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Facts
The assessee, L.K. Exports, engaged in the business of cut and polished diamonds, filed its return for AY 2013-14 declaring an income of Rs.18,99,200/-. Information was received regarding alleged bogus purchases made by the assessee, leading to a scrutiny assessment. An addition of Rs.11,12,857/- was made by estimating a 5% profit margin on these alleged bogus purchases.
Held
The Tribunal held that the impugned notice issued under Section 148 of the Act for reassessment was bad in law. The notice was issued by the JAO and not the Faceless Assessment Officer as required, and it lacked a Document Identification Number (DIN). Furthermore, the reassessment was based on a change of opinion without any new material, as the issue of bogus purchases had already been examined and partially added in the original assessment.
Key Issues
Whether the reassessment notice issued by the JAO without DIN and based on a change of opinion is legally sustainable.
Sections Cited
Section 147, Section 144, Section 144B, Section 143(3), Section 148, Section 151
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: JUSTICE (RETD.) C.V. BHADANG & SHRI B.R. BASKARAN
PER JUSTICE (RETD.) C.V. BHADANG, PRESIDENT :
By this appeal, the appellant-assessee is challenging the order dated 15.05.2024 passed by the learned Commissioner of Income Tax (Appeals), NFAC, Delhi (‘CIT(A)’ in short) thereby confirming the addition of Rs.2,11,44,280/- made by the Assessing Officer, vide assessment order dated 29.05.2023 passed under Section 147 r.w.s 144 and section 144B of the Income Tax Act, 1961 (‘Act’ for short). The appeal relates to Assessment Year 2013-14.
L.K. Exports 2. The brief facts are that the assessee is a firm engaged in the business of cut and polished diamonds. The assessee filed its Return of Income (RoI) for the year under consideration on 28.09.2013 declaring a total income of Rs.18,99,200/-. The return was processed under Section 143(1) of the Act. It appears that subsequently an information was received from the Director Income Tax (Inv.)-II, Mumbai, which according to the Assessing Officer has disclosed alleged bogus purchases made by the assessee through certain concerns of one Shri Bhawarlal Jain, which were only in the nature of accommodation entries. The case of the assessee was accordingly taken up for scrutiny. The Assessing Officer by assessment order dated 11.03.2016 made an addition of Rs.11,12,857/- by estimating the profit margin of 5%. The addition made accordingly represents 5% of Rs. 2,22,57,137/-.
Subsequently, the Jurisdictional Assessing Officer, Mumbai (JAO) found that in this case 100% of bogus purchases of Rs.2,22,57,137/- made by the assessee was required to be added to the taxable income and, therefore, proposed to add the remaining 95% (after making an allowance for 5% of the amount added vide order dated 11.03.2016), which comes to Rs.2,11,44,280/-. The record discloses that the Assessing Officer recorded reasons for his satisfaction and obtained the approval of Principal Commissioner of Income Tax, Mumbai under Section 151 of the Act. Accordingly, the Assessing Officer issued notice under Section 148 of the Act on 26.07.2022. After the necessary statutory formalities, the Assessing Officer by impugned order dated 29.05.2023 passed under Section 147 r.w.s 144 and section 144B of the Act has made addition of Rs.2,11,44,280/- which has been confirmed by the learned CIT(A).
It is submitted by the learned AR that the impugned notice dated 26.07.2022 issued under Section 148 of the Act and the consequent re- opening/reassessment is bad in law for various reasons. Firstly, it is submitted that the impugned notice has been issued by the JAO and not by the Faceless Assessment Officer (FAO) as required by the ‘e-assessment of Income Escaping Assessment Scheme, 2022’ (‘2022 Scheme’ for short) notified by the CBDT vide notification dated 29.03.2022. Secondly, it is submitted that the notice does not bear any Document Identification Number (DIN) which is violative of CBDT Circular dated 14.8.2019. Thirdly, it is submitted that the issue of alleged bogus purchases was already examined by the Assessing Officer in the assessment order dated 11.03.2016 under Section 143(3) of the Act whereunder an addition of 5% of the amount of alleged bogus purchases was made. It is submitted that in the absence of any additional/new material, the Assessing Officer could not have made further addition of the balance 95%, which clearly tantamounts to reassessment made merely on change of opinion and without any tangible material. It is submitted that the impugned re- opening is beyond the period of four years and there was no failure on the part of assessee to disclose fully and truly any material facts which alone can be a ground for any such re-opening. It is submitted that even otherwise, the impugned addition cannot be sustained on merits as already the Assessing Officer had taken a view to add 5% of the amount by way of estimated Gross Profit (GP). The learned AR has placed reliance on the
The learned DR has supported the impugned order. It is submitted that there was an Audit report/objection which required addition of 100% of the amount of bogus purchases to be made. It is submitted that the addition could not have been restricted to 5% and, therefore, the addition of balance 95% is legal and proper as there was material to show that the assessee had dealt with two entities, viz. M/s. Daksh Diamonds and M/s. Jewel Diam, which were part of the syndicate operated by Shri Bhawarlal Jain along with others and which entities were engaged in the business of issuing bogus purchase bills and unsecured loans as accommodation entries to various interested parties.
We have carefully considered the circumstances and the submissions made and we find that the appeal has to succeed on the ground of challenge to the legality of the impugned notice and the consequent re- opening/reassessment. It is a matter of record and otherwise not in dispute that the impugned notice was issued by the JAO and not by the FAO. A perusal of the notice dated 26.07.2022 also shows that it does not have any DIN. We also notice that the matter about alleged bogus purchases was already examined by the Assessing Officer and vide assessment order dated 11.03.2016 the Assessing Officer had thought it fit to restrict the addition to 5% of the total amount of alleged bogus purchases. Thereafter, the information and satisfaction recorded by the Assessing Officer to make addition of balance 95%, in our view, would be clearly based on a mere change of opinion. It is necessary to note that the assessment of income L.K. Exports and consequent taxability is within the powers of the Assessing Officer and is regulated by the statutory provisions. The necessary condition precedent about satisfaction of the Assessing Officer and requirement of Assessing Officer having reason to believe that a certain income has escaped assessment is the sine qua non for sustaining any re-opening, which powers cannot be relegated or abdicated to any other authority.
At one stage, it was submitted by the learned DR that the issue about effect of absence of DIN is presently sub judice before the Hon’ble Supreme Court in Commissioner of Income Tax vs Brandix Mauritius Holdings Ltd. [2024] 158 taxmann.com 247 (SC) in which the judgment of Hon’ble Delhi High Court has been stayed. It was, therefore, submitted that the ground about absence of DIN may not be available to the assessee.
We find that even assuming for the sake of argument that the said ground is not available, the impugned notice and the consequent re- opening, in our view, is not sustainable on the ground that the impugned notice was issued by the JAO and the same being based on a change of opinion. The jurisdictional Bombay High Court in Hexaware Technologies Ltd. (supra) has held that the impugned notice issued by the JAO is not sustainable. It is now well settled that the re-opening cannot be made on mere change of opinion. At any rate, there is no circumstance to indicate, and it is nobody’s case, that there was any failure on the part of assessee to disclose fully and truly any material particulars which has led to any such income escaping assessment. Thus, the impugned notice and the re- opening, in our view, cannot be sustained for more reasons than one as set
Order pronounced in the open court on 21st August, 2024.