ACIT-19(1), MUMBAI V. PARUL DIAMOND, MUMBAI

ITA 6992/MUM/2024

AI Insights

The case involves the Income Tax Department (revenue) and Parul Diamond (assessee), where the revenue challenged the CIT(A)'s decision to reduce the addition for bogus purchases from 100% to 6%. The assessee was accused of making purchases from a company, Mohit Enterprises, which was allegedly a shell company involved in providing accommodation entries for bogus purchases. The AO initially added the entire amount of these purchases to the assessee's income, but the CIT(A) later reduced this addition to 6%, citing precedents from similar cases. Both parties appealed to the Tribunal, which upheld the CIT(A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 790803 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 31-12-2024
• Other Referred Cases: M/s. N. K. Proteins Ltd. Vs. Dy. CIT, Sri. Ganesh Rice Mills Vs. CIT, M/s. Swetamber Steels Ltd., Kanak Impex (India) Ltd. vs. Pr. Commissioner of Income Tax-5, Mumbai, M/s Sai Diamond
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND JAVERI; AR
• Assessee Lawyers: PRAVIN SALUNKHE; DR
• Keywords: Bogus purchase; Tax effect; Search and seizure; Accommodation entries; Bogus
• Section: 148; 132; 153A; 68; 133(6); 69C; 37

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “H(SMC)” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SHRI OMKARESHWAR CHIDARA (ACCOUNTANT MEMBER) I.T.A. No. 6992/Mum/2024 Assessment Year: 2007-08 ACIT – 19(1), Mumbai Vs. Parul Diamond 30-a, Amar Wing Tirupati Apartment B.D. Desai Road Opp. Mahalaxmi Temple Maharashtra - 400026 [PAN: AAAFP4784E] (Appellant) (Respondent) C.O. No. 53/Mum/2025 Assessment Year: 2007-08 Parul Diamond 30-a, Amar Wing Tirupati Apartment B.D. Desai Road Opp. Mahalaxmi Temple Maharashtra - 400026 [PAN: AAAFP4784E] Vs. ACIT – 19(1), Mumbai (Appellant) (Respondent) Appellant by Shri Govind Javeri, A/R Respondent by Shri Pravin Salunkhe, Sr. D/R Date of Hearing 04.11.2025 Date of Pronouncement 02.12.2025 ORDER Per Bench: The present appeal by the revenue and cross-objection by the assessee are filed against the order dated 31/12/2024 passed by the ld. CIT(A) – 51, Mumbai on following grounds:- Grounds of appeal in r/o ITA No. 6992/Mum/2024: “1. “ Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 6% as against the 100% Printed from counselvise.com 2 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 addition of Rs. 6,66,602/- made by the AO on account alleged bogus purchases from M/s.Mohan Enterprises, a dummy company of Mr. Shri Bhawarlal Jain Group ? ” 2. “ Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 6 % as against 100% addition of Rs. 6,66,602/- made by the AO on account bogus purchases from M/s . Mohan Enterprises, a paper/dummy company of Shri Bhawarlal Jain Group, without considering the fact that the action of the AO was based on the information of the DGIT (Investigation Wing) Mumbai, who have proved beyond doubt with the evidences/documents, during and post search and seizure that M/s. Mohan Enterprises, a dummy entity , was controlled & owned by Shri Bhawarlal Jain Group, involved in providing fake invoices for bogus purchases through dummy entities and the assessee was found to be one of such beneficiary who has obtained invoices without actual delivery of goods or materials ? \" 3. “ Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred by ignoring the element of reasons for procuring of bogus invoices, when it was observed that GP on these bogus invoices were almost matching with the GP, as per genuine invoices and therefore, such estimation of income out of bogus purchases with GP, as per regular books of accounts is not justified?\" 4. \" Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in estimating the income of bogus Purchases on the basis of comparing of bogus purchases with the purchases in the regular books of accounts ignoring that the fact of procuring bogus invoices leads to the un¬verified inflation of purchase price by the assessee which cannot be compared with the regular GP of the books of Accounts ?” 5. \" Whether on the facts and in the circumstances of the case and in law, the order of Ld. CIT (A) has erred in allowing the assessee to flout laws and escape by bringing under tax just a miniscule percentage of bogus purchases even when the conduct of the assessee constituted offence under indirect tax laws and no expenditure in relation to an offence is allowable under income tax e.g. Section 37 of the Income Tax Act, 1961 ?” 6. “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 6 % as against the 100% addition of Rs. 6,66,602/- made by the AO , without appreciating the decision of the Hon'ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Gul) 354, Dated. 16.01.2017, wherein the Hon'ble Court has held that “ Once a findings of act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P & L account are established as bogus , then restricting the addition to a curtained percentage goes against the principles of section 68 and 69C of the Income-Tax Act, 1961 9” Printed from counselvise.com 3 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 7. \" Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) is perverse in not considering that Hon'ble Apex Court dismissed SLP filed by assessee against the order of Hon'ble High Court of Gujarat reversing the order of Hon'ble ITAT, Ahmadabad in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (GuJ.) 354, Dated. 16.01.2017 , which is on the similar issue of bogus purchases and that this order of the Hon’ble High Court of Gujarat disallowing 100% of the bogus purchases was already law of the land when the Ld. CIT(A) pronounced its order on 15.10.2024 ?” 8. “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 6 % as against the 100% addition of Rs. 6,66,602/- made by the AO , without appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra) , the Hon’ble ITAT, Ahmadabad had conformed the disallowance of the bogus purchase, by stating that the purchases shown from respective parties were found non- genuine and the decision of the ITAT was upheld by Hon'ble Gujrat High Court and also by the Hon’ble Supreme Court ?” 9. “ Whether on the facts and in the circumstances of the case and in law, Ld CIT(A) has erred in not considering that after invocation of provisions of section 145(3) of the Act, the Assessing Officer acquired the mandate even to add the whale amount of purchases found as bogus to the total income of the assessee and without considering the decision in Sri. Ganesh Rice Mills Vs. CIT 294 ITR 316 (All), wherein the entire amount of bogus purchases from parties which are found to be non- genuine was disallowed and the same was also upheld ?” 10. \" Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 6% as against the 100% addition of Rs. 6,66,602/- made by the AO , by ignoring the fact that the decision of Hon'ble ITAT in the case of M/s. SAI Diamond, (ITA. No. 3165/Mum /2023, referred by Ld. CIT(A), for deciding this appeal has been challenged by the Department before Hon'ble Bombay High Court ? ” . 11. The tax effect involved in the instant case is Rs. 1,87,982/- , which is below the prescribed limit as per CBDTs Amended Circular No 09/2024, dated. 17.09.2024. However, this case falls under one of the exceptions specified in paragraph 3.1 (h) of the stated Circular, wherein it is stated that in cases involving “ Organized Tax Evasion\" , including cases of accommodation entry of bogus purchases, the decision to file appeal/ SLP shall be taken on merit without regard to the tax effect and the monetary limit.” Grounds of appeal in r/o C.O. No. 53/Mum/2025: “1. The First Appellate Authority ought to have held that the notice issued by the Assessing Officer u/s. 148 of the Act and consequential assessment order passed by him are without jurisdiction invalid, bad in law and void ab-initio. Printed from counselvise.com 4 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 2. The First Appellate Authority has erred in restricting the addition made by the Assessing Officer to Rs. 39,996/- being 6% of the alleged bogus purchases. 3. The First Appellate Authority ought to have followed the GP rate @3% adopted by the Assessing Officer in the assessee's own case for A.Y. 2010-11, 2011-12 and 2012-13 as well as order passed by the CIT(A) in case of Sanjay Brothers (sister concern of the assessee) for A.Y. 2007-08 and 2008-09. 4. The assessee craves leave to add to, alter, amend and/or delete any of the cross objections.” 2. Brief facts of the case are as under:- The assessee is a partnership firm that was engaged in the business of trading and export of diamonds. The return for the year under consideration was filed on 14/10/2007 declaring total income of Rs. 82,599/-. The said return was processed u/s 143(1) of the Act. Subsequently, search u/s 132 of the Act was carried out at the premises of the assessee and notice u/s 153A of the Act was issued on 13/09/2010. In response to the notice, the assessee filed its return of income same as the original return filed declaring total income of Rs. 82,599/-. Subsequently, notice u/s 143(2) was issued calling upon assessee to file various details. Based on the details furnished, the Ld. AO passed order u/s 153A/143(3) of the Act on 30/12/2011 by accepting the return filed by the assessee without making any adjustment to it. 2.1. Subsequently, notice u/s 148 of the Act was issued on 26/03/2014 in response to which assessee filed letter dated 16/04/2014 requesting to treat the original return filed on 20/11/2010 in response to the notice u/s 148 of the Act. The assessee requested the Ld. AO to furnish reasons recorded before issuance of notice u/s 148 of the Act. The Ld. AO on 19/06/2014 Printed from counselvise.com 5 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 provided the reasons recorded to the assessee which is scanned and reproduced as under:- The assesse thereafter vide letter dated 02/02/2015 raised various objections challenging the reopening of the assessment based on the reasons recorded which was rejected by the Ld. AO vide order dated 12/02/2015. Printed from counselvise.com 6 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 2.2. The Ld. AO thereafter called for various details during the re- assessment proceedings, which were furnished by the assessee. The Ld. AO, based on the information from Investigation Wing of the Department, formed the opinion that assessee was a beneficiary of accommodation entries of bogus purchases from Mohit Enterprises managed by Bhawarlal Jain and Manish Jain of bogus purchases amounting to Rs. 6,66,602/-. The Ld. AO observed that, in the statement recorded by Bhawarlal Jain and Praveen Jain, there was admission that all the concerns managed by them were in the business of providing accommodation entries in the nature of bogus purchases to various beneficiaries. 2.3. Upon analysing the balance-sheet of Mohit Enterprises, the Ld. AO was of the opinion that it is a shell company with no assets and accordingly held that purchases made by assessee from Mohit Enterprises was bogus and not genuine. The Ld. AO also observed that, the assesse failed to prove genuineness of the said transactions and, therefore, the Ld. AO treated the entire purchased claimed by the assessee to be bogus amounting to Rs. 6,66,602/-. Aggrieved by the order of the Ld. AO, the assessee preferred appeal before the Ld. CIT(A). 3. Before the Ld. CIT(A), it was submitted that, the assessee had provided with preliminary evidence to prove genuineness of the purchases by substantiating the transactions by filing following documents before both the Ld. CIT(A) as well as the Ld. AO :- “a. Purchase bills of the suppliers including that of M/s. Mohit Enterprises b. Sales made by the appellant out of purchases. Printed from counselvise.com 7 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 c. Purchase register d. Sales register e. Bank statements to show payments made to suppliers in regular course of the business f. Stock book - which is matching with stock details mentioned in tax audit report submitted before the Assessing Officer g. Bank certificate for realization of export proceeds on the goods exported out of the purchases made from M/s. Mohit Enterprises h. Confirmation as per books of M/s. Mohit Enterprises and i. Affidavit dated 11.09.2014 of Shri GautamKumarN. Kumat, the proprietor of M/s. Mohit Enterprises for having sold diamonds to the appellant, having received payment against supply of these diamonds and having reflected these transactions in his books of account.” 3.1. Based on the above documents, the Ld. CIT(A) observed and held as under:- “7.3.1 The findings of the AO and the submission of the appellant have been perused. The sole issue in this ground of appeal pertains to the addition of Rs. 6,66,602/- being the amount of bogus purchase made from M/s Mohit Enterprises. The appellant in the submission has argued that the AO has erred in making this addition as all the bills and documents relating to the purchases were submitted with the AO and that these payments were made through account payee cheques. The contention of the appellant is devoid of merit since it is a normal practice in the case of accommodation entries that bills and vouchers and ledger accounts are up to date. The fact that the Sales Tax Department has cancelled their TIN and also it has been brought out in extensive enquiries done by them that the entities in question are not genuine and are only providing accommodation entries. In view of the above and also in view of the detailed findings given by the AO in his assessment order, I hold that there is no infirmity in the action of the AO in treating these purchases as bogus. As regards the contention of the appellant that the statement of Bhanwarlal Jain, on the basis of which the addition has been made, was not provided it is held that the addition has been made on the basis of independent analysis done by the AO on the basis of documents available on record and therefore there is no substance in this argument of the appellant also. 7.3.2 As regards the quantum of addition to be made, I am in agreement with the submission of the appellant that the AO has not disputed the sales made by it and since there can be no sales without purchase only the profit element embedded in the purchases may be added back. The Printed from counselvise.com 8 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 AO has however added back the entire amount. It is also seen that the ITAT, Mumbai in the case of M/s Sai Diamond, which is in the same line of business and having comparable activity, for A.Y. 2012-13 has already held that addition @ 6% of the alleged bogus purchase can only be made. Respectively following the decision of ITAT, it is held that the GP addition @ 6% of the bogus purchase made from M/s Mohit Enterprises can only be upheld. Accordingly, the addition of the AO is restricted to Rs.39,996/-, being 6% of the bogus purchase and the balance amount of Rs.6,26,606 /- is deleted. Ground No 5,6 and 7 is therefore partly allowed.” Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. 4. The Ld. DR, at the outset, submitted that the financials of Mohit Enterprises does not establish the transactions to be genuine. He placed reliance on the report relied on by the Ld. AO of the Investigation Wing at the time of assessment. He also placed reliance on the judgment of Hon’ble Bombay High Court in the case of Pr. Commissioner of Income Tax-5, Mumbai vs. Kanak Impex (India) Ltd. in Income Tax Appeal No. 791 of 2021; judgment dated 03/03/2025. 4.1. On the contrary, the Ld. AR submitted that, the view taken by the Ld. CIT(A) is based on preliminary evidence furnished by the assessee. He submitted that, Ld.CIT(A), in any event, has restricted the disallowance at 6% of the alleged bogus purchases. He submitted that as the GP of the assessee in respect of the disclosed business was on the similar line, the alleged bogus purchases from Mohit Enterprises was disallowed only @6%. He submitted that, against the balance, assessee is in appeal before this Tribunal in the cross-objection. The Ld. AR submitted that entire addition deserves to be deleted as nothing contrary could be established by the Ld. AO and the sales offered by the assessee has been accepted. Printed from counselvise.com 9 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 We have perused the submissions advanced by both the sides in light of the record placed before us. 5. It is noted that, Ld. AO had issued notice u/s 133(6) of the Act wherein, the supplier confirmed the transactions. Under such circumstances, the entire addition made by Ld. AO is not justified unless anything contrary to the details furnished by the assessee is established by the revenue authorities. The Ld. CIT(A) has relied on the decision of this Tribunal in the case of M/s. Sai Diamond under similar circumstances, which is a sister concern of the assessee wherein, the addition was restricted at 6% of the alleged bogus purchases. Under such circumstances, we do not find any infirmity in the view taken by Ld. CIT(A) and the same is upheld. Accordingly, grounds raised by the revenue as well as the assesse stand dismissed. In the result, appeal and cross-objection filed by the revenue as well as the assessee respectively, stands dismissed. Order pronounced in the open court on 02/12/2025 Sd/- Sd/- (OMKARESHWAR CHIDARA) (BEENA PILLAI) Accountant Member Judicial Member Mumbai Dated: 02/12/2025 SC Sr. P.S. Printed from counselvise.com 10 I.T.A. No. 6992/Mum/2024 C.O. No. 53/Mum/2025 Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "