Calcutta High Court
Principal Commissioner Of Income Tax 2 ... vs M/S Purple Suppliers Pvt Ltd on 4 July, 2025
Author: T.S. Sivagnanam
Bench: T.S. Sivagnanam
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IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION [INICOME TAX]
ORIGINAL SIDE
CORAM:
THE HON'BLE THE CHIEF JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE CHAITALI CHATTERJEE (DAS)
ITAT/84/2025
IA NO: GA/2/2025
PRINCIPAL COMMISSIONER OF INCOME TAX 2 KOLKATA
VS
M/S PURPLE SUPPLIERS PVT LTD
ITAT/85/2025
IA NO: GA/2/2025
PRINCIPAL COMMISSIONER OF INCOME TAX 2 KOLKATA
VS
M/S PURPLE SUPPLIERS PVT LTD
ITAT/86/2025
IA NO: GA/2/2025
PRINCIPAL COMMISSIONER OF INCOME TAX 2 KOLKATA
VS
M/S PURPLE SUPPLIERS PVT LTD
HEARD ON : 04.07.2025
DELIVERED ON : 04.07.2025
Appearance:
Mr. Prithu Dudhoria, Adv. ...for the appellant.
Mr. J. P. Khaitan, Sr. Adv.
Ms. Swapna Das, Adv.
Mr. Siddharth Das, Adv. ...for respondent.
T.S. SIVAGNANAM, CJ. :
1. All the three appeals have been filed by the revenue under section 260A of the
Income Tax Act, 1961 (the Act) challenging the common order passed by the
Income Tax Appellate Tribunal, "A" Bench, Kolkata (the Tribunal) in ITA
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No.757/Kol/2022 to ITA No.759/Kol/2022 for the assessment years 2011-12,
2012-13 and 2013-14. Since the facts and circumstances in all the three
appeals are identical and the correctness of the order passed by the learned
Tribunal which is a common order is challenged in all the three appeals, they
are heard analogously and are disposed of by this common judgment and order.
2. The substantial questions of law suggested by the revenue are also identical
and, therefore, ITAT/84/2025 is taken as lead case which relates to the
assessment year 2011-12.
3. The revenue has raised the following substantial questions of law for
consideration :
"a) WHETHER in facts and in the circumstances of the case the Learned
Income Tax Appellate Tribunal was justified in law in holding that the
reopening was based on "borrowed satisfaction" by the Assessing Officer,
whereas the Assessing Officer had very clearly recorded his independent
satisfaction while reopening the case ?
b) WHETHER in facts and in the circumstances of the case the Learned
Income Tax Appellate Tribunal was justified in law in not considering the
order of CIT (A) which upheld the validity of the reopening of the case, and
confirmed the addition made on account of disallowances of expenses
related to purchases from Sancheti Diamonds Pvt. Ltd. which were "bogus"
in nature ?
c) WHETHER in facts and in the circumstances of the case the Learned
Income Tax Appellate Tribunal was justified in law in not following the
binding decision of Hon'ble Supreme Court in case of Priya Blue Industries
P Ltd. Vs. ACIT (2022) 138 taxmann.com 69 (SC) and holding that the
investigation report was not sufficient for the Assessing Officer to reopen
the assessment while in the said decision, the Hon'ble Supreme Court has
ruled that where Assessing Officer had reason to believe that income
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chargeable to tax had escaped assessment as assessee was beneficiary of
accommodation entries and the basis for formation of such belief were
several inquiries and investigation by the investigation Wing that there had
been escapement of income of the assessee from assessment because of
his failure to disclose fully and truly all material facts, reopening of
assessment was justified ?
d) WHETHER the Learned Income Tax Appellate Tribunal was justified in
law in quashing the reopening of the case U/s. 147 of the Act and in not
adjudicating the merits of the case when there is the involvement of the
issue of bogus purchase by the assessee?
e) WHETHER the Learned Income Tax Appellate Tribunal was justified in
law in not considering that the transactions involved in the case were not
only of highly suspicious nature, but the same were also bogus in terms of
the well settled principles of circumstantial evidence and preponderance of
probability as elicited by the Hon'ble High Court at Calcutta in the case of
Swati Bajaj (2022) 139 taxmann.com 352 (Calcutta)/(2022) 116 ITR 56
(Calcutta)?"
4. We have heard Mr. Prithu Dudhoria, learned standing counsel appearing for the
appellant/department and Mr. J. P. Khaitan, learned senior counsel for the
respondent/assessee.
5. The assessee filed these appeals before the learned Tribunal for all the three
assessment years challenging the order passed by the Commissioner of Income
Tax (Appeals), NFAC, Delhi [CIT(A)] dated 3.11.2022 arising out of separate
assessment orders under section 143(3) read with section 147 of the Act passed
by the Assistant Commissioner of Income Tax, Circle-5(1), Kolkata, dated
30.1.2018.
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6. The first aspect which has been considered by the Tribunal as well as by us is
with regard to the validity of the reopening of the assessment for all the three
years. It is seen that in so far as the assessment years 2012-13 and 2013-14,
the assessments were scrutiny assessment under section 143(3) which was also
raised.
7. The assessee is a Private Limited Company engaged in the wholesale business
of jewellery and diamond. The return of income was filed for all the three
assessment years and for the assessment year 2011-12 the same was processed
under section 143(1) and for the other two years namely, AY 2012-13 and
2013-14 they were selected for scrutiny and assessments were framed under
section 143(3) of the Act. It appears that the Assessing Officer receiving
information from the Investigation Wing, Mumbai about suspicious business
activities of M/s. Sancheti Diamonds Pvt. Ltd. (hereinafter referred to as
'Sancheti') which was having huge turnover but declared meager profit and
there was no proper business premises and the key person of Sancheti had
given a statement wherein he is alleged to have been accepted to be engaged in
providing of entries of bogus purchases. It further appears that the
Investigation Wing stated that the assessee company has entered into
transaction of purchase of goods from Sancheti during the three assessment
years and this led to issuance of notice under section 148 of the Act for
reopening the assessment. The reasons for reopening were furnished and the
assessee submitted their objections and the objections were disposed of by a
speaking order. Thereafter, the reassessment proceedings were taken and they
were completed making addition under section 69C of the Act on the ground of
bogus purchases from Sancheti. The assessee preferred appeals before the
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CIT(A) but the same was dismissed by order dated 3.11.2022. Challenging the
said order, the assessee preferred appeals before the learned Tribunal which
have been allowed by the impugned order.
8. As mentioned above, the first ground to be considered is the validity of the
reopening of the assessment proceedings and if the assessee is to succeed on
the said ground, the question of examining the merits of the case would not
arise. What is important to note is that the Assessing Officer has only disputed
the genuineness of the purchases but has accepted the sale transaction entered
into with Sancheti and others and has noted the sale figures which clearly
indicate that the assessee had business activities. The question would be
whether the Assessing Officer had reason to believe that income has escaped
assessment on account of the failure of the assessee to fully and truly disclose
all relevant particulars for the purposes of assessment. For this purpose we are
required to examine the reasons for reassessment which was communicated to
the assessee.
9. On carefully going through the reasons we find that the Assessing Officer raised
suspicion by alleging that large value of non cash transactions in the account
seems to be unusual and raises suspicion. Further it was alleged that huge
turnover does not match with the financial profile and seems suspicion and for
every year huge credits and debits are outstanding which also further raises
suspicion. The Hon'ble Supreme Court in Lakhmani Mewal Das, (1976) 103 ITR
437 (SC) held that the word contained in the statute is reason to belief or not
reason to suspect. Suspicion of the Assessing Officer towards the possible
escapement would not permit to reopen a completed assessment in defiance of
the statutory requirement of substantial nature. If the Assessing Officer did not
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have reason to believe that income has escaped assessment on account of
failure on the part of the assessee to fully and truly disclose all material
particulars for the assessment, the reopening could not have been done, that
too, based on suspicion.
10. The learned Tribunal has elaborately examined the factual position and found
that after receipt of the report from the Investigation Wing the Assessing Officer
has to first form a belief about the escapement of income and that there is a
failure on the part of the assessee to disclose all material facts in the regular
return of income filed by it. Learned Tribunal also found that the Assessing
Officer without proper application of mind and without examining the
transactions of the assessee with the available records had come to a
conclusion that income has escaped assessment to tax merely on the basis of
the suspicion. Learned Tribunal noted that the assessee apart from making
purchases from Sancheti has also made sales to Sancheti for the assessment
years 2011-12 and 2012-13, which has been accepted by the Assessing Officer.
The purchases during the assessment year 2012-12 from Sancheti is
Rs.2,69,76,121/- and the sales to Sancheti was almost 100 times at
Rs.254,32,99,846/-. Similarly, for the assessment year 2012-13 purchases
from Sancheti was Rs.141.55 crores and sales to Sancheti was approximately
Rs.4.69 Crores. Though the Assessing Officer examined the transactions
between the assessee and Sancheti, curiously enough doubt has been raised
only with regard to the purchase transactions with Sancheti while fully
accepting sales is not only Sancheti but to other companies and the entities as
well. Therefore, the learned Tribunal was justified in holding that the reopening
was carried out based on borrowed satisfaction and mere change of opinion. In
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Ganga Saran and Sons P. Ltd. vs. ITO, [1981] 130 ITR 1 (SC), it has been held
that two distinct conditions were to be satisfied before the Assessing Officer can
assume jurisdiction to issue notice under section 147 of the Act, the first
reason to believe is that income of the assessee has escaped assessment. The
important words in the said section 147(a) are "has reason to believe" and these
words are stronger than the words "is satisfied". The belief entertained by the
Assessing Officer must not be arbitrary or irrational. It must be a reasonable or
in other words, it must be based on reasons which are relevant and material.
Though the court cannot investigate into the adequacy or sufficiency of the
reasons which have weighed with the Assessing Officer in coming to the belief,
the Court can certainly examine whether the reasons are relevant and have a
bearing on the matter in regard to which he is required to entertain the belief
before he can issue a notice under section 147(1) of the Act.
11. It was further held that if there was no rational and intelligible nexus between
the reasons and the belief, so that, on such reasons, no one properly instructed
on facts and law could reasonably entertain the belief, the conclusion would be
inescapable that the Assessing Officer could not have reason to believe that any
part of the assessee's income has escaped assessment. It was further held that
"reason to believe" postulates foundation based on information and the belief
based on reason. If foundation based on information is made, there still must
be some reason which should warrant the holding of belief that income
chargeable to tax has escaped assessment.
12. It is not in dispute that for all the three assessment years the assessee has fully
disclosed all material facts and the transactions of purchase and sales and in
respect of two assessment years namely, 2012-13 and 2013-14, scrutiny
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assessment was done under section 143(3) of the Act. It is also not in dispute
that in such scrutiny assessment the revenue has accepted the purchases and
sales for those two years. This would go to show that the revenue did not
dispute the business transactions of the assessee. The statement said to have
been recorded from the key person of Sancheti appears to have been the sole
basis for issuance of the notice for reopening. The said statement has been
retracted by the deponent within less than a month and neither the Assessing
Officer nor the CIT(A) has dealt with the fact of retraction. The learned Tribunal
has considered this aspect and has pointed out that the said person had filed
an affidavit retracting the contents of the statement made on 14.1.2017 and
17.1.2017 stating that he was under tremendous stress and trauma and was
not in a proper state of mind and was without sleep and proper food and that
the statement was dictated by the Officer-in-Charge of the Sancheti and the
statement was not out of his free volition and the same was also out of
tiredness and fatigues.
13. It is no doubt true that a retraction is not always automatically accepted but
once a retraction has been made, the concerned authority, who seeks to rely
upon the statement, has to deal with the retraction and examine as to whether
the retraction was valid and despite the retraction whether the original
statement can be relied upon. The order passed by the Assessing Officer as well
as the CIT(A) are absolutely silent on this aspect. Therefore, we have no
hesitation to hold that the reassessment proceedings for all the three
assessment years, 2011-12, 2012-13 and 2013-14 are not valid.
14. For all the above reasons, the appeals are dismissed and the substantial
questions of law are answered against the revenue.
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15. Consequently, all the connected applications stand dismissed.
.
(T.S. SIVAGNANAM, CJ.)
I agree.
(CHAITALI CHATTERJEE (DAS), J.)
Pkd/S.N.
AR[CR]
