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TMI Blog2019 (9) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... er Ward 5(3)(1) ("the Assessing Officer") failed to produce letter dated 13/03/2014 of DIT (INV)-II Mumbai on the basis of which he had reason to believe that income chargeable to tax has escaped assessment. b) The original assessment order was passed u/s. 143(3) of the Act on 28/02/2013 after calling for all necessary details required for scrutiny assessment and as such there is change of opinion on the part of the Assessing Officer for initiating reassessment proceedings which action of the Assessing Officer is not permitted in law. c) No opportunity has been granted to the assessee to cross examine all the parties whose statements have been recorded by the investigation team during the course of search and seizure action and whose statements are being relied upon for investing jurisdiction u/ s. 148. d) There is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 2) The Commissioner of Income Tax (Appeals) has erred in law and on facts by confirming the addition made by the Assessing Officer of Rs. 25,55,801/- as gross profit at the rate of 8% on purchase bills of Rs. 3,19,47,515/-. 3) The Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 143(3) of the Act accepting the loss returned by the assessee. Therefore, Ld. Counsel for the assessee submits that since the assessee has furnished all the details in respect of opening stock, purchases as well as along with copies of all purchase invoices, details of purchases and sales made with carat and rate in the course of the original assessment proceedings there is no failure on the part of the assessee to disclose material facts necessary for completion of assessment. 6. The Ld. Counsel for the assessee further submits that assessment of the assessee has been reopened on mere change of opinion in as much as the Assessing Officer in the original assessment proceedings had made complete enquiries about the purchases of diamonds from all the parties including the four parties mentioned in the reasons for reopening. It is submitted that assessee has furnished all details of purchase invoices, as well as the name, address, PAN of the parties from whom assessee had purchased diamonds. Further complete details of back to back export of the said diamonds were furnished during the original assessment proceedings. Therefore, it is submitted that assessment was reopened on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed u/s. 143 r.w.s. 147 of the Act. A.Ys. 2011-12 & 2012-13 9. Coming to the appeals for the A.Ys. 2011-12 & 2012-13 the Ld. Counsel for the assessee submits that the returns were processed only u/s. 143(1) of the Act and there was no scrutiny assessment made u/s.143(3) of the Act. Ld. Counsel for the assessee submits that reopening of assessment without providing information received from the DGIT(Inv.), Mumbai to the assessee and without giving opportunity to cross examine the parties based on whose statement the addition is made by the Assessing Officer is bad in law and without jurisdiction. Reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Pr.CIT v. Menakshi Overseas Pvt. Ltd., [395 ITR 677]. 10. Ld. DR vehemently supported the orders of the authorities below. 11. We have heard the rival submissions, perused the orders of the authorities below. So far as the reopening of assessment for A.Ys. 2011-12 and 2012-13 are concerned, we are of the view that the assessments were reopened based on the information received from the DGIT(Inv.) and there are tangible materials came on record after passing intimation u/s.143(1) of the Act. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso." 12. Therefore, as could be seen from the above, at the stage of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing bills, Airway bills etc., assessee also filed acknowledgement of filing returns by the parties and submitted that assessee company made genuine purchases of diamonds hence no disallowance should be made treating them as non-genuine. Ld. Counsel for the assessee submits that Books of Accounts of the assessee are not rejected sales were accepted and hence purchases cannot be doubted. Ld. Counsel for the assessee submits that correlation between the purchases of diamonds under consideration and export of the same which are recorded in the Books of Accounts prove the genuineness and the veracity of the purchase transactions. Reliance was placed on the following decisions: - (i) CIT v. Nikunj Eximp Enterprises Pvt. Ltd., [372 ITR 619] (ii) ITO v. Karsan Nandu [77 taxmann.com 275 (Mum)] (iii) M/s. Vama International v. ITO in ITA.No. 7315, 7316 & 7317/Mum/2016 dated 15.02.2018. (iv) M/s. Sejal Exports (India) v. DCIT in ITA.No. 3854 to 3859 & 3864/Mum/2017 dated 04.07.2018. (v) M/s. Simoni Gems v. DCIT in ITA.No. 747 to 752/Mum/2018 dated 13.03.2019. (vi) Indo Unique Trading Pvt. Ltd., v. DCIT in ITA.No. 6341 & 6721/Mum/25016 dated 16.08.2017. 17. In the alternative and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and no uniform yardstick can be adopted. Further, the addition will differ from case to case depending upon the facts of the case. The CBDT's Instruction No.-2/2008 dated February 22, 2008 lays down guideline in the form of benign assessment procedure for assessee's engaged in diamond manufacturing and/or trading under- ...the 'Benign Assessment Procedure', in the case of assessees engaged in diamond business as announced by Hon'ble Finance Minister in his Budget Speech on 28.2.2007 shall be as under:- A. The procedure will apply to assessees engaged in the business of manufacturing and/or trading of diamonds (referred to below as such business). B. If an assesses has shown a sum equal to or higher than 6% of his total turnover from such business as his income under the head 'profits and gains of business or profession' for a particular assessment year, the Assessing Officer shall accept his trading results. ..... ..... D. The procedure shall not apply to an assessee for an assessment year - ..... (vi) where there is information regarding escapement of income. E. The rate of profit as a percentage of turnover would be reviewed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er from diamond business as his income under the heading "profit and gain of business or profession" for that particular assessment year the Assessing Officer shall accept the trading results. 21. We find that what advantage the assessee could have got on purchasing the diamonds in gray market was only 1% being the VAT, as the assessee made purchases in the grey market without paying VAT, but obtained only the accommodation entries. Further as per the report of the task group constituted by the Department of Commerce the margin in trading in the diamond industry was only 1 to 3%. Therefore, taking the average of the industry average i.e. 2% and the advantage which the assessee got from purchases from the gray market i.e. 1% towards VAT, in our view at best the disallowance can be made only at 3%. Therefore, taking the totality of the facts and circumstances into consideration, we are of the view that the profit element margin embedded in these purchase transactions should be taken @3% for these Assessment years i.e. A.Y.2011-12 & 2012-13. Accordingly, we direct the Assessing Officer to estimate the profit element @3% of the purchases treated as non-genuine and re-compute the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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