Akil Kureshi, J. - The petitioner has challenged a notice dated 31.3.2015 under which the respondent Assessing Officer seeks to reopen the petitioner's assessment for the assessment year 2008-09.
2. Brief facts are as under. Petitioner is a partnership firm and is engaged in manufacturing and selling gold and other ornaments. For the assessment year 2008-2009, the petitioner had filed return of income on 9.7.2008 declaring total income of Rs.88.63 lacs(rounded off). Such return was taken in scrutiny. The Assessing Officer passed order under section 143(3) of the Act on 28.12.2000 and made addition of Rs.9.30 lacs(rounded off). To reopen such assessment, the Assessing Officer has issued impugned notice in which he had recorded the following reasons :
"A search operation u/s 132 of the Income Tax Act in the case of Shri Rajendra jain group, Shri Sanjay chaudhary group & Shri Dharmichand group was carried out on 3.10.2013. Information is received from A.C.I.T., Central Circle-4. Surat vide letter dated 16.03.2015 and D.G.l.T. (Investigation), Mumbal vide letter dated 14.03.2015.
2. On going through the Information received, it is noticed that Shri Rajendra jain group and Shri Surendra jain is managing total 10 concerns/companies. They are some of the entry providers operating in Mumbai, indulging in providing accommodation entries in the nature of bogus sales, and unsecured loans. During the course of search operation u/s 132 of the income Tax Act in the the case of Shri rajendra jain group, Shri Sanjay chandhary group & Shri dharmichand group on 03.10.2013, The managing person of the company Sparsh export Pvt. Ltd. Shri Rajendra jain and Shri Surendra jain confessed on oath that they are not doing any real trading in diamonds but indulged in paper transaction only and they allow accommodation entries by issuing accommodation bill without effecting any sale to the assessee. Documentary evidences and the confessional statement of Shri Rajendra jain explaining the modus operandi of providing accommodation entries have been examined. It is noticed from these evidences & statement that they are engaged in paper transactions only without any physical stock of goods. In the name of their numerous concerns, they import rough and cut & polished diamonds for other clients who do not want to shows import in their own books. These concerns issue bills/ give accommodation entries for a commission to various parties, who normally purchases diamond in cash from undisclosed parties and need bills to show purchase against sales in their account. These concerns also provides accommodation entries of unsecured loan against cash. The modus operandi is that these concerns are merely doing paper transactions instead of carrying out any real business of diamonds trading. They actually do business of maintaining books of accounts only and do not do any actual trading of physical commodity. The actual importer of rough diamonds approaches these concerns to import their diamond through their group of company/concerns and on receipt of the consignment, the real importer gets the delivery of diamond after clearance from CHA. The book stock of rough diamonds have been converted by these concerns to cut and polished diamonds through their commission companies or some times these name lending companies/concerns issue bill of rough diamonds to local purchasers and show purchase of polished diamonds from them to square up the transactions. On receipt of such cut and polished diamonds, these concerns, issue sales bills to various parties at the request of the actual importers. The actual importer arranges these sale proceed from parties to whom sale bills were issued. Once the sale proceeds are received, these name lending concerns makes import remittance at the request of importer. As regards the loan and advances, these name lending concerns import goods on credit basis for longer period and sale the goods on immediate payment basis. Therefore they receive check immediately and use the same for giving loans. These name lending parties receives cash from loan parties against the cheque given to them. The cash is used to settle the accounts to whom they have sold the goods through angadia. In these process these name lending concerns receive interest on such loan which they return back in cash after deducting their commission.
3. On going through record it was noticed that assessee had purchased cut & polished diamonds of Rs.11,99,945/- from the company Sparsh export Pvt. Ltd managed by Shri Rajendra Jain and Shri Surendra Jain and they are entry providers indulging in providing accommodation entries in the nature bf bogus sales which is also confessed by Shri Rajendra jain and Shri Surendra jain that they are not doing any real trading in diamonds but indulged in paper transaction only and they allow accommodation entries by issuing accommodation bill without affecting any sale to the assessee with modus operandi as discussed. As this is being a fake transaction of paper transaction only for accommodation entries without doing any real trading in diamonds or without effecting any sell to the assesses, the assessee had reduced its income by obtaining fake purchase bill from the above parties.
4. It is seen that the assessee has shown receipts of loan in gold from (i) Shri Ashok Vachhraj Dholakia-10.460kg. and (ii) Shri Divyeshkumar Ashokbhai Dholakia -10.833kg. during the year under consideration. As per the information available, the aforesaid persons not have creditworthiness to allow gold in the quantity as loan to the assessee. In absence of creditworthiness of the aforesaid persons l have reasons to believe that loan in fold shown in the name of aforesaid persons is not genuine. It is further seen that the assessee has shown similar gold as loan from other persons also.
5. In the view of the above mentioned facts. it is observed that failure is on the part of the assessee to disclose fully and truly all materials facts necessary for assessment. Under the circumstances, I have to reasons to believe that loan shown in gold from aforesaid persons Rs.95,00,425/- and the fake purchase transaction amount of Rs.11,99,945/- have escaped income of the assessee from assessment. l have therefore, reason to believe that income chargeable to tax amounting to Rs.1,07,00,370/- has escaped assessment and this is a case for reopening the assessment within the meaning of section 147 r.w.s. 148 of the I.T. Act, 1961.
Issue notice u/s. 148 of the I.T. Act."
3. Upon receipt of the reasons, the petitioner raised objections under letter dated 2.12.2015. Such objections were however, rejected by the Assessing Officer by order dated 18.1.2016.
4. Taking us through the reasons recorded and other materials on record, counsel for the petitioner submitted that notice was issued beyond a period of four years from the end of relevant assessment year. There was no failure on part of the assessee to disclose truly and fully all material facts. Notice for reopening was therefore, without any authority. Counsel submitted that the Assessing Officer had no reason to believe that the income chargeable to tax had escaped assessment. The assessment was framed after detailed scrutiny, partial disallowance on purchase of gold was also made. The Assessing Officer now cannot expand the issue and make further additions.
5. On the other hand, learned counsel Shri P.G. Desai for the department opposed the petition contending that the Assessing Officer has recorded proper reasons. The issue as mentioned in the reasons were not examined during the original assessment. Materials came to his notice after the assessment was framed. The assessee had not disclosed truly and fully material facts. Notice for reopening is therefore, valid.
6. The reasons recorded indicate two reasons for reopening the assessment. The first reason is that the assessee had purchased cut and polished diamonds of Rs.11.99 lacs from one Sparsh Export Pvt. Ltd. which was managed by Rajendra Jain and Surendra Jain. The reasons record detail background of these persons who were subjected to search operations, during which, their statements were also recorded indicating that they were engaged in bogus billing and providing fake accommodation entries. The Assessing Officer therefore, noted that these persons were mere entry providers. They were indulging in providing accommodation in the nature of bogus sales. In the statements they had also confessed to this aspect stating that they are not really trading in diamonds but indulging in paper transaction only and provide accommodation entries by issuing accommodation bill without affecting actual sales to the assessee. According to the Assessing Officer, therefore, this being a fake transaction without real trading of the diamonds, the assessee had thereby reduced its income by claiming fake purchases.
7. The second issue which the Assessing Officer seeks to examine during the reopening pertains to loan of gold received by the assessee from Ashok Vachhraj Dholakia and Divyeshkumar Ashokbhai Dholakia. The Assessing Officer noted that as per the information available, aforesaid persons do not have creditworthiness to allow gold in the quantity as loan to the assessee. In absence of creditworthiness of these persons, he had reason to believe that loan shown in the name of said persons was not genuine.
8. We may refer to second issue first. Though the Assessing Officer has referred to information available to the effect that said Ashok Vachhraj Dholakia and Divyeshkumar Ashokbhai Dholakia did not have creditworthiness to give such quantity of gold as loan, he has not referred to any source of such information. In absence of any material which was not part of the original assessment or with respect to which it can be stated that the assessee failed to disclose true and full facts, it was not permissible for the Assessing Officer to reopen the assessment on this basis. The fact that the assessee had taken gold loan from such person was very much part of the returns filed by the assessee. If during the scrutiny assessment, the Assessing Officer desired to examine such transactions in context of creditworthiness of these persons, it was always open for him to do so. However, scrutiny assessment cannot be reopened beyond a period of four years without there being anything to suggest that the income chargeable to tax had escaped assessment due to failure on part of the assessee to disclose truly and fully all material facts. Even otherwise, the Assessing Officer had raised multiple queries during the original assessment which included the following :
"Please submit copy of A/c. of all creditors and debtors above Rs.1 lacs as appearing in your balance sheet along with contra A/c. from the book of the concerned parties showing their PAN and postal address."
9. This query was answered by the assessee under letter dated 16.2.2010 by providing following information :
"4. Detailed Gold Loan receipt account, as desired, is enclosed herewith."
10. Thus this issue was examined by the Assessing Officer during the original scrutiny assessment. On this basis, therefore, reopening of assessment would not be permissible, that too, beyond a period of four years from the end of relevant assessment year.
11. The first issue however, needs a closer scrutiny. Perusal of the reasons recorded show that the information was provided to the Assessing Officer by DGIT (Investigation) Mumbai, concerning dubious transactions of Rajendra Jain and Surendra Jain who were managing Sparsh Export Pvt. Ltd. These persons were subjected to search during which they had also made certain confessional statements. The assessee had made purchases of cut and polished diamonds worth Rs.11.99 lacs from Sparsh Export Pvt. Ltd. On the basis of the information available at the command of the Assessing Officer, he noted that Rajendra Jain and Surendra Jain merely provided accommodation entries without actual sale of diamonds. The assessee had thereby claimed higher expenditure and reduced the profit. It cannot be stated that the Assessing Officer did not have tangible materials to form a belief that the income chargeable to tax had escaped assessment. Such information was not available during the original assessment. Obviously the assessee would not make such disclosures. The requirement for reopening of the assessment even beyond a period of four years are therefore, satisfied. Merely because such information was supplied to the Assessing Officer by the investigation wing of the department would not mean that the Assessing Officer cannot rely upon it after of-course, perusing the same and form his own opinion on the basis of the same.
12. In the result, the petition is dismissed.