Referred Sections:
Section 142(1) of the Income Tax Act, 1961
Section 143(3) of the Act
Section 147 of the IT Act 1961
Section 148 of the Act.

S. 147 reopening for bogus purchases & accommodation entries: The omission of the AO to make an assertion in the reasons that there was a failure to disclose fully and truly all material facts necessary for the assessment is sufficient to set aside the reassessment notice. Also, a notice issued on change of opinion is bad

By this petition, the Petitioner challenges the notice
dated 28 March 2019 seeking to reopen the assessment for the
assessment year 2012-13, and the order dated 4 September 2019
disposing of the objections raised by the Petitioner to the said notice.
2. The Petitioner is a partnership firm carrying on the
business of manufacturing and exports of diamonds. The Petitioner
filed the return of income for the assessment year 2012-13 on 20
September 2012 declaring total income of Rs.29,76,330/-. The
Respondent No.1- Assessing Officer sought details from the Petitioner regarding purchases, sundry creditors and sundry debtors
and a notice to that effect under section 142(1) of the Income Tax
Act, 1961 was issued on 31 July 2014. The Petitioner replied to the
said notice on 19 August 2014 and submitted details as sought for.
An assessment order was passed by the Assessing Officer on 19
February 2015 under section 143(3) of the Act without making any
disallowances of the purchases.

3. The Petitioner received a notice from the Assessing
Officer dated 29 September 2012, seeking to reopen the assessment
for the assessment year 2012-13. The reasons supplied along with
notice were as follows:

In this case, the assessee has filed the Return of Income for
the AY 2012-13 declaring Total income of at
Rs.29,76,330/- on 29/09/2012. Information gathered by
this office reveals that the captioned assessee is one of the
beneficiaries who purchased HAWALA bills from
companies;managed by the Rajendra Jain Group, who are
engaged in the business/ activity of issuing bogus bills
without delivery of goods as per requirements of their
customers. Information collected by the office of DGIT
(Inv), Mumbai also confirmed the fact that the above
assessee is a beneficiary on account of purchasing bogus
bills without delivery of goods from parties mentioned
below for the FY 2011-12 relevant to the assessment year
2012-13.

The Name of Parties from whom assessee has made
purchases is a under:-
Sr.no Name of Bill Provider Amount
1 M/s Aadi Impex 4,14,18,494/-

2 M/s Kalash Enterprises 4,69,23,678/-
TOTAL 8,83,42,172/-

As per the information, the above mentioned party
is engaged in the business of issuing fraudulent sales bills
without delivery of goods. In the statement recorded
from the above party by the Income Tax Department, it
was admitted that, they had sold bills as per the
requirement of the assessee. In view of these facts, I have
reason to believe that income of Rs.8,83,42,172/-
chargeable to tax, has escaped for assessment year 2012-
13, and therefore, the assessment needs to be re-opened as
per the provision of section 147 of the IT Act 1961 for
A.Y. 2012-13 and notice u/s. 148 of the I.T. Act needs to
be issued.

After considering the response of the Petitioner, the Assessing Officer
concluded that the purchases were made, however, they were made at
a lower cost from the grey market and disallowed certain purchases as
bogus purchases.

4. On 28 March 2019, the Respondent No.1- Assessing
Officer issued the impugned notice under section 148 of the Act.
Reasons for issuing the notice were supplied to the Petitioner ,which
are reproduced as under:

The assessee is engaged in the business of Manufacturing
Industry, trading and exporting of rough diamonds and
diamond powder. Assessee had filed its return on
20/09/2012 for A.Y. 2012-13 declaring total business
income of Rs.29,76,330/-. In this case, information
gathered by the office that assessee is one of the
beneficiaries of having indulged in taking bogus
accommodation entries of Rs.7,87,00,670/- from the group
of entities managed by Shri Rajendra Jain, Shri
Dharmichand Jain and Shri Sanjay Choudhary Group, the
case was reopened and the assessment was finalized u/s
143(3) r.w.s. 147 of I.T. Act, 1961 on 28/12/2017
determining assessed income at Rs.52,12,360/- after
disallowance of Rs.21,72,138/- [ i.e. 2.76% of non-genuine/
bogus purchase of Rs.7,87,00,670/-).

The issue of bogus accommodation entries were
widely discussed in the assessment order. Further, assessee
had debited an amount of 7,87,00,670/- on account of
purchases from M/s Aadi Impex and M/s. Kalash
Enterprises. All these enterprises are ultimately controlled
by Shri Rajendra Jain. This fact has been established
during scrutiny assessments that such transactions were
bogus accommodation entries. However, on scrutiny of
the assessment order, it was observed that the Assessing
Officer had made only addition of Rs.21,72,138/- [ie.
2.76% of non genuine/bogus purchase of
Rs.7,87,00,670/-).

1 It is observed that all the purchases made by the
assessee were bogus and not actually purchased by the
assessee, then as per proviso mentioned above, all the
expenditure belongs to the bogus purchase would have
been disallowed. Also, the parties who had issued the
bogus bills they have given their statements on oath, that
only bills and no actual transaction had taken place
between them and the assessee company. In this
connection, it is pertinent to note that the Hon’ble
Supreme Court while dismissing the SLP had upheld the
decision of High Court for addition of entire income on
account of bogus purchases in the case of M/s NK Proteins
Ltd. v/s. DCIT [2017-TIOL-23-SC-IT] vide its order dated
16/01/2017. Subsequently, the department in other cases
too had made 100% disallowance on account of
accommodation entry/bogus purchases. Accordingly,
bogus purchases amounting to Rs.7,87,00,670/- were
required to be disallowed and added back to total income
of the assessee.

In view of the above, I have reason to believe that
income chargeable to tax of above Rs.1,00,000/- has
escaped assessment within the meaning of section 147 of
the Income-tax Act, r.w. explanation thereto for A.Y. 2012-
13.’

The Petitioner submitted its objections on 2 May 2019. These
objections have been disposed of by the impugned order dated 4
September 2019. The Petitioner is, therefore, before this Court by
filing the present writ petition under Article 226 of the Constitution
of India.

5. By order dated 20 November 2019, the parties were put
to notice that the Petition would be taken up for final disposal at the
admission stage. Accordingly, the petition is taken up for final
disposal.

6. Heard Dr.K.Shivram, learned Senior Advocate for the
Petitioner and Shri Sham Walve for the Respondents.

7. The assessment for the year 2012-13 is sought to be
reopened by the impugned notice dated 28 March 2019. This is
beyond the period of four years. The period of four years is of
significance because of the first proviso to section 147 of the Act. It
stipulates an additional requirement when the assessment is sought to
be reopened after the expiry of four years from the end of the relevant
assessment year. Where an assessment under section 143(3) is made
for the relevant assessment year, then no action shall be taken after
the expiry of four years from the end of the relevant assessment year,
unless any income chargeable to tax has escaped assessment for such
assessment year for the assessee’s failure to disclose fully and truly all
material facts necessary for his assessment for that assessment year. By
various judicial pronouncements, this condition is now firmly
established as the jurisdictional requirement to reopen of the
assessment. Further, the reassessment shall not be undertaken on a
mere change of opinion and reassessment proceedings are not akin to
review. In such circumstances, a writ petition under Article 226 can
be entertained by the Courts despite the availability of an alternate
remedy of appeal.

8. Dr.Shivram, learned Senior Advocate for the Petitioner
submits that there two main points on which the petitioner is entitled
to succeed. First, that not only there is no failure by the Petitioner to
disclose all material facts fully and truly, but there is not even a
mention to that effect in the reasons supplied to the Petitioner.

Second, all the material was available and looked into by the
Assessing office when first reassessment proceeding took place and
now it is only a change of opinion. Mr. Walve, the learned counsel for
the Respondent, based on the contentions raised in reply affidavit,
supported the impugned action of the Assessing Officer.

9. The first contention raised by Dr.Shivram regarding the
absence of statement regarding petitioner’s failure in the reasons is
correct. The reasons supplied along with the impugned notice, which
are reproduced above, contain no assertion there was any failure of
the petitioner to disclose fully and truly all material facts necessary for
the assessment. This omission can be a ground to set aside the
Reassessment notice. Pursuant to the reasons given along with first
reopening notice dated 29 September 2012, the Petitioner had
supplied all the material regarding the very same allegations against
the Petitioner and the same were examined by the Assessing Officer.
All the material was placed before the Assessing Officer by the
Petitioner. Acting upon this material, the Assessing Officer had, in
fact, made certain additions. Therefore, it cannot be said that there
was a failure by the Petitioner to disclose all material facts fully and
truly. In the circumstances, the jurisdictional requirement to reopen
the assessment proceeding after four years is not present. Neither it
has been alleged.
10. Dr. Shivram then submitted that the foundation of the
first reopening notice and the second notice is the same. That is
the issue of bogus purchases and accommodation of entries and that
there is a clear change of opinion by the Assessing Officer. He
submitted that, in the reasons supplied along with first reopening
notice, the issue of bogus accommodation of entries regarding
purchases was discussed. The reasons given for second reopening
notice reproduced above also refer to the said fact. The reasons also
refer to a decision of the Supreme Court in the case of
M/s.N.K.Proteins Ltd. (2017-TIOL-23-SC-IT v. DCIT ). Even
this decision was before the Assessing Officer in the proceeding
pursuant to first reopening notice. The Petitioner, along with its
objections, placed explanatory note as to how the said decision of the
Supreme Court in M/s.N.K.Proteins did not apply to the facts of the
case. Therefore, this aspect was also considered when the proceeding
under the first reopening notice was conducted. In the
circumstances, the contention of the Petitioner that the impugned
reopening notice is issued only on mere change of opinion will have
to be accepted.
11. Since we are satisfied that the jurisdictional requirements
for reopening of the assessment of the Petitioner for the assessment
year 2012-13 after four years are absent, and the action of the
Respondent No.1- Assessing Officer is without jurisdiction, the
Petitioner is entitled to succeed.
12. Writ Petition is allowed. The impugned notice notice
dated 28 March 2019 seeking to reopen the assessment for the
assessment year 2012-13 and the order dated 4 September 2019
disposing of the objections are quashed and set aside.
(M.S. KARNIK, J.) (NITIN JAMDAR, J.)