B SETHIA & SONS JEWELLERS,MUMBAI V. ACIT CIRCLE 19(1), MUMBAI

ITA 414/MUM/2025

AI Insights

The case involves B. Sethia & Sons Jewellers, a partnership firm engaged in the business of manufacturing, trading, and selling jewelry and diamonds, which appealed against the order of the CIT(A) confirming the disallowance of purchases amounting to Rs.9.56 crores as bogus. The AO had based his decision on a report from the investigation wing following a search and survey action on the Rajendra Jain group, which was alleged to have provided accommodation entries. The Tribunal noted that the AO did not independently verify the transactions or the documents provided by the assessee, nor did he examine the affidavits from the suppliers confirming the transactions. The Tribunal emphasized the need for a thorough investigation and independent inquiry in such cases, rejecting the AO's reliance on generalized reports and suspicions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31991 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Other Referred Cases: N K Proteins Ltd vs. DCIT, N K Industries Ltd vs. DCIT, Andaman Timber Industries vs. Civil Appeal No.4228 of 2006, Ashok Kumar Rungta vs. ITO, Principal Commissioner of Income-tax-1 Vs. SVD Resins & Plastics (P.) Ltd, Principal Commissioner of Income-tax Vs. Shapoorji Pallonji and Co. Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: RAHUL SARDA; SUCH
• Keywords: Set aside; Bogus purchase; Accommodation entries; Bogus

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 414/MUM/2025 : A.Y : 2012-13 B. Sethia & Sons Jewellers JW 5050, Bharat Diamond Bourse, Bandra Kurla Complex, Bandra (E), Mumbai 400 051. PAN : AACFB8959R (Appellant) Vs. Assistant Commissioner of Income Tax, Circle 19(1), Mumbai. (Respondent) Appellant by : Shri Rahul Sarda Respondent by : Shri Leyaqat Ali Aafaqui, Sr. DR Date of Hearing : 04/03/2025 Date of Pronouncement : 17/03/2025 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER : The assessee has filed this appeal challenging the order dated 17-01- 2025 passed by Ld CIT(A), NFAC, Delhi and it relates to the assessment year 2012-13. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the disallowance of purchases holding them as bogus purchases. 2. The facts relating to the case are discussed in brief. The assessee is a partnership firm and it is carrying on the business of manufacturing, trading and sale of jewelleries, cut and polished diamonds. It filed its return of income for the year under consideration declaring a total income of Rs.48,57,630/-. The assessing officer received information that the assessee has made 2 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers purchases from the following concerns, which belonged to Rajendra Jain group:- Sl. No. Name of parties Purchase amount 1. M/s Kailash 1,18,53,640 2. M/s Arihant 3,52,13,635 3. M/s Sun 1,34,57,090 4. M/s Karnavat 2,43,32,425 5. M/s Kriya 1,07,35,410 TOTAL 9,55,92,200 3. A search and survey action was carried out in the case of M/s Rajendra Jain Group on 03-10-2013. It was noticed that they were engaged in the business of providing accommodation entries in the form of sales, unsecured loans, advances etc. The AO, fully placing reliance on the report given by the Investigation wing, took the view that the purchases made by the assessee from the above said concerns are bogus in nature. In this regard, the AO has also extracted the report of the investigation wing including the statement given by Shri Rajendra Jain in the assessment order. Accordingly, the AO show caused the assessee as to why the above said purchases should not be treated as bogus in nature. 4. In response thereto, the assessee produced the books of accounts, purchase and sales register along with purchase invoices and sales bills before the AO. It was further submitted that the transactions were entered through banking channels. Accordingly, the assessee contended that its purchases and sales are genuine. However, the AO did not examine those documents furnished by the assessee. The assessing officer, however, discussed various modes and reasons for procuring accommodation bills. One of such reasons is the necessity to reduce the profits by inflating the purchases. In the case of 3 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers the assessee, the AO concluded that the assessee firm has indulged in inflating the purchases through bogus bills. The relevant observations made by the AO are extracted below:- “16. From the circumstantial evidences collected through the various facts and the corroborative evidence in form of statements of the commission agents through which bogus bills were collected it is clear that the assessee firm is indulged in inflating the purchases through bogus bills.” The AO further placed reliance on the decision rendered by Hon’ble Apex Court in the case of N K Proteins Ltd vs. DCIT (2017)(Tax Pub(DT) 1860)(SC) and also the decision of Hon’ble Gujarat High Court in the case of N K Industries Ltd vs. DCIT (2016)(292 CTR (Guj) 354)(Guj) and held that the entire purchases is required to be disallowed. Accordingly, the AO disallowed entire amount of purchases of Rs.9.56 crores made through above said concerns. 5. Before Ld CIT(A), the assessee made detailed submissions. It contended that there is no evidentiary value to the statement taken during the course of survey operations. It was submitted that the AO has wrongly relied upon the statement given by Shri Rajendra Jain, since he is not connected with any of the above said concerns, from whom the assessee had made purchases. It was submitted that the assessee has furnished all the documents to prove the factum of purchases. It was also contended that both the case laws relied upon by the AO are not applicable to the facts of the present case. It was submitted that the assessee has sold the materials purchased from these parties, i.e., the sales could not have been made without actually purchasing the materials. It was further submitted that all these suppliers have furnished affidavits confirming the sales made by them to the assessee. Accordingly, it was contended that there is no necessity to suspect these purchases and hence the AO was not justified in disallowing the same. Further, the assessee placed its reliance on the following decisions rendered by the co-ordinate benches of Tribunal:- 4 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers (a) The ACIT vs. Say India Jewellers P Ltd (ITA No.6735/Mum/2010) (b) Tristar Jewellery Exports P Ltd vs. The DCIT (ITA No.8292/Mum/2011) (c) The DCIT vs. Indo Unique Trading P Ltd (ITA No.6341/Mum/2016) (d) The ACIT vs. Shri Ramila Pravin Shah (ITA No.5246/Mum/2013) (e) PCIT vs. Tejua Rohitkumar Kapadia (SC) (f) DCIT vs. Ronak Gems P Ltd (ITA No.3118/Mum/2017) (g) Chandra Exports vs. ITO (ITA No.4444/Mum/2018) The assessee also placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Andaman Timber Industries (Civil Appeal No.4228 of 2006), wherein it was held that non-allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. 6. The ld CIT(A), however, was not convinced with the contentions of the assessee. Accordingly, he dismissed the appeal of the assessee and confirmed the addition made by the AO. 7. We heard the parties and perused the record. We notice that the AO has made the impugned addition by placing reliance entirely on the report given by the investigation wing. There should not be any dispute that the report given by the wing is a generalized report and it only triggers further investigation on the part of the AO, i.e., the AO is required to carry out necessary investigation in order to find out as to whether the transactions carried out by the assessee were real one or they were only accommodation entries. However, we notice 5 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers that the AO did not conduct any independent enquiry in order to disprove the transactions carried on by the assessee. 8. On the other hand, we notice that the assessee has furnished all the documents to prove the purchases made from the above said parties. It was submitted that the payments were made to the suppliers through banking channels. Further, the assessee has furnished copies of affidavits given by the above said suppliers confirming the sales made to the assessee. We notice that the AO did not make any enquiry with the suppliers to disprove the affidavits so furnished by them. The assessee has also reconciled the purchases with sales. The stock details were furnished. There should not be any doubt that the assessee could not have sold the materials without purchasing them. The Ld A.R submitted that the AO has placed reliance on the statement given by Shri Rajendra Jain. However, he is not proprietor or partner of any of the concerns from which the assessee had made purchases. 9. We noticed that the AO had placed reliance on the decision rendered by Hon’ble Supreme Court in the case of N K Proteins (supra). We notice that there is no parity of facts between the above said case and that of the assessee, which has been explained by the assessee before ld CIT(A). In the case of N K Proteins, the fact of bogus purchases were proved with the evidences, while in the instant case, the AO has only drawn adverse inferences on suspicion and surmises without conducting any type of enquiry or bringing any material on record to prove his inference. Similarly in the case of N K Industries, the sales were not proved. Hence both the case laws will not be applicable to the facts of the present case. 10. The Ld A.R placed his reliance on the decision rendered by Hon’ble Bombay High Court has held in the case of Ashok Kumar Rungta vs. ITO (2024)(167 taxmann.com 429)(Bom), wherein it has been held that the addition made by the AO on account of alleged bogus purchases is not sustainable if the AO has not brought any cogent and convincing evidence to prove his decision. 6 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers The relevant observations made by Hon’ble Bombay High Court are extracted below:- “17. This very bench had occasioned to deal with a similar issue in the case of Principal Commissioner of Income-tax-1 Vs. SVD Resins & Plastics (P.) Ltd.2, where, repelling a challenge by the Revenue, to a decision of the ITAT curtailing the disallowance of allegedly bogus purchases to 12.5%, the following observations were made:- \"11. We may observe that in the facts of the present case, the basic premise on the part of the A.O. so as to form an opinion that the disputed purchases were [2024] 166 taxmann.com 242 (Bombay) October 15, 2024 Aarti Palkar J- 904.ITXA.1753.2018.doc not having nexus with the corresponding sales, appears to be not correct. It is seen that what was available with the department was merely information received by it in pursuance of notices issued under section 133(6) of the Act, as responded by some of the suppliers. However, an unimpeachable situation that such suppliers could be labeled to be not genuine qua the assessee or qua the transaction entered with the assessee by such suppliers, was not available on the record of the assessment proceedings. It is an admitted position that during the assessment proceedings, the assessee filed all necessary documents in support of the returns on which the ledger accounts were prepared, including confirmation of the supplies by the suppliers, purchase bills, delivery bank statements etc. to justify the genuineness of the purchases, however, such documents were doubted by the AO on the basis of general information received by the AO from the Sales Tax Department. In our opinion, to wholly reject these documents merely on a general information received from the Sales Tax Department, would not be a proper approach on the part of the AO, in the absence of strong documentary evidence, including a statement of the Sales Tax Department that qua the actual purchases as undertaken by the assessee from such suppliers the transactions are bogus. Such information, if available, was required to be supplied to the assessee to invite the response on the same and thereafter take an appropriate decision. Unless such specific information was available on record, it is difficult to accept that the AO was correct in his approach to question such purchases, on such general information as may be available from the Sales Tax Department, in making the impugned additions. This for the reason that the same supplier could have acted differently so as to generate bogus purchases qua some parties, whereas this may not be the position qua the others. Thus, unless there is a case to case verification, it would 7 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers be difficult to paint all transactions of such supplier to all the parties as bogus transactions. 12. In our opinion, a full addition could be made only on the basis of proper proof of bogus purchases being available as the law would recognise before the AO, of a nature which would unequivocally indicate that the transactions were wholly bogus. In the absence of such proof, by no stretch of imagination, a conclusion could be arrived, that the entire expenditure claimed by the petitioner qua such transactions need to be added, to be taxed in the hands of the assessee. 13. In a situation as this, the A.O. would be required to carefully consider all such materials to come to a conclusion that the transactions are found to be bogus. Such investigation or enquiry by the AO also cannot be an enquiry which would be contrary to the assessments already undertaken by the Sales Tax Authorities on the same transactions. This would create an anomalous situation on the sale- purchase transactions. Hence, in our opinion, wherever relevant any conclusion in regard to the transactions being bogus, needs to be arrived only after the A.O. consults the Sales Tax Department and a thorough enquiry in regard to such specific transactions being bogus, is also the conclusion of the Sales Tax Department. In a given case in the absence of a cohesive and coordinated approach of the A.O. with the Sales Tax Authorities, it would be difficult to come to a concrete conclusion in regard to such purchase/sales transactions being bogus merely on the basis of general information so as to discard such expenditure and add the same to the assessee's income. 14. Any half hearted approach on the part of the AO to make additions on the issue of bogus purchases would not be conducive. It also cannot be on the basis of superficial inquiry being conducted in a manner not known to law in its attempt to weed out any evasion of tax on bogus transactions. The bogus transactions are in the nature of a camouflage and/or a dishonest attempt on the part of the assessee to avoid tax, resulting in addition to the assessee's income. It is for such reason, the approach of the AO is required to be well considered approach and in making such additions, he is expected to adhere to the lawful norms and well settled principles. After such scrutiny, the transactions are found to be bogus as the law would understand, in that event, they are required to be discarded by making an appropriate permissible addition. ***** 8 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers 16. The assessee has happily accepted such finding as this has benefited the assessee, looked from any angle. However, in a given case if the Income-tax Authorities are of the view that there are questionable and/or bogus purchases, in that event, it is the solemn obligation and duty of the Income-tax Authorities and more particularly of the A.O. to undertake all necessary enquiry including to procure all the information on such transactions from the other departments/authorities so as to ascertain the correct facts and bring such transactions to tax. If such approach is not adopted, it may also lead to assessee getting away with a bonanza of tax evasion and the real income would remain to be taxed on account of a defective approach being followed by the department.\" [Emphasis Supplied] 18. The aforesaid analysis would squarely apply to the facts of the instant case. Not only has the Assessing Officer not conducted the exercise as expected of him, the CIT-A has effected a summary measure of disallowing 10% of the expenses and the ITAT has been happy to endorse the same as an equitable middle ground. Such an approach cannot be endorsed as a process known to law to disallow expenses on the premise of their being bogus. 19. Another decision of a Division Bench of this Court in the case of Principal Commissioner of Income-tax Vs. Shapoorji Pallonji and Co. Ltd.3 is noteworthy. The relevant portions are extracted below:- “17. On further appeal before the Tribunal by the respondent - assessee, Tribunal held as under: \"16. Having heard rival submissions, we are of the view that there is merit in the submissions made by the assessee. We notice that the AO has simply relied upon the Sales Tax Department report about suspicious dealers, without making independent inquiries. On the contrary, the assessee has furnished all the materials to prove the genuineness of purchases and the AO has failed to show that those materials were bogus. Under these set of facts, we are of the view that there is no justification in doubting the genuineness of purchases made by the assessee. Further, these alleged bogus purchases forms a minor fraction of total volume of the assessee company and it is stated that there is no day to day involvement of the management. It was further submitted that the assessee is having strict internal controls. Hence we are of the view 9 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers that the AO has not made a proper ground in support of the disallowance. Accordingly we set aside the order passed by Ld. CIT (A) on this issue and direct the AO to delete the addition of Rs.3,23,944/-.\" 18. Thus, we find that according to the Tribunal the assessing officer had merely relied upon information received from the Sales Tax Department, Government of Maharashtra without carrying out any independent enquiry. Tribunal had recorded a finding that assessing officer had failed to show that the purchased materials were bogus and held that there was no justification to doubt genuineness of the purchases made by the respondent - assessee. 19. We are in agreement with the views expressed by the Tribunal. Merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent - assessee to controvert the statements made by the sellers before the other authority. Accordingly, we do not find any good ground to entertain this question for consideration as well.\" [Emphasis Supplied] 20. The Supreme Court dismissed the Special Leave Petition challenging the aforesaid decision. In the instant case, the onus of bringing the purchases by the Appellant-Assessee under cloud was on the Respondent-Revenue, which has not discharged this burden in the first place. Apart from the inputs being received from the investigation wing, there is nothing concrete in the material on record that was used to confront the Appellant-Assessee. If the counterparties in these purchases could not be produced years later, simply adopting a 10% margin for disallowance, without any cogent or convincing evidence, in our opinion, would be unreasonable and arbitrary. It is repugnant for the ITAT to uphold such an addition of 10% of the allegedly bogus purchases to the income of the Appellant-Assessee, despite returning a firm finding that the AO Order was untenable not being backed by cogent and convincing evidence. 21. Therefore, in our opinion, the substratum of the adverse findings returned in the AO Order having been undermined, we are unable to agree, in the facts and circumstances of the case, with the conclusion of the ITAT. As a result, the Impugned Order deserves to be set aside and these Appeals are disposed of in favour of the Appellant-Assessee and against the Respondent-Revenue. Consequently, all the three captioned Appeals stand allowed. No costs.” 10 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers 11. In our view, the above said binding decision of Hon’ble Bombay High Court would apply to the facts of the present case. In the instant case also, the AO merely placed reliance on the report prepared by the Investigation wing. He did not find fault with any of the documents furnished by the assessee to prove the purchases. He also did not bring any material on record to prove that these purchases were bogus in nature. As observed earlier, the report of the investigation wing will trigger further probe and it alone cannot be the basis for making addition. Admittedly, in the instant case, the AO did not carry out any enquiry in this case. As held by Hon’ble Bombay High Court in the above said case, “merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent - assessee to controvert the statements made by the sellers before the other authority”. Hence, in the facts of the present case, we are of the view that the AO was not justified in disallowing the entire purchases treating them as bogus on the basis of his suspicion and surmises. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned addition. 12. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 17 March, 2025. Sd/- Sd/- (SANDEEP GOSAIN) JUDICIAL MEMBER (B.R. BASKARAN) ACCOUNTANT MEMBER Mumbai, Date : 17 March, 2025 *SSL* 11 ITA No. 414/Mum/2025 B. Sethia & Sons Jewellers Copy to : 1) The Applicant 2) The Respondent 3) The CIT concerned 4) The D.R, “B” Bench, Mumbai 5) Guard file By Order Dy./Asstt. Registrar I.T.A.T, Mumbai "