Amar Jewellers Private Limited Vs DCIT (ITAT Surat)
Reopening Beyond Four Years Without Independent Satisfaction Invalid: ITAT Allows Amar Jewellers’ Appeal
Reassessment Held Void Ab Initio
The Income Tax Appellate Tribunal, Surat Bench, held a reassessment void ab initio and bad in law, finding defects in the recorded reasons, absence of independent satisfaction and failure to supply the search material relied upon.
The dispute concerned an addition of ₹14,06,122 for alleged bogus purchases from M/s. Ekdant Commercial Private Limited.
The Tribunal allowed the assessee’s challenge to reopening under Sections 147 and 148. Having held the reassessment invalid, it did not adjudicate the genuineness of the purchases on merits.
The decision therefore rests on the legality of the reassessment proceedings rather than a substantive finding approving the disputed transactions.
Original Search Assessment Accepted Returned Income
The assessee was engaged in the gold and jewellery business.
An assessment under Section 143(3), read with Section 153A, had been completed on 28 March 2016, accepting returned income of ₹14,21,91,680.
Subsequently, the Department received information arising from investigation into concerns allegedly connected with accommodation entries.
The material included a statement recorded from Shri Ajay Anand Pugalia during a search at his residence on 18 December 2017.
The Assessing Officer linked that information to transactions of ₹14,06,122 between the assessee and Ekdant Commercial Private Limited during the financial year relevant to Assessment Year 2012-13.
Notice Issued After Four Years
The Assessing Officer issued a notice under Section 148 on 28 March 2019, after recording reasons and obtaining approval.
The assessee filed its return in response on 16 April 2019, declaring the same income as previously returned.
Reasons for reopening were communicated through a letter dated 7 May 2019. The assessee objected, and the Assessing Officer rejected those objections through an order dated 13 September 2019.
The reassessment treated the purchases as bogus, alleging that banking transactions represented accommodation arrangements rather than actual business activity.
The Commissioner (Appeals) upheld the action, following which the assessee approached the Tribunal.
Assessee Invoked First Proviso to Section 147
The assessee emphasised that reopening occurred beyond four years from the end of the assessment year, after completion of the earlier assessment.
It argued that the then-applicable first proviso to Section 147 required a failure to disclose fully and truly all material facts necessary for assessment.
According to the assessee, the purchase was recorded in its regular books, and the Department had already received its audited financial statements.
It contended that later information concerning the supplier did not identify a primary fact withheld during the original assessment.
The assessee also challenged the lack of an independent connection between the investigation material and its particular purchases.
Documentary Evidence Relied Upon for Purchases
On merits, the assessee referred to purchase invoices, account confirmation, bank statements and stock-register extracts.
It also relied on the supplier’s assessment order and company master data, arguing that these documents supported the transaction and the supplier’s business existence.
The assessee maintained that payment had been made through disclosed banking channels and that the goods had entered stock.
The Revenue disputed the sufficiency of the evidence, particularly proof of actual delivery. It relied on the investigation findings and the alleged shell-company character of the supplier.
These competing merits arguments were ultimately left undecided.
Recorded Reasons Lacked Clear Date and Supporting Record
The Tribunal found that the letter communicating the reasons did not disclose the date on which the reasons had been recorded.
It noted that approval was stated to have been obtained on 20 March 2019, but whether the reasons were recorded on that date was unclear.
The Bench observed that the Department had not brought valid supporting proof on record demonstrating compliance with the prescribed procedure.
Even taking 20 March 2019 as the relevant date, the reopening remained beyond four years, making compliance with the first proviso material.
No Independent Inquiry; Relied Material Not Supplied
The Tribunal further found that the communicated reasons rested entirely on the search and its details.
There was no separate finding or independent satisfaction recorded by the assessee’s Assessing Officer beyond the search material.
The Bench held that the requirements of the first proviso to Section 147 were not satisfied.
It also recorded that the search material and Pugalia’s statement had not been supplied to the assessee, despite the assessment being founded upon them.
The absence of independent inquiry by the Assessing Officer formed another express basis for holding the reopening invalid.
Appeal Allowed Without Deciding Purchase Genuineness
The Tribunal allowed the jurisdictional ground and held the reassessment void ab initio.
Because the assessment itself was invalid, it declined to decide the separate ground challenging the ₹14,06,122 purchase addition on merits.
The appeal was allowed, with relief arising from defects in reopening rather than a final determination that the purchases were genuine.
Cases Discussed
1. Calcutta Discount Co. Ltd. Vs ITO (Supreme Court); (1961) 41 ITR 191. Cited regarding the distinction between disclosure of primary facts by the assessee and the Assessing Officer’s responsibility to draw inferences from them. The principle is discussed in TaxGuru’s analysis of reasons to believe.
2. Foramer France Vs CIT (Supreme Court); (2003) 264 ITR 566. Cited for the application of the statutory conditions governing reopening of a completed assessment beyond four years.
3. Harikishan Sunderlal Virmani Vs DCIT (Gujarat High Court); (2017) 394 ITR 146. Relied upon for the requirement that reopening must be supported by independent satisfaction and compliance with the statutory disclosure-failure condition.
4. Kothi Steel Ltd. Vs ACIT (Gujarat High Court); [2016] 72 taxmann.com 252. Cited concerning reassessment beyond four years and the requirement of a failure to disclose fully and truly material facts.
5. Shree Sayan Vibhag Sahakari Khand Udyog Mandli Ltd. Vs DCIT (Gujarat High Court); [2016] 69 taxmann.com 245. Cited on the limits of reopening based on later information where the first proviso to Section 147 applies.
6. Nimesh Maheshbhai Shah HUF Vs ITO (Gujarat High Court); [2025] 171 taxmann.com 24. Cited regarding invalid reopening after scrutiny assessment on the basis of material not independently examined.
7. Rakesh Ramlal Shah Vs DCIT (Gujarat High Court); [2024] 165 taxmann.com 364. Cited concerning reassessment initiated after four years.
8. Priti Paras Salva Vs ITO (Gujarat High Court); [2021] 130 taxmann.com 59. Relied upon concerning the jurisdictional conditions for reopening a completed assessment.
9. New Delhi Television Ltd. Vs DCIT (Supreme Court); [2020] 424 ITR 607. Cited for the statutory requirement of full and true disclosure in reopening proceedings governed by the first proviso to Section 147.
10. PCIT-2 Vs Pankaj Enka Pvt. Ltd. (Gujarat High Court); Tax Appeal No. 967 of 2015. Relied upon regarding reopening of completed scrutiny assessments.
11. Gujarat Fluorochemicals Ltd. Vs DCIT (Gujarat High Court); (2009) 319 ITR 282. Cited concerning the relationship between Explanation 1 and the first proviso to Section 147.
12. Amitkumar Chandulal Rajani Vs ITO (Gujarat High Court); [2025] 173 taxmann.com 302. Cited regarding the absence of a link between third-party search information and the assessee’s own transactions, and non-supply of relied-upon material.
13. Shyam Sunder Khandelwal Vs ACIT (Rajasthan High Court); [2024] 161 taxmann.com 255. Cited for the requirement to examine the special procedure under Section 153C where reopening is based on material seized during a third-party search.
14. Sri Dinakara Suvarna Vs DCIT (Karnataka High Court); [2022] 143 taxmann.com 362; Supreme Court SLP dismissal reported at [2023] 151 taxmann.com 489. Cited for the special statutory procedure applicable to third-party search material. The ruling is discussed in TaxGuru’s Section 153C case coverage.
15. Paras Chandreshbhai Koticha Vs ITO (Gujarat High Court); [2026] 182 taxmann.com 204. Cited concerning the use of Section 153C rather than Sections 147 and 148 for qualifying third-party search material.
16. SABH Infrastructure Ltd. Vs ACIT (Delhi High Court); (2017) 398 ITR 198; W.P.(C) No. 1357/2016; 25/09/2017. The High Court required supply of the standard approval form and relevant documents referred to in the recorded reasons, and a reasoned disposal of objections. See the related TaxGuru judgment discussion.
17. Micro Marbles (P.) Ltd. Vs ITO (Rajasthan High Court); [2023] 149 taxmann.com 387. Cited concerning the invalidity of reopening where relied-upon investigation material and statements are withheld from the assessee.
18. Sri Laxmi Narayan Agency Vs ITO (Orissa High Court); [2023] 148 taxmann.com 373; (2023) 450 ITR 650. Relied upon for the need for independent application of mind, disclosure of relevant documents and proper consideration of reopening objections.
19. Union of India Vs Ashish Agarwal (Supreme Court); [2022] 138 taxmann.com 64. Cited in connection with providing information and material relied upon by the Revenue during reassessment proceedings.
20. Kishinchand Chellaram Vs CIT (Supreme Court); (1980) 125 ITR 713. Cited for the principle that evidence gathered behind the assessee’s back must be disclosed and the assessee afforded an opportunity to controvert it.
21. Andaman Timber Industries Vs CCE (Supreme Court); Civil Appeal No. 4228 of 2006; 02/09/2015. Cited on the effect of denying cross-examination of persons whose statements form the foundation of an adverse order. Discussed in TaxGuru’s related case coverage.
22. PCIT Vs Odeon Builders Pvt. Ltd. (Supreme Court); [2019] 110 taxmann.com 64; (2019) 418 ITR 315. Cited regarding additions based upon unverified third-party information, without adequate independent examination or opportunity of cross-examination. See TaxGuru’s discussion of the decision.
23. Laxmanbhai S. Patel Vs CIT; (2010) 327 ITR 290. Relied upon in the submissions concerning third-party material and procedural safeguards.
24. PCIT Vs Tejua Rohitkumar Kapadia (Gujarat High Court); [2018] 94 taxmann.com 324. Cited for evidentiary treatment of purchases supported by invoices, payment records and confirmation.
25. CIT Vs Nangalia Fabrics Pvt. Ltd. (Gujarat High Court); Tax Appeal No. 689 of 2010; 22/04/2013. Cited regarding the significance of purchase bills, banking evidence and quantitative records.
26. CIT Vs M.K. Brothers (Gujarat High Court); (1987) 163 ITR 249. Cited for the requirement of evidence establishing that apparent purchase transactions were not genuine.
27. Shantai Exim Ltd. Vs ITO (ITAT Surat); ITA Nos. 273 and 436/SRT/2018; 27/08/2019; AY 2012-13. Cited for evaluating purchase additions with reference to stock movement, documentary confirmations and banking-channel payments.
28. Vardhman Exports (Gujarat High Court); Tax Appeal No. 265 of 2008; 01/08/2016. Cited regarding Section 69C and the source of expenditure, as distinguished from disputes concerning the genuineness of suppliers.
29. PCIT Vs Surya Impex (Gujarat High Court); R/Tax Appeal No. 674 of 2022; 16/01/2023. The Revenue cited this decision in the alternative concerning estimation relating to disputed purchases.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT SURAT
The appeal filed by the assessee is against the order passed by the Commissioner of Income Tax (Appeal), ADDL/JCIT (A), Delhi [in short “CIT(A)”] dated 31.07.2025 for the Assessment Year (in short “AY”) 2012-13.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the assessing officer in reopening the case of the assessee u/s. 147 of the I.T. Act by issuing notice u/s. 148 of the I.T. Act.
2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of the assessing officer of making addition of Rs. 14,06,122/- on account of alleged bogus purchase.
3. It is therefore prayed that the assessment framed may please be quashed and/or the above addition made by the assessing officer may please be deleted.
4. Appellant craves leaved to add, alter or delete any of the ground(s) before or in the course of hearing of the appeal.”
3. The assessee is engaged in the business of gold & jewellery. The assessee filed return of income on 20.10.2014 declaring total income of Rs.14,21,91,680/-. Thereafter, assessment proceedings u/s. 143(3) r.w.s. 153A of the Income Tax Act, 1961 (in short “the Act”) was completed on 28.03.2016 on the income returned by the company. As per information, the Assessing Officer observed that in the case of M/s. A Kumar & other concerns connected to it and from the bank statements and bills that M/s. A. Kumar & other concerns have entered into certain transactions with M/s. Ekdant Commercial Pvt. Ltd. which is a company/concern running under the directorship of dummy directors Shri Arup Kumar Chakraborty and Smt. Manasi Chakraborty appointed by Shri Ajay Anand Pugalia and his brother-in-law Shri Pradeep Kumar Daga. Statement of Shri Ajay Anand Pugalia was recorded u/s. 132(4) of the Act in the course of Search & Seizure operation u/s. 132 of the Income Tax Act, 1961 conducted on 18.12.2017 at residential premises of Shri Ajay Anand Pugalia. The Assessing Officer observed that M/s. Amar Jewellers Ltd. has also entered into certain transactions through bank account no. 047010200026433 with M/s. Ekdant Commercial Pvt. Ltd. during the period relevant to F.Y. 2011-12 amounting to Rs.14,06,122/-. The Assessing Officer issued notice u/s. 148 of the Income Tax Act, 1961 on 28.03.2019 after recording the reasons & getting due approval. In response to notice u/s. 148, the assessee company filed return of income on 16.04.2019 showing total income of Rs. 14,21,91,680/-. The reasons recorded for reopening the assessment was provided to assessee on 07.05.2019. Thereafter, notice u/s. 143(2) was issued on 14.08.2019. The assessee filed objection against reopening of the assessment vide letter dated 21.08.2019 & same was disposed of vide order dated 13.09.2019. Thereafter, notice u/s. 142(1) was issued alongwith questionnaire. During the course of assessment proceedings, the assessee has submitted details called for. A show cause notice dated 23.11.2019 was issued. The assessee filed reply dated 27.11.2019 to the said show cause notice. After considering the details & replies filed by the assessee, the Assessing Officer observed that the transactions routed through banking channels in circular manner is nothing but tailor-made transactions in the guise of sale/purchase intentionally made to alter their actual financial statement and subsequent payment legitimate taxes in the form of accommodation entries from paper/shell companies. No actual business activities are carried out as per the Assessing Officer. Therefore, the Assessing Officer made addition of Rs.14,06,122/- claimed by assessee as bogus purchase.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. The Ld. AR submitted that as regards ground no.1, the notice issued u/s. 148 of the Act is beyond four years and first proviso to section 148 was not satisfied by the Assessing Officer. The Ld. AR further submitted as under:
“It is undisputed that a search assessment under section 143(3) read with section 153A had already been completed on 28.03.2016 and that the impugned notice under section 148 was issued on 28.03.2019, after expiry of four years from the end of A.Y. 2012-13. The original section 153A order, after referring to the search and the details filed in response to statutory notices, accepted the returned income of Rs. 14,21,91,680/- in full. The then first proviso to section 147 therefore barred reopening unless the alleged escapement was by reason of the appellant’s failure to disclose fully and truly all material facts necessary for assessment.
The recorded reasons do not identify any primary fact concerning the impugned purchase which was withheld. On the contrary, the reasons themselves acknowledge that the appellant had filed its annual report and audited profit and loss account and balance sheet. The purchase was recorded in the regular books. The Department’s grievance is that later information suggested a different inference about the character of the counter-party. That is not the same thing as identifying a primary fact which the appellant failed to disclose.
The Supreme Court in Calcutta Discount Co. Ltd. v. ITO, 41 ITR 191 (SC), drew the classic distinction between the duty to disclose primary facts and the Assessing Officer’s duty to draw inferences from those facts. Once primary facts are disclosed, the assessee is not under a duty to instruct the Assessing Officer as to what inference should be drawn. For reopening beyond four years, the statutory failure must be specifically established. The principle is reinforced by Foramer France v. CIT. 264 ITR 566 (SC).
There are two decisive temporal inconsistencies. First, the recorded reasons rely on a later third-party search conducted at the residence of Shri Ajay Anand Pugalia in December 2017, whereas the appellant’s prior assessment had already been completed in March 2016. Such later-created third-party material cannot constitute a primary fact which the appellant failed to disclose in 2016. Secondly, para 3.5 of the final reassessment order shifts the basis by saying that incriminating material concerning the Ekdant purchases had been found in the appellant’s own 07.08.2013 search. If that were so, the material necessarily pre-dated and was available for the section 153A assessment of 28.03.2016, which nonetheless accepted the returned income. Either way, the statutory allegation of failure to disclose fully and truly is not made out.
The reasons contain only a formulaic assertion that the requisite material facts were not fully and truly disclosed and that the information may have been embedded in the accounts in a manner requiring due diligence by the Assessing Officer. Such language does not identify what particular primary fact was omitted, how the appellant was obliged to disclose it, or how the alleged escapement was caused by that omission. The very reference to facts being embedded in books already available to the Department negates, rather than proves, non-disclosure.
The appellant relies upon Harikishan Sunderlal Virmani v. DCIT (2017) 394 ITR 146 (Guj.), Kothi Steel Ltd. v. ACIT [2016] 72 taxmann.com 252 (Guj.) and Shree Sayan Vibhag Sahakari Khand Udyog Mandli Ltd. v. DCIT [2016] 69 taxmann.com 245 (Guj.) for the principle that, particularly beyond four years, the statutory condition of failure to make full and true disclosure cannot be replaced by a later report or a general conclusion of the Investigation Wing.
The reliance is placed on the decision of Honorable Gujarat High Court where it was held that when the assessment was sought to be reopened after 4 years and the original assessment was completed under scrutiny, the case cannot be reopened :-
-
- Nimesh Maheshbhai Shah HUF vs. ITO-[2025] 171 taxmann.com 24(Guj.)
- Rakesh Ramlal Shah vs. DCIT [2024] 165 taxmann.com 364 (Guj.)
- Priti Paras Salva vs. ITO, Ward (3)(2)(4). [2021] 130 taxmann.com 59 (Guj.)
- New Delhi Television Ltd. v. DCIT [2020] 424 ITR 607 (SC).
- PCIT-2 vs M/s. Pankaj Enka Pvt Ltd. [Tax Appeal No. 967 of 2015] (Guj.)
The assessing officer has relied to sec. 147 in response recorded under this connection to Explanation 1 to section 147 does not dilute, override or dispense with the mandatory jurisdictional requirement contained in the first proviso to section 147. It merely clarifies that passive production of books of account or evidence may not necessarily constitute disclosure. Where all material primary facts pertaining to the transaction were specifically, fully and truly disclosed during the original assessment, subsequent third-party information may at the highest furnish tangible material for forming a belief of escapement; it cannot, without establishing failure on the part of the assessee which caused such escapement, confer jurisdiction to reopen an assessment completed under section 143(3) after expiry of four years. The reliance is placed on Gujarat Fluorochemicals Ltd. vs. DCIT [2009] 319 ITR 282.J
B. The final order impermissibly supplements the recorded reasons
The reasons supplied on 07.05.2019 were founded on the Investigation Wing report and the December 2017 search in the case of Shri Ajay Anand Pugalia. They did not state that any incriminating material concerning the impugned purchase had been found in the appellant’s own search on 07.08.2013. Yet para 3.5 of the final reassessment order introduced precisely that assertion. The validity of reopening must stand or fall on the reasons recorded before issue of notice; a new factual foundation cannot be supplied later in the assessment order.
The contemporaneous letter dated 27.12.2019 [PB p.69] is important in this context. Immediately after seeing the new assertion in the assessment order, the appellant specifically requested the Assessing Officer to provide the alleged incriminating material said to have been found in the 2013 search. The existence, nature and nexus of such material were therefore specifically disputed; no such material forms part of the paper book or has been shown to the appellant. This later assertion cannot retrospectively improve the recorded reasons.
C. The reasons reveal borrowed conclusions rather than an independent nexus to the appellant’s transaction
The reasons proceed from the Investigation Wing’s conclusion that M/s. Ekdant Commercial Pvt. Ltd. was a paper / shell company and then treat every transaction with that company as necessarily bogus. The statement attributed to Shri Ajay Anand Pugalia is primarily about dummy directors and control of companies. The reasons, as supplied, do not record any statement by him that he personally arranged the two impugned sales to the appellant, that no goods were delivered to the appellant, that the bank payment was returned in cash, or that the appellant was a beneficiary of a specific accommodation entry of Rs. 14,06,122/-. The assessing officer has not brought any statement on record from Principal Officer/Director of M/s. Ekdant Commercial Pvt. Ltd. that they were giving accommodation entries.
A valid “reason to believe” must have a rational nexus between the material and the particular escapement alleged. Information can certainly trigger an inquiry, but it cannot substitute for the Assessing Officer’s own formation of belief on the assessee-specific facts. The appellant relies upon the binding principles in Harikishan Sunderlal Virmani (supra), and other judgements of the Honorable Gujarat High Court as mentioned at para no. IV A.
It has been held by the Hon’ble High Court of Gujarat in the case of Amitkumar Chandulal Rajani vs. ITO, [2025] 173 taxmann.com 302 (Guj.) that it appears that the Assessing Officer has failed to consider the objections of the assessee in the true perspective and in absence of any material from the aforesaid party pertaining to the details relating to the assessee so as to prove that income has escaped assessment, the Bench is of the opinion that there is no link between the material and the reasons recorded, resulting into dissatisfaction on the part of the Assessing Officer and in such circumstances, the Assessing Officer could not have assumed jurisdiction to issue impugned notices for reopening.
D. The Revenue cannot simultaneously rely on ‘search material and avoid the special search
The orders repeatedly describe the foundation as material / evidence emanating from a search in the case of another person. The appellant respectfully submits that the Revenue’s own case leaves two possible situations. If there was in fact seized or requisitioned material belonging to, pertaining to, or relating to the appellant and that material formed the foundation of the action, the statutory special procedure governing third-party search material, including section 153C and its conditions and limitations, had to be examined and respected. The general reassessment route cannot be used merely to bypass the special search code. If, on the other hand, no such seized material relating to the appellant existed, the repeated references to “incriminating material cannot by themselves provide evidentiary support for the reopening.
For the principle that where reassessment is founded on incriminating material seized in a search of another person the special search procedure cannot ordinarily be circumvented by resort to sections 147/148, the appellant relies upon Shyam Sunder Khandelwal v. ACIT [2024] 161 taxmann.com 255 (Raj.), Sri Dinakara Suvarna v. DCIT, 151 taxmann.com 489 (SC) [SLP dismissed by Supreme Court in this case 143 taxmann 362] and Paras Chandreshbhai Koticha vs. ITO [2026] 182 taxmann.com 204. This submission is without prejudice to the appellant’s principal case that the first proviso to section 147 itself is not satisfied
E. The material referred to in the reasons and the approval form were not furnished
The reasons specifically refer to the report of the Investigation Wing, Surat in case of A. Kumar & Co. and others and also the statement of Ajay Anand Pugalia. Those materials were not supplied to the appellant along with the reasons. The standard form containing the sanction/approval under section 151 was also not furnished. The appellant therefore could not know the exact material, conclusions, endorsement and scope on which the jurisdictional belief and approval were founded. It is to be noted that the assessee filed the return of income within time on 16.04.2019 in response to notice issued u/s. 148 on 28.03.2019. Immediately assessee vide letter dated 17.04.2018 filed on 18.04.2018 requested assessing officer to supply the copy of reasons recorded and copy of materials on which he relied for reopening of assessment. Assessing officer supplied the copy of reasons recorded vide letter dated 07.05.2019. He didn’t supply the original reasons recorded alongwith the approval and also other materials indicated in the reasons recorded. Nevertheless, assessee vide letter dated 28.02.2019 again requested the assessing officer to provide the following information:
i. Report of Investigation wing
ii. Statement of Shri Ajay Anand Pugalia
iii. Sanction obtained u/s 151 of IT Act 1961
iv. Any other materials as relied by assessing officer in reopening the assessment u/s. 147.
Without prejudice, assessee filed objections against the reopening of assessment vide letter dated 21.08.2019. In this letter assessee again mentioned that the requisite information and materials were not supplied to the assessee. The assessing officer passed the speaking order rejecting assessee’s objections vide letter dated 13.09.2019. He, in this order held at para no. 4 that the information and the report of the Investigation Wing being confidential could not be shared in toto but relevant part pertaining to assessee was already conveyed into reasons recorded. Anyway, he should have given the full report for examining the belief of the assessing officer. The assessing officer didn’t reproduce the report even partially in the reasons recorded and just his belief was narrated. In any case, the assessing officer didn’t provide the statement of Ajay Anand Pugalia to the assessee. Under these circumstances the assessment passed u/s. 147 is bad in law in view of the following judgments of courts:
It has been held by the Hon’ble High Court of Gujarat in the case of Amitkumar Chandulal Rajani vs. ITO, [2025] 173 taxmann.com 302 (Guj.), It is also pertinent that the Assessing Officer has not provided any documents, statements or any material to the assessee but, on the contrary, in the affidavit-in-reply, it is averred that such information cannot be provided to the assessee because it is a confidential matter of the department. Such a stand taken by the Assessing Officer is contrary to the provisions of the Act inasmuch as unless and until the assessee is provided the material upon which the reasons are recorded the action of the Assessing Officer is illegal.
In SABH Infrastructure Ltd. v. ACIT, 99 taxmann.com 409/398 ITR 198 (Del.) (CLC pp. 4-9), the Court laid down that where the reasons refer to another document, letter or report, the document or relevant portion should accompany the reasons; it also directed that the standard form used for obtaining superior approval be supplied. The objection-disposal exercise is quasi-judicial and the Revenue cannot add to the reasons after the event..
In Micro Marbles (P.) Ltd. v. ITO, 149 taxmann.com 387 (Raj.) (CLC pp. 10-12), non-supply of the Investigation material, statements and entries referred to in the reasons was held to render the reasons incomplete and to vitiate the reopening, because the assessee was deprived of an effective opportunity to object.
In Sri Laxmi Narayan Agency v. ITO, 148 taxmann.com 373/450 ITR 650 (Orissa) (CLC p. 13), the High Court quashed the reassessment where the reasons merely repeated the DDIT report without independent application of mind, vital documents were not supplied and the assessee’s objections were not separately dealt with. The decision follows both GKN Driveshafts and SABH Infrastructure and is closely analogous to the procedural defects in the present case.
It has been held by the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal (138 taxmann.com 64) that the assessing officer is required to provide information and other material relied upon by the revenue for re-opening the assessment.
F. The learned CIT(A) did not adjudicate the jurisdictional ingredients of the first proviso
The learned CIT(A) disposed of Ground No.1 essentially by observing that information and evidence had been received from the Investigation Wing and that the Assessing Officer had sufficient material to form a belief. That reasoning addresses, at most, the existence of some information. It does not answer the distinct statutory question which arises only because the notice was beyond four years: what primary material fact did the appellant fail to disclose fully and truly, and how was escapement caused by that failure? The impugned appellate order therefore does not cure the foundational jurisdictional defect.”
6. As regards Gr. No. 2 relating addition of Rs. 14,06,122/- on alleged bogus purchase is unsustainable. The Ld. AR submitted as under:
“The transaction is supported by contemporaneous documentary evidence already on the assessment record.
The appellant had placed the following evidence on record. The Paper Book Index certifies that the papers at Sr. Nos. 3 to 23, including the transaction documents at PB pp.70-80, were already on the file of the Assessing Officer. In addition, the reply dated 10.03.2025 at PB p.1 directly answered the learned CIT(A)’s query on delivery and the alleged ‘one-sided’ nature of the documents. The learned CIT(A) was therefore required to evaluate the complete evidentiary chain and the specific appellate explanation, rather than merely ask whether any ‘new evidence’ had been produced.
| Evidence | PB Page(s) | Relevance |
|---|---|---|
| Assessment order of M/s. Ekdant Commercial Pvt. Ltd. for A.Y. 2013-14 | 70-73 | Relied upon to show that the seller was itself assessed and described as carrying on bullion business. |
| Account confirmation from M/s. Ekdant Commercial Pvt. Ltd. | 74 | Direct confirmation of the ledger transaction. |
| Purchase bills / invoices | 75-76 | Contemporaneous documentary evidence of the purchase. |
| Relevant bank statement | 77-78 | Payment through disclosed banking channel; no allegation of cash withdrawal /return identified. |
| Relevant extract of stock register | 79 | Quantity/ stock trail for goods purchased. |
| MCA company master data | 80 | Corporate existence / status of the seller, relied upon to rebut a blanket assumption that no genuine activity was possible. |
| Reply dated 10.03.2025 before the learned CIT(A) | 1 | Explains telephonic bullion quote, physical delivery against tax invoice, seller confirmation signed invoices as third-party evidence, seller’s bullion business as noted in its A.Y. 2013-14 assessment, VAT @1%, and first year of transactions with the supplier. |
These documents must be evaluated cumulatively. The purchase was recorded in the regular books, payment was through the bank, and the goods were entered in stock. There is no finding that the bank payment returned to the appellant in cash. There is no identified defect in the stock record proving that the quantity was fictitious. Nor has the Revenue demonstrated how the corresponding stock movement / trading results could stand while the whole purchase is removed as non-existent.
B. A general allegation about the supplier is not proof that this specific purchase was fictitious
The departmental case proceeds by first characterising M/s. Ekdant Commercial Pvt. Ltd. as a shell concern and then assuming that every invoice issued by it is necessarily false. That is not a substitute for proving the appellant’s particular transaction to be non-genuine. The statement attributed to Shri Ajay Anand Pugalia, as described in the reasons, concerns control and appointment of dummy directors. It does not identify the appellant’s two purchase transactions, does not state that no goods were supplied to the appellant and does not establish any cash-back mechanism in respect of the appellant.
The learned CIT(A) additionally observed that invoices, bank statement and stock register were one-sided and that there was no delivery challan or other proof of physical delivery. This finding overlooks the appellant’s specific reply dated 10.03.2025 [PB p.1]. The appellant explained that it first obtained a telephonic quote for gold bullion; physical delivery was thereafter taken from M/s. Ekdant Commercial Pvt. Ltd. against tax invoice; and payment was made subsequently. The appellant also pointed out that the seller’s account confirmation and duly signed invoices / sales bills were documents emanating from the seller and could not be brushed aside as merely self-generated evidence.
The same reply further pointed out that M/s. Ekdant Commercial Pvt. Ltd.’s own assessment order for A.Y. 2013-14 described it as engaged in wholesale bullion business since 2011; that the appellant had paid VAT @ 1% on the purchases; and that the appellant’s transactions with M/s. Ekdant Commercial Pvt. Ltd. commenced for the first time during the year under consideration. The ledger accounts for F.Ys. 2011-12 and 2012-13 were also produced. These specific explanations materially answer the suspicion recorded in the appellate notice, but the impugned order does not deal with them in a reasoned manner.
Non-supply of the relied-upon material and denial of cross-examination vitiate the use of third-party evidence
The appellant sought the Investigation Wing report, the statement of Shri Ajay Anand Pugalia, the section 151 sanction and other relied material by letter dated 28.05.2019 and repeated the grievance in its objections dated 21.08.2019. The speaking order expressly declined to share the Investigation Wing report in full. Thereafter, when the final reassessment order newly asserted that incriminating material relating to Ekdant had been found in the appellant’s own 2013 search, the appellant by letter dated 27.12.2019 specifically requested a copy of that material. [PB p.69] Thus both factual foundations invoked by the Revenue – the third-party Investigation Wing material and the alleged 2013 search material – were specifically sought by the appellant. The adverse inference cannot be sustained on undisclosed material.
Where a third-party statement is used as a substantive foundation for an adverse conclusion, the assessee must receive a fair opportunity to confront it. The Supreme Court in Kishinchand Chellaram v. CIT, 125 ITR 713 (SC), held that material collected behind the back of an assessee cannot be used without affording an opportunity to controvert it. In Andaman Timber Industries v. CCE, Civil Appeal No.4228 of 2006, order dated 02.09.2015, the Supreme Court treated denial of cross-examination of persons whose statements formed the basis of the order as a serious violation of natural justice. In PCIT v. Odeon Builders Pvt. Ltd. [2019] 110 taxmann.com 64/418 ITR 315 (SC), deletion of a purchase addition was sustained where third-party material had not been independently scrutinized and cross-examination had not been afforded. The reliance was placed on Laxmanbhai S. Patel vs. CIT [327 ITR 0290].
C. Gujarat High Court and Surat Bench authorities support deletion where books, banking trail and quantitative evidence support purchases
In PCIT v. Tejua Rohitkumar Kapadia [2018] 94 taxmann.com 324 (Guj.), the Gujarat High Court upheld deletion where purchases were supported by bills, payments were through account-payee cheques, the seller had confirmed the transactions and there was no material showing that the payment had returned to the assessee. The Revenue’s SLP was dismissed: [2018] 94 taxmann.com 325 (SC).
Similarly, in CIT v. Nangalia Fabrics Pvt. Ltd., Tax Appeal No.689 of 2010 (Guj., order dated 22.04.2013), the Court treated bills, book entries, cheque payments and quantitative details as material circumstances and held that purchases could not be branded bogus merely on suspicion surrounding the supplier. In CIT v. M.K. Brothers, 163 ITR 249 (Guj.), the Court emphasised the need for evidence establishing that the apparent purchase transactions were not genuine.
A directly useful decision of the jurisdictional Tribunal is Shantai Exim Ltd., ITA Nos.273 & 436/SRT/2018, order dated 27.08.2019 (Surat Bench), A.Y. 2012-13. There, the Tribunal deleted a bogus-purchase addition after noting, inter alia, banking-channel payments, quantitative details / stock trail, confirmations and absence of evidence that the purchase money had come back to the assessee. The decision also distinguished cases where direct incriminating evidence demonstrated accommodation transactions. The appellant respectfully submits that the same evidentiary approach applies here.
D. Section 69C / complete disallowance is conceptually inapposite when the source is explained
The assessment characterises the amount as bogus purchase / unexplained expenditure. Yet the source of the payment is the appellant’s disclosed bank account and the transaction is recorded in the books. On these facts, section 69C cannot be used as though the appellant incurred an off-book expenditure from an unexplained source. If the Department’s real allegation is that the named supplier was not the true source of goods, that is a different factual hypothesis and must be proved with evidence; it does not justify automatic addition of the entire recorded purchase under section 69C.
Further, in case of Vardhman Exports, Tax Appeal No.265 of 2008 (Guj., order dated 01.08.2016), the Gujarat High Court approved the proposition that section 69C concerns an unexplained source of expenditure. Where the expenditure is recorded and payment is made out of a disclosed bank account, the source of expenditure is explained; the provision cannot be invoked merely because the genuineness of the counter-party is doubted without more.”
7. The Ld. Departmental Representative (in short “Ld. DR”) submitted that as regards Gr. No. 1 the case was reopened by the Assessing Officer after the information of evidences and information emanating from the search action was received from the investigation wing. On verification also it was observed that the information was correct and hence it is evident that the Assessing Officer was in the possession of sufficient evidences and information to form a reason to believe Income had escaped assessment.
8. As regards Gr. No. 2, the Ld. DR submitted that as a result of search action resulted in the finding that M/s Ekdant Commercial private Ltd. was engaged in providing bogus purchase bills to various customers and one of the customers is the assessee. During the assessment proceedings, assessee could not substantiate with satisfactory evidences the genuineness of purchases booked from M/s Ekdant Commercial private limited and Assessing Officer relying on the evidences collected during the search added the impugned purchase to the income of the assessee. The Ld. DR further submitted that no new evidences were brought which would prove the genuineness of the purchase and which can pass the test of prudence dictated by the Indian evidence Act and demand the interference of the appellate authority in the impugned order. It can be seen that the purchase claimed by the appellant is unsupported by satisfactory evidences while the AO has relied upon the evidences collected from the search. Appellant could not submit any evidences supporting the invoice and bank statements to prove the actual delivery of the goods, any other evidences etc. The key person of the M/s Ekdant commercial Pvt. Ltd. has deposed that the concern was shell company and sales are bogus. The same evidences are discussed in detail in the assessment order. The Ld. DR further submitted that in alternate, estimation as held in case of PCIT vs. M/s. Surya Impex (R/Tax Appeal no. 674 of 2022 order dt. 16.01.2023).
9. We have heard both the parties and perused all the relevant material available on record. As regards ground no. 1 relating to validity of Sec. 147, the reasons recorded for reopening was given to assessee vide letter dated 7.5.2019 but the date of reasons recorded is not evident from the same. Thus, the facts remain that original copy of reasons recorded and its date was not mentioned in letter dated 7.5.2019. While disposing off objections vide order dated 13.9.2019 also on pg. 2 (pg. 53 of PB), the approval was on 20.03.2019 whether reasons recorded was on same date is not clear from said order. Besides this if this date i.e. 20.03.2019 is taken on record then the reopening is beyond four years as Assessment Year 2012-13 is reopened. Thus, on first threshold the absence of valid proof on record not brought on record by the Department it appears that the reasons recorded are not as per the procedure prescribed u/s. 147 & Section 148 of the Act. Now coming to second contentions, from the perusal of letter dated 7.5.2019, the so called reasons recorded was based totally on search and its details, but there is no separate finding or satisfaction independent from search material given by the Assessee’s Assessing Officer. Thus, the invocation of 1st proviso to Section 147 of the Act is not satisfied. Besides this the search material as well as statement of Ajay Anand Pugalia was also not supplied to assessee and the assessment is entirely based on searched material as well as statement. No independent inquiry done by Assessing Officer. Therefore, the assessment reopened u/s. 147 of the Act itself is void ab initio and bad in law. Ground No. 1 is allowed. As relates to Gr. 2, the same is on merit; since the assessment itself is invalid, we are not adjudicating this ground.
10. In result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 04.11.2026
