M/S. SILVEX & COMPANY INDIA LTD.,JAIPUR vs. ITO WARD-7(4), JAIPUR

आयकरअपीलीय अधिकरण] जयपुरन्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR MkWa- ,l-lhrky{eh] U;kf;dlnL; ,oa Jh jkBksMdeys'kt;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;djvihy la-@ITA. No. 834/JP/2019 fu/kZkj.ko"kZ@AssessmentYears :2012-13 M/s Silvex & Company (India) cuke Income Tax Officer, Vs. Ltd., Ward-7(4), G1-35 to 37, 47 & 48 EPIP, Jaipur. Jewellery Zone, Sitapura Industrial Area, Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCS 4492 C vihykFkhZ@Appellant izR;FkhZ@Respondent vk;djvihy la-@ITA. No. 845/JP/2019 fu/kZkj.ko"kZ@AssessmentYears :2012-13 Income Tax Officer, cuke M/s Silvex & Company (India) Ltd., Ward-7(2), Vs. G1-35 to 37, 47 & 48 EPIP, Jaipur. Jewellery Zone, Sitapura Industrial Area, Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCS 4492 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assesseeby : Shri Manish Agarwal(C.A.) jktLo dh vksj ls@Revenue by : Shri P.R. Meena (CIT) a lquokbZ dh rkjh[k@Date of Hearing 14/09/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 28/10/2022 vkns'k@ORDER

2 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. PER: DR. S. SEETHALAKSHMI, J.M.

These cross appeals are directed against the order dated 12.03.2019 of the learned Commissioner of Income Tax (Appeals), Alwar [hereinafter referred to as (CIT(A)], for the assessment year 2012-13. 2. At the outset of hearing, the Bench observed that there is delay of 16 days in filing the appeal by the assessee for which the ld. AR of the assessee filed an application dated 12.08.2019 for condonation of delay with following prayers.

“In the aforesaid context, it is humbly submitted that, the assessee is filing an appeal before your honours, against the order dated 25.02.2019 passed by Ld. CIT(A)- Alwaru/s 250 of the I. T. Act, 1961. Such order passed by Ld.CIT(A) was received by the appellant on 22.03.2019 , thus the appeal against the said order was supposed to have been filed by 20.05.2019, however, the appeal got delayed by l6 days, for the reasons as explained below: 1. That, the impugned appellate order of Ld. CIT(A)-Alwarwas delivered at the office of assessee after the office hours (when office was closed), wh6n there was no one to receive the same. Next day, the same was discovered by an office staff, who did not realize its importance and kept it with other papers and forgot to inform the management about the same and the same got dumped with passage of time. 2. That the impugned order of Ld.CIT(A)- Alwar was brought to the notice of assessee, only after the due date of filing of appeal had already expired.

3 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. 3. Thereafter, the order was immediately forwarded to the counsel of the assessee for necessary action.

In the circumstances of the matter it is humbly prayed to the Hon’ble Bench to please direct the condonation of delay which is merely of 16 days and to be kind enough to direct the listing of the appeal for disposal on the merits.

Your kindness would go a long way to depart effective justice to the ignorant litigants.”

4 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd.

5 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. purchases from three parties on the basis of statement recorded of third party) arbitrarily, it is therefore prayed addition so sustained deserves to be deleted. 2.2 That the Ld. CIT(A) has further erred in confirming the trading addition of Rs.90,87,083/- by applying the GP rate of 6.71% (i.e. average GP of 3 years prior to the A.Y. under consideration) when while passing order in appeal filed against assessment u/s 143(3), trading addition was made by applying GP rate of 5.57% (i.e. average GP rate of 3 years including A Y under consideration). It is therefore submitted that addition so made over and above 5.57% deserves to be deleted. 3. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal”

6 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. beneficiary in terms of bogus purchase entries taken from entry provider? 6. The appellant craves leave to add, alter, amend, withdraw or insert any ground on grounds of appeal before or at the time of hearing of the appeal.”

7 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. 9. Later on, based on certain information stated to have been received during the search operation carried out in the case of Praveen Jain &Bhanwar Jain group, Mumbai by the DIT(Inv.), wherein it was found out that the concerns of the above group were involved in providing accommodation entries of bogus unsecured loans and advances, bogus sales, share capital, etc., and from the documents searched/ seized, it is alleged that assessee is one of the beneficiaries. Based on this information the ld. AO recorded reasons to believe that, certain income had escaped tax, and accordingly initiated the reassessment proceedings by issue of notice u/s 148 on 21.3.2015 and passed the reassessment order by increasing the assessed income with the entire amount of purchases of Rs. 6,26,90,257/- alleged to have been made from the group concerns of Sh. Praveen &Bhawarlal Jain, as was extracted by the DDIT(Inv). Against the re-assessment order so passed, assessee preferred appeal before ld. CIT(A), who though deleted the additions made u/s 69 however has uphold the addition of Rs. 90,87,083/- by applying the GP rate at 6.71% by ignoring the fact that the GP rate of 5.57% as against the declared GP rate of 4.97% declared by the assessee, has already been applied and confirmed on the trading results by the CIT(A) in the original assessment proceedings concluded u/s 143(3) and are separately challenged before the hon’ble bench in ITA No. 901/JP/2018. In respect of disallowance sustained by ld. CIT(A),

8 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. assessee has preferred present appeal, whereas department has preferred appeal in respect of relief allowed by ld.CIT(A). 10. The AO assessed the finding that theassessee is indulged in bogus purchasing from M/s Atharv Business Pvt. Ltd, of Rs. 2,13,72,050/-, M/s Casper Enterprises Pvt. Ltd. of Rs. 2,83,18,907/- and from M/s Olive Overseas Pvt. Ltd, of Rs. 1,30,00,000/-, and not maintaining quality wise and quantity wise details of stocks, therefore, the closing stock declared is not subject to verification and the books of accounts of the assessee are not reliable. In view of these fact, after invoking the provisions of section 145(3) and looking to the fact and circumstances of the case the entire amount of bogus purchases of Rs. 6,26,90,957/- made with M/s Atharv Business Pvt. Ltd, of Rs. 2,13,72,050/-, M/s Casper Enterprises Pvt. Ltd. of Rs. 2,83,18,907/- and from M/s Olive Overseas Pvt. Ltd, of Rs. 1,30,00,000/- are hereby added to the total income of the assessee treating the same as undisclosed income of the assessee. As the assessee has furnished inaccurate particulars and has also concealed particulars of income as above, penalty proceedings u/s 271(1)(c) r.w.s. 274 are being initiated separately. 11. Being aggrieved by the AO the assessee preferred an appeal before the ld. CIT(A) and the findings are reproduced as under:-

9 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. “ Taking an over view of the sequence of events, information and evidences before the A.O, there is no doubt that the information/evidences in the possession of the A.O. was credible enough. As is pronounced by the Apex court in the case of Assistant CIT Vs. Rajesh Jhavery Stock Broker Pvt. ltd. and jurisdictional Delhi High Courth judgment in the case of Commissioner of Income Tax Versus nova Promoters &Finlease (P) Ltd as cited above, the legal position is that at the stage of issuing the notice under section 148 the merits of the matter are not relevant and the Assessing Officer at that stage is required to only a prima facie belief or opinion that income chargeable to tax at escaped assessment. In the present case, the prima facie information/evidences in possession of the A.O. is credible enough to form the reason to believe. Therefore, the A.O. has rightly issued the notice under Section 148 of the Act. 2. Whether the A.O. has applied his independent mind on the evidences in his possession or not? The reasons recorded by the AO before issuing notice under section 147/148 of the Act clearly establishes that the AO has indeed gone into the factual matrix of the information and evidences before issuing notice u/s 148 of the Act. 3. whether the AO has followed the due process of law in re-opening of the case under Section 147 of the Act? The AO after taking into account the factual matrix of the case on the basis of information and evidences in his possession and he has issued & served notice under section 148 of the Act after taking due approval from the competent authority. Therefore, I find no infirmity in the procedural aspect of the reassessment proceedings. The AO has followed due process of law. In

10 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. view of the foregone, the appellant’s grounds of appeal on this issue is dismissed. ……..

Thus, in view of the above judicial pronouncements, after rejection of books of accounts, the past history of the appellant has to be seen, for estimating the profit of the appellant. During the appellate proceedings, the appellant was required to submit its trading results for the last few years, which were submitted and reproduced as under:

Asstt Year Turnover Gross Profit GP 2011-12 60,73,67,651/- 3,50,49,060/- 5.77% 2010-11 55, 57, 84,715 /- 3 , 29,05 ,716/- 5 . 92% 2009-10 50,87,64, 622/- 4,29,89, 399/- 8.45%

It may be mentioned that in the case of CIT Vs Vaibhav Gems Ltd. [2014] 112 DTR 84 (Raj), it has been held by the Hon'ble High Court of Rajasthan that while the past history becomes the relevant basis but if the AO wishes to tinker with the basis of past records, then some flaw has to be found by the AO in making some addition and, in the instant case under consideration, the purchases to the tune of Rs.6,26,90,957/- (Rs.1,86,25,286/- purchased from M/s Athary Business Pvt. Ltd, M/s Casper Enterprises Pvt. Ltd. and M/s Olive Overseas Pvt. Ltd and was found to be unverifiable. As purchases to the extent of Rs.6,26,90,957/- were not verifiable and alleged to have been procured through accommodation entry providers which definitely results in higher GP rate. The higher gross profit will also take into account of the irregularities committed by the appellant in obtaining accommodation entries. The gross profit of 4.97% was declared by the assessee in his regular return of income which was enhanced to 5.57% in the regular

11 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. assessment made u/s 143(3) of the Act. This turnover was sustained by the ld. CIT(A) also. Now for the current appeal as is discussed in the foregone paras, the average Turnover for the last 3 years prior to the A.Y under appeal, the G.P rate comes to 6.71%. The fact that there was defect in reporting purchases from parties who are in the business of providing accommodation entries, needs to be factorize in estimating the book results. Therefore, in view of the totality of facts, component of unverifiable purchase in total purchase and circumstances of the case, in my considered opinion, it would be appropriate to estimate the GP at the rate of 6.71%, which would result in gross profit of Rs.5,34,86,249/-against gross profit of Rs. 3,96,69,455/- shown by the appellant in regular return of income, thereby resulting in trading addition of Rs.1,38,16,794/-. As in the regular assessment the A.O has already enhanced the turnover to Rs. 4,43,99,166/-. Therefore, the further addition of Rs. 90,87,083/- is sustained. Hence, the addition made by the A.O is restricted to Rs. 90,87,083/-. Accordingly, appellant's ground of appeal on the issue is partly allowed.” 12. The ld. AR for assessee submitted a detailed written submissions which are as under:-

“ Assessee’s Grounds of Appeal No.1 to 1.2: In ground of appeal no. 1& 1.1, assessee has challenged action of Ld. CIT(A) in confirming the reopening of assessment by ld. AO solely on the basis of information received from investigation wing and without conducting proper and independent inquiries in the matter so as to reach subjective satisfaction as to the escapement of income and thus merely relying upon the borrowed

12 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. satisfaction of some other authorities in other some case which is not permissible in law. In ground of appeal no.1.2, assessee has challenged the action of Ld. CIT(A) in confirming reopening of completed assessment u/s 143(3) which stood completed after making necessary enquiries in particular related to the purchases and provisions of section 145(3) were invoked and income was estimated. At the outset, it is humbly submitted, that originally the assessment was completed u/s 143(3) by invoking the provisions of sec. 145(3) of the Act, for the reasons that no day to day stock register of consumption and production was produced before the AO, and that certain expenses were claimed on the basis of self-made vouchers. After invoking the provisions of sec 145(3), the trading addition of Rs. 67,43,688/- was made by applying a GP rate of 5.77% as against 4.97% declared by the assessee on the total turnover of Rs. 79,71,12,509/- shown by the assessee. The notice u/s 148, seems to have been issued only for the purpose of and based on the information received by the DIT(Inv.) Mumbai, for the reason that, the name of the assessee was appearing in the client list of the Praveen &BhanwarJain group concerns. The ld. AO, without applying his own mind, on the basis of information so received from the Inv. Wing, issued notice u/s 148. The only reason for reopening the case was the statement of a third person, made in his individual capacity, as regards the general modus operandi adopted by him for his illegal activities. On perusal of the extracts of the statement of Shri Praveen Jain, produced by the Assessing Officer in the assessment order, it is crystal clear, that he nowhere has mentioned the name of the assessee in the entire statement nor any further material was found as a result of search to the department for concluding that the assessee has taken accommodation entry form them. Thus, reopening the case without independent application of mind, solely on the basis of so-called information

13 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. received about the activities of a third person does not result in escapement of income, in the case of the assessee. And the action of reopening the case of the assessee, based on the above information, by the Assessing Officer, without applying his mind, renders the action of reopening void ab initio. As submitted above, the assessment for the year under appeal was concluded u/s 143(3), where provisions of sec 145(3) were invoked and GP rate was estimated, thus, even factually and on merits, the alleged unverifiable purchases stood merged in the income already estimated by applying GP rate. And thus, re- opening of the completed assessment, for verification of purchases recorded in the same books of accounts, which stood rejected is further fortified the fact that assessment was reopened in mechanical manner without independent application of mind, and therefore in consequent proceedings u/s 148 are unwarranted and the additions thus made deserves to be deleted. From a perusal of the assessment order, it is clear that assessment was reopened merely on the basis of the information gathered from Investigation Wing and without arriving at the objective conclusion drawn after examining the so- called information / evidences gathered, the belief has been formed on the basis of the conclusion drawn by the Investigation Wing, Thus the Ld. AO ought to have considered the issue objectively and not on the so called information received from some other official, therefore, the action of the ld. AO in reopening the completed assessment without independent application of mind deserves to be held bad in law. The Hon’ble Gujrat High Court in the case of Seth Brothers Vs. CIT reported in 169 CTR 519 has laid down following principles for the re-opening of the assessment u/s 148 of the Income Tax Act, 1961: (Reproduced in 28 TW 57,79). “11 (a) There must be material for belief

14 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. (b) Circumstances must exist and cannot be deemed to exist for arriving at an opinion. (c) Reason to believe must be honest and not based on suspicion, gossip, rummour or conjuncture. (d) Reasons referred must disclose the process of reasoning by which he holds ‘reasons to believe’ and change of opinion does not confer jurisdiction to reassess. (e) There must be nexus between material and belief. (f) The reasons referred must show application of mind by the assessing officer. The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the officer at the point of time of issue of notice u/s 148 and cannot be sought to be substantiated by reference to material that may have come to light subsequently in the course of reassessment proceedings. In the light of what is stated above, we hold that there was no material with the AO for having reasons to believe that the income as chargeable to tax, has escaped assessment. We are unable to hold that the jurisdiction assumed u/s 147/148 was legal and valid.” During the course of assessment proceedings also Ld. AO has failed to bring on record any corroborative evidence except the so called information gathered from the Investigation Wing, for supporting the allegation that the assessee had made alleged bogus purchases from the companies i.e. M/s Atharv Business (P) Ltd., M/s Casper Enterprises (P) Ltd., and M/s Olive Overseas Trading Pvt. Ltd., without making proper enquiries during the course of assessment proceedings and merely / solely relying upon the so-called information

15 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. provided by the Investigation Wing. It is pertinent to mention here that it was presumed that the assessee had taken accommodation entry from the said companies, based only on the information gathered from the Investigation wing. The said order has been passed in an ex parte in summary manner. Thus, the order of Ld. AO is clearly based on assumptions and presumptions which has been passed without providing adequate opportunity of hearing to the assessee and thus is clearly violate the principles of natural justice therefore, deserves to be hold bad in law and be quashed. It is further submitted that the validity of initiation of reassessment proceedings has to be judged with regard to the material available with the assessing officer and that too by forming the opinion strictly based on the documents and information in possession, that certain income has escaped assessment and not in a mechanical manner as has been done in the case in hand. The re-opening of the case based on the borrowed satisfaction and in a mechanical manner on the information provided by some other official without in any manner recording his own independent satisfaction deserves to be hold illegal. In this regard reliance is placed on the decision of Hon’ble Delhi High court in case of Sarthak Securities Co. Pvt. Ltd. Vs. ITO reported in 329 ITR 110 wherein it has been held as under: Reassessment – Notice – Condition precedent – Formation of belief that income escaped assessment – Assessing Officer treating share application money as bogus accommodation entries – Payments through banking channel and companies investing money genuine – No independent application of mind by Assessing Officer but acting under information from investigation wing – Notice to be quashed – Income Tax Act, 1961, ss. 147, 148.

16 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. It is also a matter of fact that no search has been conducted in the case of assessee and the documents under reference are not found and seized from the possession of the assessee thus the presumption available u/s 132(4) cannot be applied against the assessee, as has been done summarily by the Ld. AO. It is further submitted that during the course of assessment proceedings u/s 143(3), after proper verification of the books of account and other records the assessment was completed and provisions of section 145(3) were invoked and GP rate was applied meaning thereby that all the items of the trading account including “Purchases” stood merged in that estimation of income and any further action u/s 148 alleging one of the item of that trading account i.e. “Purchases” is mere change of opinion which cannot be permitted under the eyes of law. In other words, no new material was brought on record for reopening the case, rather merely relying upon the information from investigation wing, Mumbai that too on the basis of search conducted in case of a third party reopening of completed assessment was made. Thus, reopening amounts to mere change of opinion. The hon’ble Jaipur bench of ITAT recently under the similar circumstances in following cases has quashed the notice issued u/s 148 of the Act where purchases have been considered and trading additions were made 1. M/s Dwarka Gems Ltd. in ITA No. 71/JP/2017 vide orders dt. 27/3/2018, 2. Nirmala Agarwal Vs. ACIT in ITA Nos. 995 & 996/JP/2016 vide orders dt. 11.04.2018, (APB 51-57) 34 DTR 49 CIT Vs. Kelvinator of India Ltd. (SC) Reassessment – Reason to believe – Change of opinion – After 1st April, 1989, power to reopen is much wider – However, mere “change of opinion” cannot per se be reason to reopen – AO has power to reassess but no power to review

17 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. – If the concept of “change of opinion” is removed, as contended on behalf of the Department review would take place in the grab of reopening of assessment – Concept of “change of opinion” is an in-built test to check abuse of power by the AO – Hence, after 1st April, 1989 AO has power to reopen the assessment under section 147 provided there is tangible material to come to the conclusion that there is escapement of income from assessment reasons must have a live link with the formation of the belief. Jai Hotels Co. Limited Vs. Asst. DIT, (2009) 24 DTR 37 (Del): The Delhi High Court has held that there being no new material in the hands of the Revenue leading to view that there was reason to believe that income had escaped assessment, the case is a classic instance of a change of opinion. The High Court further observed that when copies of statement of income, trading account, profit and loss account, audit report etc., were appended to the return filed by the assessee, taking resort to Section 147/148 was unwarranted as it constituted a change of opinion, since the material acted upon had been made available along with return of income. Commissioner of Income Tax Vs. Eicher Limited, (2007) 294 ITR 310 (Del) The High Court has taken a view that since the facts and materials were before the Assessing Officer at the time of framing of the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounted to a change of opinion, which would not form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee. The Honorable High Court further observed that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself

18 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. would not give him a ground to conclude that income had escaped assessment and, therefore, the assessment needed to be reopened. The assessee had no control over the way an assessment order is drafted. In the circumstances it is submitted that since no independent application on mind was applied by Ld. AO while issuing notice u/s 148 and he simply proceeded on borrowed satisfaction reached by some other officials on the basis of statements recorded in the case of third party, the same has no evidentiary value, therefore, the entire proceedings initiated u/s 148 deserves to be hold bad in law. It is thus submitted that once books were rejected by invoking provisions of section 145(3) and trading addition was made u/s 143(3) by applying higher GP rate, the re-opening of the assessment by alleging some of the parties as unverifiable, is nothing but reconsideration of the accepted facts and tantamount to change of opinion on the same facts. Assessee’s Grounds of Appeal No.2 to.2.2 and departmental Grounds of Appeal These grounds of appeal are in relation to the addition of Rs. 6,26,90,257/- made by ld.AO on account of alleged bogus purchases, without any independent enquiry, and also without considering the fact that, the assessment u/s 143(3) has been made, by applying a higher GP rate on the declared sales of the assessee. On appeal, ld. CIT(A) though deleted the additions made u/s 69 however has uphold the addition of Rs. 90,87,083/- by applying the GP rate at 6.71% which has been challenged by assessee in present appeal, whereas department has filed appeal in respect of relief allowed by ld.CIT(A).

At the outset, it is submitted that, ld.AO disallowed following purchases on the allegation that such purchases are merely entries:

19 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. Sr. No. Name of Supplier Amount

Total 6,26,90,957

In this regard, at the outset it is submitted that the search in the case of alleged Praveen Jain &Bhanwar Lal Jain group, was conducted on October, 2013, whereas captioned purchase bills pertain to F. Y. 2011-12 and thus in the absence of any specific corroborative material being brought on record, it is cannot be presumed that the purchases made by assessee is bogus. It is submitted that not a single document has been provided to the assessee which proves that assessee is beneficiary of accommodation entries provided by said group. In fact, opportunity of cross examination has also not been provided to the assessee before making such a huge addition. In fact, in the statements of Sh. Praveen Jain as reproduced in the Assessment order, name of assessee is nowhere mentioned as beneficiary. Basically, statements provide a general modus operandi of the group and no liability can be fastened upon assessee on the basis of statements of a person, whom assessee does not even know. In the scenario, addition made by ld.AO is purely on conjectures and surmises and therefore, deserves to be deleted. Further as submitted above, the original assessment was framed by invoking the provisions of sec 145(3) and higher GP rate of 5.57% was applied on the turnover of Rs.79,71,12,509/- declared by the assessee. Thus, when the sales of the assessee were accepted, there cannot be any reason to doubt the purchases, as no sale could be affected in absence of purchases. By applying a GP Rate on the declared sales, the total purchases

20 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. declared and forming part of the same set of books of accounts (including the purchases made from the alleged unverifiable parties), have also been considered in the original assessment. Hence, where the assessment has been completed by applying a GP Rate on the turnover after rejecting the books of accounts maintained in the regular course, further addition for bogus purchases could not be made. As submitted above, in the year under consideration, the books of accounts of appellant were rejected by Ld. AO and provisions of section 145(3) of the Act were invoked and trading addition was made by applying the GP rate in the original assessment completed u/s 143(3). Thereafter in reassessment order i.e. the impugned order, the Ld. AO again made the addition towards certain purchases recorded in the rejected books of accounts. In other words, the purchases and other expenses stood considered when a certain GP rate was applied on gross turnover, which in view of Ld. AO was reasonable. In normal circumstances, when there is no objection with respect to books of accounts, net profit is first determined as per profit & loss a/c and subsequently adjustments are made in accordance with provisions of Income Tax Act to arrive at profits under the head “Profits and Gains of business or Profession”. However, in a case where the books results declared by appellant are rejected and income is estimated by applying GP rate, no further and separate addition should be made out of the expenses claimed u/s 29 to 43 of the Act. In support of our above contention, reliance is placed on : CIT vs Banwari Lal Banshidhar (1997) 19 DTR 305 (Allahbad High Court) wherein it has been held by Hon’ble Court that “…….when the income of the assessee was computed applying the gross profit rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of Section 40A(3) and Rule 6DD(j). No disallowance

21 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. could have been made in view of provisions of Section 40A(3) read with Rule 6DD(j) as no deduction was allowed to and claimed by assessee in respect of purchases. When the gross profit rate is applied, that would take care of everything and there was no need for the Assessing officer to make scrutiny of the amount incurred on the purchases by the assessee.” Indwell Constructions v. CIT 232 ITR 0776-[1998] Income -- Additions to income -- Income estimated--All deductions under section 29 deemed to have been taken into account while making estimate including disallowance under section 40--Rejection of books of account-- Revenue cannot rely on same books for disallowance and addition of specific items of expenditure--Assessee firm doing contract business--Books rejected and income estimated--Separate addition made of interest and remuneration paid to partners to income already estimated and assessed from contracts--Not justified--Income-tax Act, 1961, Ss. 29, 40(b), 145. ITO vs Nardev Kumar Gupta (2013) 22 ITR (Trib.) 273 Jaipur ITAT wherein after relying upon a number of judicial pronouncements, it has been held by Hon’ble Bench that once book results are rejected and ad hoc addition has been made applying G P rate , no separate addition u/s 40A(3) can be made by making disallowance over and above ad hoc addition. 36 DTR 220 Teja Constructions Vs. Asstt. CIT (Hyd. ‘A’) Disallowance under s. 40(a)(ia) – Rejection of books vis-à-vis amount paid without TDS – Once estimation of income is made, further disallowance under section 40(a)(ia) for non-deduction of TDS is not warranted – That apart, if the assessee has paid the impugned amount and the amount is not payable at the end of the year on the date of balance sheet, then the provisions of section 40(a)(ia) are not applicable.

22 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. It is pertinent to note here that the Hon,ble ITAT, Jaipur Bench, Jaipur in case of Suresh Kumar Tak Vs. DCIT in ITA Nos. 317-320/JP/2013 in identical circumstances, has held as under: 6. Heard parties with reference to material on record and the case laws brought to our notice. Admittedly, the correct profits could not be deduced from the books of accounts maintained by the assessee requiring rejection of books of accounts by application of provisions of section 145(3) of the Act. The Assessing Officer justifiably rejected the accounts and estimated income in all the four years under consideration to the best of his judgment. When such an estimate is made, it is in substitution of the income that is to be computed u/s 29 of the Act. In other words, all the deductions, which are referred to u/s 29 of the Act are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 of the Act is also taken into account. Such a view has been entertained by the Hon’ble Andhra Pradesh High Court in the case of Indwell Constructions V/s. CIT Supra). The view entertained by the Hon’ble Allahabad High Court in the case BanwarilalBansidhar (Supra) also operates in the same field. This being the position in law, the embargo placed in section 40(a)(ia) is deemed to have been taken into account by the Assessing Officer, while he completed the assessment on estimate basis. No separate disallowance of expenses by application of section 40(a)(ia) of the Act was called for in all the years under appeal. The Ld. CIT (A) has thus erred in sustaining the disallowance, which we hereby direct to delete and allow the grounds raised in all the four appeals by the assessee in that regard. Above view is also taken by this Hon’ble bench in the case of Laxmi Narayan Tak in ITA Nos. 262 & 263/JP/2012 vide order dated 23.04.2012.

23 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. Singhal Builders Contractor v. Addl. CIT [2011] 12 Taxman.com 199 (Jp. ITAT)

Where Assessing Officer after rejecting assessee's books of account, applies gross profit rate or net profit rate, no further disallowance can be made under section 40A(3) – [Section 145, Read with section 40A(3), of the Income-Tax Act, 1961 – Method of accountings – estimation of income] [Assessment year 2005-06] [In favour of assessee).

Ld. CIT(A) has filed to appreciate the above proposition of law and not even stated that how can the further addition on account of trading activity could be made once the same trading results stood rejected by the department and already a GP rate is applied thus all the defects in the said trading account stood merged in the estimation of income already done. The action of ld.CIT(A) is against the settled position of law and more particularly when such action has already crossed the test of first appellate forum.

In the circumstances, the addition of Rs. 90,87,083/- uphold by ld. CIT(A) may please be directed to be deleted.”

Note distinguishing the case laws relied upon by the department in the case of M/s Silvex& Co. in ITA No. 1003/JP/2018 for A.Y. 2006-07 and in the case of M/s Silvex & Co. (I) Pvt. Ltd. for AY 2012-13 in ITA No. 834 & 845/JP/2019

Caselaw Held in the Judgment Factor distinguishing the same Kanchwala Gems 145(3) applied and GP In our case, for AY 2006-07, provisions 288 ITR 10 rate of 30% was upheld of section 145(3) were not invoked. The by Hon’ble Supreme assessee company deals into silver Court in case where jewellery studded with precious and semi- purchases are alleged as precious stones and since the major bogus component is silver, the GP rate is ranging between 5 to 7%. Whereas M/s Kanchwala Gems was dealing in precious and semi precious stones where GP rate is

24 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd.

very high. Clarity Gold Pvt. In this case after invoking In our case, for AY 2006-07, provisions Ltd. DB ITA No. 145(3) for the reasons of of section 145(3) were not invoked. The 125/14 dated unverifiable purchases, assessee company deals into silver 19.07.2017 of Hon’ble High Court has jewellery studded with precious and semi- Rajasthan High held the average GP of precious stones and since the major Court past 7 years as reasonable component is silver, the GP rate is ranging which was worked out at between 5 to 7%. Whereas M/s Clarity 12%. Gold Pvt. Ltd. was dealing in precious and semi precious stones where GP rate is very high. N.K. Proteins Ltd. In this case, the Hon’ble In AY 2006-07, provisions of section (SC) 84 Gujrat High Court has 145(3) were not invoked. Moreover, the taxmann.com 95 intimated profit at 25% nature of business is entirely different which was upheld by the where assessee is dealing in silver Hon’ble SC by jewellery having very low GP whereas dismissing the SLP filed M/s N.K. Proteins Ltd. was dealing in by the assessee. The 25% caster oil and derivatives and evidences of unverifiable purchases were found in their premises of the bogus was upheld by invoking suppliers such as their cheque books, the provisions of section vouchers etc. and there was clear cut 145(3). suppression of purchase by 25% however in the case of the assessee, no such allegation is there and assessee has declared better GP as compared to past years which was also admitted by the ld. AO. Jawari La Lunia In this case, the Hon’ble In our case, for AY 2012-13, the (Raj. High Court) High Court has upheld assessment was already completed u/s 139 Taxmann.com the reassessment 143(3) by invoking section 145(3) and GP 406 proceedings on the rate was applied. Thereafter based on the information received informations supplied by Investigation from the Investigation Wing with respect to unverifiable Wing that assessee has purchases. obtained bogus LTCG Since the assessment was already whereas the assessee was completed u/s 143(3) therefore, the facts dealing in handicraft of the case are totally distinguishable items and the return was where no assessment was carried out prior processed u/s 143(1) to issue of 148, moreover the information before issue of notice u/s is not related to their business activity but 148. of bogus LTCG and in our case the

25 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd.

information related to the purchases which has already been accepted in the assessment completed u/s 143(3). A. Varshit& Co. Addition was made u/s In our case, reassessment proceedings Mumbai ITAT 143(3) for unverifiable were initiated after completion of purchases by applying NP assessment u/s 143(3) by invoking section rate of 12.5% on bogus 145(3) and GP rate was applied. Since the purchases. assessment was already completed u/s 143(3) therefore, the facts of the case are totally distinguishable from the case relied upon by revenue where additions were made in the assessment completed u/s 143(3). Moreover the nature of trade was also different and that party deals in diamond whereas the assessee deals into the silver jewellery. Lypsa Diamond Addition was made u/s In our case, reassessment proceedings Mumbai ITAT 143(3) for unverifiable were initiated after completion of purchases by applying NP assessment u/s 143(3) by invoking section rate of 12.5% on bogus 145(3) and GP rate was applied. Since the purchases. assessment was already completed u/s 143(3) therefore, the facts of the case are totally distinguishable from the case relied upon by revenue where additions for unverifiable purchases were made in the assessment completed u/s 143(3). Moreover the nature of trade was also different and that party deals in diamond whereas the assessee deals into the silver jewellery. Mukesh C Sanghvi Addition was made u/s In our case, reassessment proceedings 143(3) for unverifiable were initiated after completion of purchases by applying NP assessment u/s 143(3) by invoking section rate of 12.5% on bogus 145(3) and GP rate was applied. Since the purchases. assessment was already completed u/s 143(3) therefore, the facts of the case are totally distinguishable from the case relied upon by revenue the where no assessment was completed u/s 143(3) and reassessment proceedings were initiated for unverifiable purchases in the order

26 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. passed u/s 148. Moreover the nature of trade was also different and that party deals in ferrous and non-ferrous metal whereas the assessee deals into the silver jewellery.

27 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. present proceedings u/s 148 were invoked thus it is clear that the re-opening is based on information received subsequent to the passing of the original assessment order u/s 143(3) to re-assess the income in respect of the purchases made by the assessee. In the original assessment, the trading results were not found reliable by the AO and by applying the provisions of section 145(3) the book results were rejected in the original assessment proceedings. In reassessment proceedings u/s 148, it is required to be established that assessee has failed to disclose fully and truly all the material necessary for assessment and when the satisfaction was recorded with regard to the acceptability of such information in the original assessment proceedings by making adverse remarks, the re-opening based on the information from the Investigation Wing on the same issue is nothing but a change of opinion and tantamount to re-visiting the order passed u/s 143(3) by AO on the same issue, which is not a permissible course under the provisions of the law. It is also pertinent to note that the reopening cannot be based on the borrowed satisfaction of Assessing Officer and reaching to an independent conclusion based on his own rational after conducting necessary enquiries by the AO himself is a mandatory requirement. The Hon’ble Delhi High Court in the case of Sarthak Securities Pvt. Ltd. Vs. ITO reported in 329 ITR Page 110 has quashed the notice u/s 148 where no independent application of mind by the assessing officer whose action was on the basis of information from Investigation Wing only. In assessee’s case, there was no search operation carried out nor any statements were recorded of any other person and the information received from the Investigation Wing was utilized without verifying the credibility of the information by application of mind. The facts on record clearly goes to prove that AO proceeded to reopen the completed assessment on borrowed satisfaction in place of his own satisfaction which he was duty bound to arrive at. Moreover, once the assessment in this case was completed by rejecting books of accounts and by

28 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. applying a GP rate than the trading results which included the purchases stood merged in such rejection and estimation of income by applying GP rate thus, any further action u/s 148 of the Act for the reasons that certain purchases were not verifiable shall amount to change of opinion which too is not a permissible course in the circumstances of the case.

In a judgement, the coordinate bench of ITAT, Jaipur in the case of Dwarka Gems Ltd. Vs. DCIT in ITA No. 71/JP/2017 order dated 27.03.2001 held as under:- 4. We have considered the rival submissions as well as the relevant material on 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 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

29 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. 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 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

30 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. 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 the law. Accordingly, in the facts and circumstances of the case, we hold that the reopening is not valid and, therefore, the reassessment framed by the AO is without jurisdiction and consequently the reassessment order passed is quashed.

Since the facts of the present case are identical as cited above, thus by respectfully following the ratio laid down in the aforesaid cases, and also considering the facts of the case, we quash the reassessment order passed by the assessing officer and confirm the order of ld. CIT(A).

Since we have allowed the ground No. 1 of the appeal of the assessee where reopening of assessment u/s 148 has been quashed, therefore, other grounds the remaining Grounds 2, 2.1 and 2.2 remains academic in nature and the same are not required to be adjudicated. Hence the appeal of the assesee in ITA No.834 /JP/2019 allowed.

ITA NO.845 /JP/2019

31 ITA No. 834 & 845/JP/2019 M/s Silvex & Co. (India) Ltd. the issue also become academic and needs no adjudication. Hence the revenue appeal is dismissed. In the result, the appeal of the assessee is allowed and cross appeal of the Revenue is dismissed. Order pronounced in the open Court on 28/10/2022. Sd/- Sd/- ¼jkBksMdeys'kt;UrHkkbZ½ ¼ MkWa- ,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;dlnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 28/10/2022. *Santosh आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant-M/s Silvex Company (India) Ltd., Jaipur. 2. izR;FkhZ@The Respondent- ITO, Ward -7(4), Jaipur. ItO, Ward-7(2), Jaipur. 4. vk;djvk;qDr@CIT(A) 5. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZQkbZy@Guard File {ITA No. ITA No. 834 & 845/JP/2019} vkns'kkuqlkj@By order, सहायकपंजीकार@Aेेज. त्महपेजतंत