CHINAR GEMS,BG KHER ROAD WORLI, MUMBAI, MAHARASHTRA V. INCOME TAX OFFICER CIRCLE 23(1)(1), MUMBAI, PIRAMAL CHAMBER,MUMBAI

ITA 1439/MUM/2025

AI Insights

The case involves Chinar Gems, a company engaged in the trading of cut and polished diamonds, which was accused of making bogus purchases from Daksh Diamonds, a concern managed by Shri Bhanwarlal Jain, known for providing accommodation entries. The Income Tax Officer (ITO) initiated reassessment proceedings under section 147 of the Income Tax Act, 1961, based on information from the DGIT (Investigation) about these bogus transactions. The Assessing Officer (AO) treated the entire purchases of INR 84,23,658 as non-genuine and made additions under section 69C of the Act. The CIT(A) upheld the AO's decision but restricted the addition to 7% of the bogus purchases, acknowledging that no sales could occur without corresponding purchases. Both the assessee and the Revenue appealed to the Tribunal, which upheld the CIT(A)'s decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717636 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 28-02-2025
• Other Referred Cases: M/s. N.K. Proteins Ltd. Va. Dy. CIT, Pr. Commissioner of Income-Tax-5, Mumbai Vs. Kanak Impex (India) Ltd., CIT v/s Simit P Sheth, Mohd. Haji Adam
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIRABHADRA S. MAHAJAN
• Assessee Lawyers: SANJUKTA SAMANTARA
• Keywords: Reassessment proceedings; Unexplained expenditure; Bogus purchase; Onus to prove; Tax effect; Search and seizure; Accommodation entries; Bogus
• Section: 147; 148; 142(1); 68; 133(6); 69C; 37

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.1439/Mum/2025 ITA No.1440/Mum/2025 (Assessment Year : 2010-11) (Assessment Year : 2011-12) Chinar Gems, 1701, Midtown Apartments, Campa Cola Compound, BG Kher Road Worli, Mumbai - 400018 PAN : AABFC3887E ............... Appellant v/s Income Tax Officer, Circle – 23(1)(1), Piramal Chamber, Mumbai-400012 ……………… Respondent ITA No.2240/Mum/2025 ITA No.2236/Mum/2025 (Assessment Year : 2010-11) (Assessment Year : 2011-12) Income Tax Officer – 23(1)(1), Mumbai ............... Appellant v/s Chinar Gems, 1701, Midtown Apartments, Campa Cola Compound, BG Kher Road Worli, Mumbai - 400018 PAN : AABFC3887E ……………. Respondent Assessee by : Ms. Sanjukta Samantara Revenue by : Mr. Virabhadra S. Mahajan, (Sr.DR) Date of Hearing – 13/08/2025 Date of Order - 14/08/2025 Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 2 O R D E R PER BENCH: The present cross appeals have been filed against the separate impugned orders dated 13.01.2025 and 14.01.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals) – 51, Mumbai [“learned CIT(A)”], for the assessment years 2010-11 and 2011-12, respectively. 2. The only issue that arises for our consideration in the present cross appeals pertains to the addition on account of alleged bogus purchases by the assessee, and therefore, these appeals were heard together and decided by way of this consolidated order. With the consent of the parties, the cross- appeal for the assessment year 2010-11 is considered as a lead case, and the decision rendered therein shall apply mutatis mutandis to the cross-appeal for the assessment year 2011-12. 3. In its appeal for the assessment year 2010-11, the assessee has raised the following grounds: – “1. On the facts and circumstances of the case and in law the Id. CIT (A) erred in confirming the action of Id. AO in reopening the assessment by issue of notice u/s. 148, which is illegal and bad-in-law or otherwise void for want of jurisdiction. 2. On the facts and circumstances of the case and in law the Id. CIT (A) erred in confirming the action of Id. AO in reopening the assessment by issue of notice u/s, 148 of the Act, which barred by limitation in view of first proviso to section 147 of the Act. 3. On the facts and circumstances of Appellant's case and in law the Id. CIT (A) erred in confirming the action of the Id. A.O. erred in holding that the appellant has made bogus purchase of Rs.84,23,658/- during the course of search, for reasons stated in the impugned order or otherwise. Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 3 4. On the facts and circumstances of Appellant's case and in law the Id. CIT (A) erred in confirming the addition of gross profit on alleged bogus purchase to the extent of 7% amounting to Rs.5,89,656/- u/s 69C of the Act, for the reasons stated in the impugned order or otherwise. 5. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing.” 4. While the Revenue has raised the following grounds in its appeal for the assessment year 2010-11: – “1. \"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to Rs. 5,89,658/- being 7% as against 100% made by AO u/s 69C of the Act, on account of un-explained expenditure on bogus purchases from M/s. Daksha Diamonds, a paper concerns, managed and controlled by Mr. Bhanwarlal & Rajendra Jain Group?\" 2. \"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition upto 7% as against 100% made by AO u/s 69C of the Act, by ignoring the fact that action of AO was based on the information & discreet report of the DGIT (Inv.) Mumbai, who has proved beyond doubt with evidences & recorded statements of Mr. Bhanwarial Jain that M/s. Daksha Diamonds a paper concerns, managed & controlled by his groups with a sole purpose of providing accommodation entries of bogus purchases/ sales & loans and the assessee firm was found to be one of beneficiary who has obtained accommodation entries of bogus purchases of diamonds without actual delivery and thus transaction were undertaken to generate paper tail only ?\" \"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition upto 7%, without appreciating the fact that during the Search operations conducted, no stock of diamonds or related materials pertaining to business was found and during the re assessment proceedings, the assessee has also failed to prove genuineness and creditworthiness of transactions as well as party vindication, by not producing the documents/ evidences/ delivery challans, stock registers etc. before Assessing officer?” 4. “Whether on the facts and circumstances of the case and in Inus, the Ld CIT(A) has erred in restricting addition upto 7% of unexplained bogus purchases, by 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- certified inflation of purchase price by the assessee which cannot be compared with the regular GP of the books of accounts ?\" 5. “Whether in the facts and circumstances of the case, the ld CIT(A) was justified in holding that income from bogus purchase transaction should be restricted to 7% of total value of bogus purchase transactions, although there was no dispute that the bogus purchases were made and so act of infraction Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 4 of law was committed by the assessee on provision of section 74(1A) of the Maharashtra Value Added Tax Act 2002 and such purchases are not allowable as per express provisions u/s. 37 of the Act? 6. \" Whether on the facts and circumstances of the case and in law, the decision of the Ld. CIT(A), is right in view of the latest decision of the Hon'ble Supreme Court in the case of M/s. N.K. Proteins Ltd. Va. 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?\" 7. \" Whether on the facts and circumstances of the case and in law, the decision of the Ld. CI(A), is right in view of the decision of the Hon'ble High Court Mumbai, in the case of Pr. Commissioner of Income-Tax-5, Mumbai Vs. Kanak Impex (India) Ltd. (2025)172 Taxmann.com 283 (Bombay) Dated 03.03.2025, wherein the decision of 100% addition made by AO has been allowed, by rejecting the ITAT's decision of estimating the profit rate @12.5% on bogus purchases and thereby impliedly grant deduction of such unexplained expenditure incurred u/s. 69C of the Act, even though the assessee failed to discharge its onus to prove the genuineness of alleged purchases and has offered no explanation of the sources of expenditure incurred on account of such purchases ?\" 8. \" Whether on the facts and circumstances of the case and in law, the order of the Ld. CIT(A) perverse in not considering that the order of Hon'ble Supreme Court 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, was already the law of the land when the Ld. CIT(A) has pronounced it's order on 13.01.2025 ? 9. \" Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition without appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon'ble ITAT, Ahmadabad had confirmed 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 Gujarat High Court and also by the Hon’ble Supreme Court ?\" 10. The Tax- Effect involved in the instant case is Rs. 24,70,176/-, which is below the prescribed limit as per CBDT's Circular F.No.279/Misc.142/2007- ITJ(Pt) amended vide No 09/2024 dated. 17.09.2024. However, the case fall under one of the exceptions laid down in CBDT Circular No. 05/2024 Dated.15.03.2024, wherein it is stated that in cases involving \"Organized tax evasion\" the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit.” Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 5 5. Grounds No. 1 and 2, raised in the assessee’s appeal, challenging the initiation of proceedings under section 147 of the Act, were not pressed during the hearing. Accordingly, these grounds are dismissed as not pressed. 6. The other grounds raised in the assessee’s appeal and all the grounds raised in the Revenue’s appeal pertain to the addition made under section 69C of the Act on account of alleged bogus purchases by the assessee. Therefore, all these grounds are considered together. 7. The brief facts of the case pertaining to these grounds are that the assessee is engaged in the business of trading of cut and polished diamonds and is also a commission agent in the name and style of Chinar Gems. For the assessment year 2010-11, the assessee filed its return of income on 29/09/2010, declaring a total income of INR 1,60,090. Subsequently on the basis of the information received from the DGIT (Investigation), Mumbai, regarding the search and seizure action conducted in the case of Shri Bhanwarlal Jain and his son, who indulge in providing accommodation entries like bogus purchases through various bogus concerns, it was noticed that assessee is one of the beneficiary of accommodation entry transaction of bogus purchases of INR 84,23,658 through Daksh Diamonds, which is one of the group concern of Shri Bhanwarlal Jain. Accordingly, notice under section 148 of the Act was issued on 31/03/2017 and proceedings under section 147 of the Act were initiated. The assessee vide letter dated 01/04/2017 requested to treat the return filed on 29/09/2010, as the return filed in response to notice issued under section 148 of the Act. Thereafter, statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 6 assessee. In response to the statutory notices, the assessee submitted that it had purchased the diamonds from Daksh Diamonds and all the payments were made through banking channel. Further, the assessee also placed on record the bills issued by Daksh Diamonds. During the reassessment proceedings, in order to verify the genuineness of the purchase transaction of the assessee with Daksh Diamonds, notice under section 133(6) of the Act was issued to Daksh Diamonds to furnish all the relevant documents, which was duly responded by Daksh Diamonds and all the relevant details as sought in the notice issued under section 133(6) of the Act were furnished. Thereafter, the assessee was given an opportunity to produce the party. 8. The Assessing Officer (“AO”), vide order dated 29.12.2017 passed under section 143 (3) read with section 147 of the Act, disagreed with the submissions of the assessee and held that the genuineness of the transaction has not been proved by the assessee and on the contrary the parties with whom the transaction was made has been admitted by Shri Bhanwarlal Jain and his son to be bogus entity engaged in providing accommodation entry transactions. The AO further held that the assessee has not controverted the findings of the Investigation Department about the bill providers. It was further held that even though the assessee filed documents, copies of bills and confirmations, the involvement and dealings of the assessee with the hawala/accommodation entry racket cannot be ruled out. Accordingly, the AO treated the entire purchases of INR 84,23,658 made by the assessee from Daksh Diamonds to be not genuine bogus purchases and treated as unexplained expenditure under section 69C of the Act. Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 7 9. The learned CIT(A), vide impugned order, upheld the initiation of reassessment proceedings under section 147 of the Act. On merits, the learned CIT(A) affirmed the findings of the AO in treating the purchases as bogus. However, the learned CIT(A), agreeing with the submission of the assessee that the AO has not disputed the sales made by the assessee and also not disputing the fact that there cannot be any sales without purchases, proceeded to restrict the addition only to the amount of profit element embedded in the purchases. Accordingly, accepting the calculation of the assessee in respect of additional gross profit margin, the learned CIT(A) made the addition of 7% of the bogus purchases, i.e. INR 5,89,656, being 7% of INR 85,83,748 and directed the AO to delete the balance addition of INR 78,34,002. Being aggrieved, both assessee and the Revenue are in appeal before us. 10. We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis of the information received from the Investigation Wing that the assessee is a beneficiary of accommodation entry transaction of bogus purchases from entities manage and controlled by Shri Bhanwarlal Jain and his son, proceedings under section 147 of the Act were initiated. It is evident from the record that the AO on the basis of the statement recorded during the search and seizure action conducted on Bhanwarlal Jain group and information/documents found during concluded that all the transactions with the entities operated and managed by Shri Bhanwarlal Jain and his family are all bogus in nature. Since the assessee, during the year under consideration, Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 8 made a purchase of INR 85,83,748 from Daksh Diamonds, which is an entity which was controlled and managed by Shri Bhanwarlal Jain and his family, the AO rejected the contention of the assessee and treated the entire purchases as non-genuine and bogus and made the addition under section 69C of the Act. 11. It is evident from the record that in its appeal before the learned CIT(A), the assessee reiterated the submissions made before the AO and submitted that the assessee purchased cut and polished diamonds from Daksh Diamonds and the payment in respect of the same was made through banking channel. Further, the assessee emphasised on the aspect that during the reassessment proceedings in order to verify the genuineness of the purchase transaction, notice under section 133(6) of the Act was issued to Daksh Diamonds, which was duly responded and all the relevant documents were furnished. Further in order to prove the genuineness of the transaction, the assessee furnish the confirmation letter from Daksh Diamonds, return of income filed by Daksh Diamonds for the year under consideration, audited accounts of Daksh Diamonds, bank statement highlighting the payments received from assessee, sales bill and stock register. After perusing all the details filed by the assessee, the learned CIT(A) though did not find any infirmity in the action of the AO in treating the purchases as bogus, however, agreed with the submission of the assessee that no sales can be made without purchases, and therefore, only profit element embedded in the purchases can be added. The learned CIT(A) also noted the fact that the AO has not disputed the sales made by the assessee, which has been duly declared by the assessee in its return of Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 9 income. Accordingly, agreeing with the calculation of additional gross profit margin made by the assessee, the learned CIT(A) restricted the addition to 7% of the bogus purchases and directed the AO to delete the balance addition. 12. During the hearing before us, the learned Authorised Representative (“learned AR”) reiterated the submission made before the lower authorities and made reference to all the documentary evidences filed before the lower authorities in support of its submission that all the purchases were genuine. However, no material was produced contrary to the findings of the learned CIT(A) that the purchases are not bogus. At the same time, it is pertinent to note that the AO has not disputed the sales made by the assessee. Therefore, from the material available on record it is evident that the assessee has failed to prove the genuineness of the purchases made from the supplier. Thus, it appears to be a case of bogus bills arranged from the aforesaid entities and materials purchased from somewhere else at a lower cost. Thus, we are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. 13. During the hearing, the learned Departmental Representative (“learned DR”) by placing reliance upon the decision of the Hon’ble Jurisdictional High Court in PCIT v/s Kanak Impex (India) Ltd, reported in [2025] 172 Taxmann.com 283 (Bom.), submitted that since the assessee could not prove the genuineness of the purchase transaction, the entire amount should be disallowed without granting any deduction. Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 10 14. From the perusal of the decision of the Hon’ble Jurisdictional High Court in Kanak Impex (supra), we find that in the facts of that case pursuant to the information received from the Sales Tax Department, proceedings under section 147 of the Act were initiated on the basis that the taxpayer is a beneficiary of accommodation entry transaction in the form of bogus purchases. During the assessment proceedings, despite several notices, the taxpayer did not file any response. Further, the notices issued under section 133(6) of the Act at the address of the persons from whom the taxpayer had purchased the goods were also returned “unserved”. As the taxpayer did not appear before the AO during the reassessment proceedings, and also failed to prove the genuineness of the purchase transaction, the AO made the addition of the entire amount of bogus purchases. In further appeal, the learned CIT(A) estimated 12.5% of the bogus purchases as an addition to be made instead of confirming the entire bogus purchases, placing reliance upon the decision of the Hon’ble Gujarat High Court in CIT v/s Simit P Sheth, reported in [2013] 356 ITR 451 (Guj.). The Tribunal, in further appeal, by placing reliance upon the decision of the Hon’ble Jurisdictional High Court in Mohd. Haji Adam, reported in [2019] 103 Taxmann.com 459 (Bom.), dismissed the appeal filed by the Revenue and directed the AO to restrict the addition to the extent of bringing the gross profit rate of disputed purchases to the same rate as that of the other purchases. The Hon’ble Jurisdictional High Court, allowing the appeal filed by the Revenue, held that the onus of proving the genuineness of the expenditure claimed as a deduction is on the taxpayer. The Hon’ble High Court held that the primary onus is on the assessee to discharge his burden to prove the purchases, which the assessee has claimed as a deduction under Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 11 the Act for arriving at the taxable income. The Hon’ble High Court held that the genuineness of the purchases would, inter alia, also include an explanation with regard to the source of payment for such purchases. It was held that, in the facts of the case, the taxpayer did not appear before the AO during the reassessment proceedings to prove the deduction claimed for purchases, and there was no justification to establish the purchases. The Hon’ble High Court held that there is no justification in the findings of the learned CIT(A) in restricting the disallowance to 12.5% of such purchases once it came to the conclusion that the taxpayer failed to prove the genuineness and source of purchases, and also confirmed its involvement in the modus operandi. It was further held that the Tribunal also misdirected itself by approaching the issue with the erroneous belief that it was estimating profit. Thus, the Hon’ble High Court held that if this approach of the CIT(A) and the Tribunal is accepted, then it would be contrary to the provisions of section 69C of the Act, which mandates the taxpayer to explain the source of expenditure. Since in the facts of the case the taxpayer did not attend the reassessment proceedings and there was no explanation of the source of expenditure incurred for making the bogus purchases, the Hon’ble Jurisdictional High Court in Kanak Impex (supra) restored the addition made under section 69C of the Act. 15. In the present case, as noted above, the notices issued under section 133(6) of the Act were duly responded to by Daksh Diamonds from whom the assessee made the alleged purchases. Both AO as well as the learned CIT(A) have duly noted the above fact. Further, there is no dispute regarding the fact that the payments for these purchases were made by the assessee through Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 12 account payee cheques and all the details pertaining to the purchases were furnished during the assessment proceedings. Thus, there is no dispute regarding the source of expenditure incurred by the assessee for making the purchases from Daksh Diamonds. Further, it is evident from the record that the assessee duly attended the reassessment proceedings and responded to all the notices issued by the AO. Therefore, we find that the facts of the present case are on a different footing from the facts that were under consideration before the Hon’ble Jurisdictional High Court in Kanak Impex (supra). Thus, we are of the considered view that the reliance placed by the learned DR on the decision of the Hon’ble Jurisdictional High Court in Kanak Impex (supra) is completely misplaced. 16. Therefore, in view of the facts and circumstances as noted above, we do not find any infirmity in restricting the addition to 7% of bogus purchases, which is based on the computation of additional gross profit margin in the trade submitted by the assessee before the learned CIT(A). Accordingly, the impugned order on this issue is upheld. As a result, the grounds no. 3 and 4 raised by the assessee, and all the grounds raised by the Revenue in its appeal are dismissed. 17. In the result, the cross-appeal for the assessment year 2010-11 is dismissed. 18. Since in the cross-appeal for the assessment year 2011-12, both parties have raised similar grounds which arise out of the same factual matrix, therefore, our findings/conclusion as rendered in the cross-appeal for the Printed from counselvise.com ITAs No.1439, 1440, 2236 & 2240/Mum/2025 (A.Ys. 2010-11 & 2011-12) 13 assessment year 2010-11 shall apply mutatis mutandis to the cross-appeal for the assessment year 2011-12. Accordingly, the grounds raised by the assessee and the Revenue in their respective appeal for the assessment year 2011-12 are dismissed. 19. In the result, the cross-appeal for the assessment year 2011-12 is dismissed. 20. To sum up, the cross-appeals for the assessment years 2010-12 and 2011-12 are dismissed. Order pronounced in the open Court on 14/08/2025 Sd/-- NARENDRA KUMAR BILLAIYA ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 14/08/2025 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai Printed from counselvise.com "