of facts a mere "change of opinion." Reopening on the same set of facts a mere "change of opinion." Reopening on the same set of facts without any fresh tangible material constitutes a prohibited change without any fresh tangible material constitutes a prohibited change without any fresh tangible material constitutes a prohibited change of opinion. We concur with the L of opinion. We concur with the Ld. CIT(A) that the AO attempted to d. CIT(A) that the AO attempted to revisit a concluded issue based on "borrowed satisfaction," which is revisit a concluded issue based on "borrowed satisfaction," which is revisit a concluded issue based on "borrowed satisfaction," which is impermissible in law. impermissible in law.
4.2 Further, the assessee challenged the assessee challenged validity of the notice issued validity of the notice issued under Section 148 on the grounds of limitation under Section 148 on the grounds of limitation. The Ld. CIT(A) . The Ld. CIT(A) noted that in view of the decision of the noted that in view of the decision of the Hon'ble Supreme Court in Hon'ble Supreme Court in Union of India v. Rajeev Bansal (supra) clarified the application of clarified the application of Union of India v. Rajeev Bansal (
Nimesh Pravinchandra Mehta Nimesh Pravinchandra Mehta the Taxation and Other Laws (Relaxation and Amendment of the Taxation and Other Laws (Relaxation and Amendment of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) to Certain Provisions) Act, 2020 (TOLA) to the new reassessment w reassessment regime, the notice dated 30.6.2021 issued dated 30.6.2021 issued u/s 148 of the Act u/s 148 of the Act ( under the old provision under the old provision) was considered to be notice u/s 148A(b nsidered to be notice u/s 148A(b) of the Act and thereafter the Assessing Officer was required to issue the Act and thereafter the Assessing Officer was required to issue the Act and thereafter the Assessing Officer was required to issue the notice u/s 148 of the Act within the su the notice u/s 148 of the Act within the survival period available as rvival period available as directed by the Hon’ble Supreme Court in the case of Ashish directed by the Hon’ble Supreme Court in the case of Ashish directed by the Hon’ble Supreme Court in the case of Ashish Agarwal (supra). . The Hon’ble Supreme Court in the case of Union The Hon’ble Supreme Court in the case of Union The Hon’ble Supreme Court in the case of Union of India v. Rajiv Bansal (2024) 167 taxmann.com 70 (SC) held that of India v. Rajiv Bansal (2024) 167 taxmann.com 70 (SC) held that of India v. Rajiv Bansal (2024) 167 taxmann.com 70 (SC) held that the notice u/s 148 of the Act could b the notice u/s 148 of the Act could be issued within the surviving e issued within the surviving period applying TOLA. It is held that if notice is issued within the period applying TOLA. It is held that if notice is issued within the period applying TOLA. It is held that if notice is issued within the surviving period then it will be valid. If it is not within surviving surviving period then it will be valid. If it is not within surviving surviving period then it will be valid. If it is not within surviving period, it will be time barred. In the case of the assessee, the Ld. period, it will be time barred. In the case of the assessee, the Ld. period, it will be time barred. In the case of the assessee, the Ld. CIT(A) has duly examined that there is no surviving period available amined that there is no surviving period available amined that there is no surviving period available in the case of the assessee and therefore, the notice u/s 148 of the in the case of the assessee and therefore, the notice u/s 148 of the in the case of the assessee and therefore, the notice u/s 148 of the Act could be issued by 06.06.2022. Act could be issued by 06.06.2022. The relevant date The relevant date-wise chart is reproduced as under: reproduced as under:
Original Notice u/s. 148 issued on 30 Original Notice u/s. 148 issued on 30-6-2021 2021 - Page No. 17 Surviving Period available to the AO Surviving Period available to the AO - 0 Days 0 Days-i.e. 30-6-2021 minus 30 minus 30-6-2021(as the notice was issued on the last (as the notice was issued on the last possible date of the extended window). possible date of the extended window). Material Provided to the assessee aterial Provided to the assessee - Fresh 148A(b) Fresh 148A(b) - Dt. 23-5-2022 2022- Page No. 22 Assessee did Assessee did not file reply to notice u/s. 148A(b) not file reply to notice u/s. 148A(b) Two weeks from date of notice u/s. 148A(b) Two weeks from date of notice u/s. 148A(b)-6-6-2022 Two weeks from date of notice u/s. 148A(b)
The clock starts ticking from 6 The clock starts ticking from 6-6-2022 - The AO could The AO could have issued 148 Notice within surviving period from 6-6- have issued 148 Notice within surviving period from 6 have issued 148 Notice within surviving period from 6 2022 i.e. 0 Days = 6th June, 2022 2022 i.e. 0 Days = 6th June, 2022 Notice u/s. 148 issue Notice u/s. 148 issued on 17-7-2022 - Beyond Surviving Beyond Surviving Period Page No. 27 & 28 Period Page No. 27 & 28 Hence the notice issued is Time barred Hence the notice issued is Time barred 4.3 As the "clock started ticking" on 06.06.2022 and the AO had 0 As the "clock started ticking" on 06.06.2022 and the AO had 0 As the "clock started ticking" on 06.06.2022 and the AO had 0 days of surviving period, the notice under Section 148 ought to days of surviving period, the notice under Section 148 ought to days of surviving period, the notice under Section 148 ought to have been issued by 06.06.202 have been issued by 06.06.2022. The notice issued on 17.07.2022 2. The notice issued on 17.07.2022 is clearly time-barred barred. We find no infirmity in the Ld. CIT(A)’s . We find no infirmity in the Ld. CIT(A)’s finding that the notice failed the test of limitation prescribed by the finding that the notice failed the test of limitation prescribed by the finding that the notice failed the test of limitation prescribed by the Apex Court.
4.4 Further, the Ld. CIT(A) has also Further, the Ld. CIT(A) has also examined validity of examined validity of reassessment proceedings on the ground that notice u/s 148 of the reassessment proceedings on the ground that notice u/s 148 of the reassessment proceedings on the ground that notice u/s 148 of the Act was issued by the jurisdictional Assessing Officer (JAO) instead Act was issued by the jurisdictional Assessing Officer Act was issued by the jurisdictional Assessing Officer of Faceless Assessing Officer of Faceless Assessing Officer(FAO) under the provisions of faceless under the provisions of faceless assessment procedure assessment procedure, which is invalid relying on th which is invalid relying on the decision of the Hon’ble Bombay High Court in th the Hon’ble Bombay High Court in the case of Hexaware e case of Hexaware Technologies (supra). . Since we have already held the held the reassessment proceedings as invalid as invalid on the ground of ‘change of opinion change of opinion’ and ‘limitation for issue of notice for issue of notice, we are not adjudicating t , we are not adjudicating the ground challenging the notice issued by the Jurisdictional Assessing challenging the notice issued by the Jurisdictional Assessing challenging the notice issued by the Jurisdictional Assessing Officer.
4.5 Since the reassessment proceedings are invalidated on the Since the reassessment proceedings are invalidated on the Since the reassessment proceedings are invalidated on the threshold grounds of threshold grounds of "Change of Opinion" and and "Statutory
Nimesh Pravinchandra Mehta Nimesh Pravinchandra Mehta Limitation," the grounds raised by the Revenue concerning the the grounds raised by the Revenue concerning the the grounds raised by the Revenue concerning the other legal ground and merits of the addition (bogus purchases vs. other legal ground and merits of the addition (bogus purchases vs. other legal ground and merits of the addition (bogus purchases vs. profit estimation) are rendered purely profit estimation) are rendered purely academic. It is a fundamental . It is a fundamental principle that when the root is removed, the branches fall. Having principle that when the root is removed, the branches fall. Having principle that when the root is removed, the branches fall. Having upheld the quashing of the assessment order on jurisdictional eld the quashing of the assessment order on jurisdictional eld the quashing of the assessment order on jurisdictional grounds, we decline to adjudicate on the merits of the addition and grounds, we decline to adjudicate on the merits of the addition grounds, we decline to adjudicate on the merits of the addition left open.
In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.