INCOME TAX OFFICER, ANAVIL BUSINESS CENTRE, ADAJAN V. ABHISHEK NAVNIT DOSHI , MAHIDHARPURA

ITA 502/SRT/2025

AI Insights

The case involves an appeal by the Revenue against the order of the Ld. Commissioner of Income-tax (Appeals) which had deleted the addition made on account of bogus purchases amounting to Rs.82,70,092. The Revenue contended that these purchases were sham transactions fabricated through bogus paper concerns. The Tribunal noted that the CIT(A) had previously restricted the disallowance to 6% of the impugned purchases based on a precedent, which was now reconsidered in light of a decision by the Hon'ble Bombay High Court. The Tribunal found that the CIT(A) had not adequately addressed the principles laid down by the High Court regarding the treatment of bogus purchases and the necessity to examine the source of funds used for such purchases.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786122 (ITAT-SURAT)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 29-04-2025
• Other Referred Cases: N.K. Industries Ltd. vs. DCIT, PCIT vs. Premlata Tekriwal, Union of India & Ors. v. Ashish Agarwal, Kanak Impex (India) Ltd. v. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J.K. CHANDNANI
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Set aside; Reassessment proceedings; Unexplained investment; Income from undisclosed sources; Cost of acquisition; Bogus purchase; Onus to prove; Sham transactions; Search and seizure; Accommodation entries; Bogus
• Section: 148; 132; 68; 69; 69C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH “DB” SURAT BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 502/SRT/2025 Assessment Year: 2014-2015 ITO, 405, Income Tax Office, Anavil Business Centre, Hazira Road, Adajan, Surat-395009. Vs. Abhishek Navnit Doshi, 204/205, 2nd floor, 6/1911-12, Jin Shanti Bldg. Mahidharpura, Surat-395003. PAN NO. AFHPD 0064 M Appellant Respondent Assessee by : Mr. Sapnesh Sheth, Advocate Revenue by : Mr. J.K. Chandnani, Sr. DR Date of Hearing : 09/10/2025 Date of pronouncement : 30/10/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 20.02.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2014-15, raising following grounds: a) On the facts and circumstances of the case and law, the ld.CIT(A) has erred in deleting the addition of Rs.82,70,092/- made on account of bogus purchases ignoring the fact that these purchases are sham transactions fabricated through bogus paper concerns of Printed from counselvise.com Shri Bhanwarlal Jain Group entities which were engaged in providing accommodation entries. b) On the facts and circu CIT(A) is correct in not considering that the amount claimed as payment to hawala dealers was in effect suppression of profits by obtaining bogus purchase bills which was liable to be added to the income of the Assesse c) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the judgment of Gujarat High Court in the case of N.K. Industries Ltd. vs. DCIT in TA No. 240 to 242 of 2003 which has been upheld by the Hon'ble Apex Special Leave to Appeal No. 769 of 2017 dated 16.01.2017, wherein the Hon'ble High Court decided that 100% of purchases from bogus parties was liable to be added in the hands of the Assessee, reversing the order passed by the Hon'ble ITAT that restricted addition to 25%, holding that such restriction goes against the principles of Sections 68 and 69C of Income tax Act. d) On the facts and circumstances of the case and law, the ld. CIT(A) has erred in not appreciating that the judgment of Calcutta High Court of in the case of PCIT vs. Premlata Tekriwal (143 taxmann.com 173) involving similar issue of purchase of bogus concern to suppress profits wherein the court held that \"since it was established that expenditure was unexplained/bogus, entire amount of bogus expenditure was to be added to income of Assessee\". e) On the facts and circumstances of the case and law, the ld. CIT(A) has erred in not appreciating that he is having co conduct enquiries and without conducting any enquiry investigation wing with regard to veracity of the claim of the assessee he has accepted the version of the assessee. f) On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assess Officer. g) It is therefore prayed that the order of the Ld. CIT(A) may kindly be set aside and that of the Assessing Officer 2. Briefly stated, facts of the case are that action under section 132 of the Income referred to as “the Act” Shri Bhanwarlal Jain Group entities which were engaged in providing accommodation entries. b) On the facts and circumstances of the case and law, the ld. CIT(A) is correct in not considering that the amount claimed as payment to hawala dealers was in effect suppression of profits by obtaining bogus purchase bills which was liable to be added to the income of the Assessee. c) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the judgment of Gujarat High Court in the case of N.K. Industries Ltd. vs. DCIT in TA No. 240 to 242 of 2003 which has been upheld by the Hon'ble Apex Special Leave to Appeal No. 769 of 2017 dated 16.01.2017, wherein the Hon'ble High Court decided that 100% of purchases from bogus parties was liable to be added in the hands of the Assessee, reversing the order passed by the Hon'ble ITAT that tricted addition to 25%, holding that such restriction goes against the principles of Sections 68 and 69C of Income tax Act. d) On the facts and circumstances of the case and law, the ld. CIT(A) has erred in not appreciating that the judgment of Calcutta High Court of in the case of PCIT vs. Premlata Tekriwal (143 taxmann.com 173) involving similar issue of purchase of bogus concern to suppress profits wherein the court held that \"since it was established that expenditure was unexplained/bogus, entire nt of bogus expenditure was to be added to income of e) On the facts and circumstances of the case and law, the ld. CIT(A) has erred in not appreciating that he is having co-terminus power to conduct enquiries and without conducting any enquiry investigation wing with regard to veracity of the claim of the assessee he has accepted the version of the assessee. f) On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assess g) It is therefore prayed that the order of the Ld. CIT(A) may kindly be set aside and that of the Assessing Officer be restored. Briefly stated, facts of the case are that a search and seizure action under section 132 of the Income-tax Act, 1961 (hereinafter “the Act”) was carried out in the case of Abhishek Navnit Doshi 2 ITA No. 502/SRT/2025 Shri Bhanwarlal Jain Group entities which were engaged in mstances of the case and law, the ld. CIT(A) is correct in not considering that the amount claimed as payment to hawala dealers was in effect suppression of profits by obtaining bogus purchase bills which was liable to be added to the c) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the judgment of Gujarat High Court in the case of N.K. Industries Ltd. vs. DCIT in TA No. 240 to 242 of 2003 which has been upheld by the Hon'ble Apex Court in Special Leave to Appeal No. 769 of 2017 dated 16.01.2017, wherein the Hon'ble High Court decided that 100% of purchases from bogus parties was liable to be added in the hands of the Assessee, reversing the order passed by the Hon'ble ITAT that tricted addition to 25%, holding that such restriction goes against the principles of Sections 68 and 69C of Income tax Act. d) On the facts and circumstances of the case and law, the ld. CIT(A) has erred in not appreciating that the judgment of Calcutta High Court of in the case of PCIT vs. Premlata Tekriwal (143 taxmann.com 173) involving similar issue of purchase of bogus concern to suppress profits wherein the court held that \"since it was established that expenditure was unexplained/bogus, entire nt of bogus expenditure was to be added to income of e) On the facts and circumstances of the case and law, the ld. CIT(A) terminus power to conduct enquiries and without conducting any enquiry with the investigation wing with regard to veracity of the claim of the f) On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assessing g) It is therefore prayed that the order of the Ld. CIT(A) may kindly restored. a search and seizure , 1961 (hereinafter ) was carried out in the case of Shri Printed from counselvise.com Bhanwarlal Jain and others individual and his associates were engaged in the pernicious practice of providing accommodation entries sales and purchase transactions through various concerns controlled and managed by them. course of the said proceedings that the assessee had, during the relevant previous year, made purchases aggregating t ₹82,68,292/– from two such concerns under the control of Shri Bhanwarlal Jain, namely Diamond. In view of information, the Assessing Officer recorded reasons to believe that income escaped assessment and issued notice u/s 148 of the Act on 22.04.2021 2.1 Consequent to the judgment of the Hon’ble Supreme Court in Union of India & Ors. v. Ashish Agarwal 2022, dated 04.05.2022], the said notice stood transmuted into one deemed to have been issued un Pursuant thereto, an order under section 148A(d) was passed on 29.07.2022, followed by the issuance of notice under section 148 on the same date. 2.2 During the reassessment proceedings, the assessee furnished audit reports, bank statements, export invoices, purchase bills, sales registers, and ledger accounts, asserting that all payments had been effected through recognised banking channels. The Bhanwarlal Jain and others. The investigation revealed that the said individual and his associates were engaged in the pernicious practice of providing accommodation entries in the guise of bogus sales and purchase transactions through various concerns controlled and managed by them. It was unearthed during the course of the said proceedings that the assessee had, during the relevant previous year, made purchases aggregating t from two such concerns under the control of Shri Bhanwarlal Jain, namely M/s Amit Diamond and In view of information, the Assessing Officer recorded reasons to believe that income escaped assessment and issued 148 of the Act on 22.04.2021, Consequent to the judgment of the Hon’ble Supreme Court in Union of India & Ors. v. Ashish Agarwal [Civil Appeal No. 3005 of 2022, dated 04.05.2022], the said notice stood transmuted into one deemed to have been issued under section 148A(b) of the Act. Pursuant thereto, an order under section 148A(d) was passed on 29.07.2022, followed by the issuance of notice under section 148 on During the reassessment proceedings, the assessee furnished bank statements, export invoices, purchase bills, sales registers, and ledger accounts, asserting that all payments had been effected through recognised banking channels. The Abhishek Navnit Doshi 3 ITA No. 502/SRT/2025 . The investigation revealed that the said individual and his associates were engaged in the pernicious in the guise of bogus sales and purchase transactions through various concerns It was unearthed during the course of the said proceedings that the assessee had, during the relevant previous year, made purchases aggregating to from two such concerns under the control of Shri and M/s Laxmi In view of information, the Assessing Officer recorded reasons to believe that income escaped assessment and issued Consequent to the judgment of the Hon’ble Supreme Court in [Civil Appeal No. 3005 of 2022, dated 04.05.2022], the said notice stood transmuted into one der section 148A(b) of the Act. Pursuant thereto, an order under section 148A(d) was passed on 29.07.2022, followed by the issuance of notice under section 148 on During the reassessment proceedings, the assessee furnished bank statements, export invoices, purchase bills, sales registers, and ledger accounts, asserting that all payments had been effected through recognised banking channels. The Printed from counselvise.com Assessing Officer, however, discerned that the documents so produced constituted any evidence of actual trading activity. The findings of the investigation into the Bhanwarlal Jain group, inter alia, revealed that no stock or genuine business operations were traceable in the alleged supplier entities. The assessee also did not rebut or seek to controvert the statements recorded from Shri Bhanwarlal Jain and his associates. 2.3 The Assessing Officer, being thus unconvinced of the genuineness of the transactions, treated the entire sum of ₹82,68,292/– as unexplained investment under section 69 of the Act and made an addition of 100% of the purchases so found to be fictitious.. 3. On appeal, the Ld. CIT(A), following the coordinate Bench decision of this Tribunal in the assessee’s own case for Assessment Year 2012–13, restricted the disallowance to 6% of the impugned purchases, which worked out to purchases, though not genuine, represented only inflation of purchase cost rather than the entirety of the transaction being fictitious. 4. Aggrieved thereby, the Revenue has come up in appeal before us, contending that the Ld. CIT(A) erred in restricting the a and that the entire sum ought to have been disallowed, having Assessing Officer, however, discerned that the documents so produced constituted no more than a paper façade, unsupported by any evidence of actual trading activity. The findings of the investigation into the Bhanwarlal Jain group, inter alia, revealed that no stock or genuine business operations were traceable in the entities. The assessee also did not rebut or seek to controvert the statements recorded from Shri Bhanwarlal Jain and The Assessing Officer, being thus unconvinced of the genuineness of the transactions, treated the entire sum of as unexplained investment under section 69 of the Act and made an addition of 100% of the purchases so found to be On appeal, the Ld. CIT(A), following the coordinate Bench decision of this Tribunal in the assessee’s own case for Assessment 13, restricted the disallowance to 6% of the impugned purchases, which worked out to ₹4,96,205/–, holding that the ases, though not genuine, represented only inflation of purchase cost rather than the entirety of the transaction being Aggrieved thereby, the Revenue has come up in appeal before us, contending that the Ld. CIT(A) erred in restricting the a and that the entire sum ought to have been disallowed, having Abhishek Navnit Doshi 4 ITA No. 502/SRT/2025 Assessing Officer, however, discerned that the documents so , unsupported by any evidence of actual trading activity. The findings of the investigation into the Bhanwarlal Jain group, inter alia, revealed that no stock or genuine business operations were traceable in the entities. The assessee also did not rebut or seek to controvert the statements recorded from Shri Bhanwarlal Jain and The Assessing Officer, being thus unconvinced of the genuineness of the transactions, treated the entire sum of as unexplained investment under section 69 of the Act and made an addition of 100% of the purchases so found to be On appeal, the Ld. CIT(A), following the coordinate Bench decision of this Tribunal in the assessee’s own case for Assessment 13, restricted the disallowance to 6% of the impugned , holding that the ases, though not genuine, represented only inflation of purchase cost rather than the entirety of the transaction being Aggrieved thereby, the Revenue has come up in appeal before us, contending that the Ld. CIT(A) erred in restricting the addition and that the entire sum ought to have been disallowed, having Printed from counselvise.com regard to the nature of the evidence and the findings recorded in the search proceedings. 5. We have heard the rival submissions of the Ld. Departmental Representative and the Ld. Couns carefully perused the record. The issue that falls for our consideration is whether, in the facts and circumstances of the present case, the addition on account of bogus purchases ought to be restricted to a percentage of such entire amount is liable to be brought to tax. 5.1 It is not in dispute that the Ld. CIT(A) has followed the decision of the Tribunal in the assessee’s own case for Assessment Year 2012–13, wherein the Tribunal, placing reliance u earlier decision in 1152/Ahd/2017, dated 27.09.2021], had restricted such disallowance to 6% of the impugned purchases, on the premise that the assessee might have procured the goods from the grey market at a lower rate, thereby earning a margin of approximately 6%. The relevant finding of the Tribunal is reproduced as under: 16. We note that assessing officer made addition at the rate of 100% of bogus purchases. On appeal, by assessee, the Id. CIT(A) has restr Now, the assessee is in appeal before us and argued that addition sustained by the Id. CIT(A) at the rate of 25% of bogus purchases should be deleted as the assessee had submitted purchase bills and vouchers an banking channels. However, the main grievance of the Revenue regard to the nature of the evidence and the findings recorded in the search proceedings. We have heard the rival submissions of the Ld. Departmental Representative and the Ld. Counsel for the assessee, and have carefully perused the record. The issue that falls for our consideration is whether, in the facts and circumstances of the present case, the addition on account of bogus purchases ought to be restricted to a percentage of such purchases, or whether the entire amount is liable to be brought to tax. It is not in dispute that the Ld. CIT(A) has followed the decision of the Tribunal in the assessee’s own case for Assessment 13, wherein the Tribunal, placing reliance u earlier decision in Pankaj K. Chaudhary v. ITO 1152/Ahd/2017, dated 27.09.2021], had restricted such disallowance to 6% of the impugned purchases, on the premise that the assessee might have procured the goods from the grey market er rate, thereby earning a margin of approximately 6%. The relevant finding of the Tribunal is reproduced as under: 16. We note that assessing officer made addition at the rate of 100% of bogus purchases. On appeal, by assessee, the Id. CIT(A) has restricted the addition to 25% of bogus purchases. Now, the assessee is in appeal before us and argued that addition sustained by the Id. CIT(A) at the rate of 25% of bogus purchases should be deleted as the assessee had submitted purchase bills and vouchers and all transactions were through banking channels. However, the main grievance of the Revenue Abhishek Navnit Doshi 5 ITA No. 502/SRT/2025 regard to the nature of the evidence and the findings recorded in We have heard the rival submissions of the Ld. Departmental el for the assessee, and have carefully perused the record. The issue that falls for our consideration is whether, in the facts and circumstances of the present case, the addition on account of bogus purchases ought to purchases, or whether the It is not in dispute that the Ld. CIT(A) has followed the decision of the Tribunal in the assessee’s own case for Assessment 13, wherein the Tribunal, placing reliance upon its Pankaj K. Chaudhary v. ITO [ITA No. 1152/Ahd/2017, dated 27.09.2021], had restricted such disallowance to 6% of the impugned purchases, on the premise that the assessee might have procured the goods from the grey market er rate, thereby earning a margin of approximately 6%.The The relevant finding of the Tribunal is reproduced as under: 16. We note that assessing officer made addition at the rate of 100% of bogus purchases. On appeal, by assessee, the Id. icted the addition to 25% of bogus purchases. Now, the assessee is in appeal before us and argued that addition sustained by the Id. CIT(A) at the rate of 25% of bogus purchases should be deleted as the assessee had submitted d all transactions were through banking channels. However, the main grievance of the Revenue Printed from counselvise.com is that the addition made by the Assessing Officer at the rate of 100% of bogus purchases, should be upheld. 17. ⁠However, we note that the issue under considerat squarely covered by the judgment of the Coordinate Bench of this Tribunal in the case of Pankaj K. Chaudhary (supra), wherein the Tribunal held that addition should be sustained at the rate of 6% of bogus purchases. Therefore, we direct the Assessing Officer to make the addition at the rate of 6% of bogus purchases. 17. In the result, appeal filed by the assessee (in ITA No. 21/SRT/2022) is partly allowed, whereas the appeal filed by the Revenue (in ITA No. 38/SRT/2022), 5.2 We are of opinion that o addition to the extent of 6% of the bogus purchases that the purchases in dispute were not genuine and addition for the 6% has been restricted had purchased such goods from the grey market at lower rate which benefited to the assessee @ 6% following the contemporary precedents on the issue, t estimate only. However, we are constrained to observe that the said rationale, though widely adopted in similar matters, has now been subjected to authoritative reconsideration by the Hon’ble Bombay High Court in Kanak Impex (India) Ltd. v. ACIT Taxmann.com 283 (Bom), dated 03.03.2025]. The Hon’ble Court, in its luminous exposition, has examined the mechanics of accommodation entries and observed that the genuineness of the purchases cannot be confined to the mere existence of sales or export invoices, but must necessarily encompass the which the alleged purchases is that the addition made by the Assessing Officer at the rate of 100% of bogus purchases, should be upheld. ⁠However, we note that the issue under considerat squarely covered by the judgment of the Coordinate Bench of this Tribunal in the case of Pankaj K. Chaudhary (supra), wherein the Tribunal held that addition should be sustained at the rate of 6% of bogus purchases. Therefore, we direct the g Officer to make the addition at the rate of 6% of bogus purchases. 17. In the result, appeal filed by the assessee (in ITA No. 21/SRT/2022) is partly allowed, whereas the appeal filed by the Revenue (in ITA No. 38/SRT/2022), is dismissed. pinion that once, the Tribunal has restricted the addition to the extent of 6% of the bogus purchases that the purchases in dispute were not genuine and addition for the 6% has been restricted to compensate assuming that such goods from the grey market at lower rate benefited to the assessee @ 6% following the contemporary precedents on the issue, though this entire 6% is based on the However, we are constrained to observe that the said nale, though widely adopted in similar matters, has now been subjected to authoritative reconsideration by the Hon’ble Bombay Kanak Impex (India) Ltd. v. ACIT Taxmann.com 283 (Bom), dated 03.03.2025]. The Hon’ble Court, in inous exposition, has examined the mechanics of accommodation entries and observed that the genuineness of the purchases cannot be confined to the mere existence of sales or export invoices, but must necessarily encompass the purchases have been financed. The Hon’ble High Abhishek Navnit Doshi 6 ITA No. 502/SRT/2025 is that the addition made by the Assessing Officer at the rate of ⁠However, we note that the issue under consideration is squarely covered by the judgment of the Coordinate Bench of this Tribunal in the case of Pankaj K. Chaudhary (supra), wherein the Tribunal held that addition should be sustained at the rate of 6% of bogus purchases. Therefore, we direct the g Officer to make the addition at the rate of 6% of 17. In the result, appeal filed by the assessee (in ITA No. 21/SRT/2022) is partly allowed, whereas the appeal filed by dismissed. nce, the Tribunal has restricted the addition to the extent of 6% of the bogus purchases, it makes clear that the purchases in dispute were not genuine and addition for the that the assessee such goods from the grey market at lower rate benefited to the assessee @ 6% following the contemporary hough this entire 6% is based on the However, we are constrained to observe that the said nale, though widely adopted in similar matters, has now been subjected to authoritative reconsideration by the Hon’ble Bombay Kanak Impex (India) Ltd. v. ACIT [(2025) 172 Taxmann.com 283 (Bom), dated 03.03.2025]. The Hon’ble Court, in inous exposition, has examined the mechanics of accommodation entries and observed that the genuineness of the purchases cannot be confined to the mere existence of sales or export invoices, but must necessarily encompass the source from The Hon’ble High Printed from counselvise.com Court has eloquently elucidated that when an assessee procures goods ostensibly from paper entities while effecting corresponding export sales, the inference is irresistible that the goods must have been procured from the grey market, and such procurement would, in all likelihood, have been financed through unaccounted means. The Hon’ble Court further observed that unless the assessee discharges the initial onus cast by law by demonstrating the source of such grey-market purchases and the mode of their financing, the entirety of the purchase amount may, in appropriate cases, be treated as unexplained. The relevant passage of the Hon’ble Court’s reasoning, which we respectfully reproduce, underscores the principle: 13. The short issue which requires adjudication in this appeal is additions of Rs.20,06,80,150/ of the respondent-assessee to prove the can be said to be valid. 14. Before we adjudicate the issue, it is relevant to understand concept of accommodation entry by an example. Mr. A has cash, which he uses to buy goods for selling. made by cheque. Since the goods are money, they cannot be recorded in modus operandi to bring such Mr A will contact Mr B, issue a paper invoice in the name of Mr A, cheque to Mr B to show that the purchases have been made by cheque from Mr B. After deducting certain commission, Mr B would then Court has eloquently elucidated that when an assessee procures goods ostensibly from paper entities while effecting corresponding export sales, the inference is irresistible that the goods must have red from the grey market, and such procurement would, in all likelihood, have been financed through unaccounted means. The Hon’ble Court further observed that unless the assessee discharges the initial onus cast by law by demonstrating the source market purchases and the mode of their financing, the entirety of the purchase amount may, in appropriate cases, be treated as unexplained. The relevant passage of the Hon’ble Court’s reasoning, which we respectfully reproduce, underscores the 13. The short issue which requires adjudication in this appeal is additions of Rs.20,06,80,150/- made by the AO on account of the failure assessee to prove the genuineness of the purchases can be said to be valid. e adjudicate the issue, it is relevant to understand concept of accommodation entry by an example. Mr. A has cash, which he uses to buy goods for selling. However, the sales are made by cheque. Since the goods are purchased with unaccounted money, they cannot be recorded in the books of account. Therefore, the modus operandi to bring such purchases into the books of account is that Mr A will contact Mr B, an accommodation entry provider. Mr B would invoice in the name of Mr A, and Mr A would issue a B to show that the purchases have been made by cheque B. After deducting certain commission, Mr B would then Abhishek Navnit Doshi 7 ITA No. 502/SRT/2025 Court has eloquently elucidated that when an assessee procures goods ostensibly from paper entities while effecting corresponding export sales, the inference is irresistible that the goods must have red from the grey market, and such procurement would, in all likelihood, have been financed through unaccounted means. The Hon’ble Court further observed that unless the assessee discharges the initial onus cast by law by demonstrating the source market purchases and the mode of their financing, the entirety of the purchase amount may, in appropriate cases, be treated as unexplained. The relevant passage of the Hon’ble Court’s reasoning, which we respectfully reproduce, underscores the 13. The short issue which requires adjudication in this appeal is whether account of the failure genuineness of the purchases e adjudicate the issue, it is relevant to understand the concept of accommodation entry by an example. Mr. A has unaccounted However, the sales are purchased with unaccounted the books of account. Therefore, the purchases into the books of account is that an accommodation entry provider. Mr B would and Mr A would issue a B to show that the purchases have been made by cheque B. After deducting certain commission, Mr B would then Printed from counselvise.com withdraw the money from his bank account and return the cash so withdrawn to Mr A. By this process, the unaccounted cash enter the books of account as if the purchases made from Mr. B. However, what has actually happened is that unaccounted money of Mr. A is shown to have entered the account by such a modus operan cash from Mr. B. 15. The source of such unaccounted cash, which was utilised by buy goods originally, must be examined. Mr. B is only a provider. Therefore, the purchases are made from through Mr. B they get formalised in the books can be made and recorded in the books of to be examined is how he financing is out of unaccounted to tax, and if it is out of onus is on Mr A to show the source of financing for the original purchase and to give the correct details from whom he has purchased the good originally. This is the simplest model of accommodation entry. various complex models are adopted to avoid tracing the This menace is harmful to the country's economy, routing unaccounted cash into the formal unaccounted income being taxed. 16. The genuineness of the purchases would inter alia also explanation with regard to the source for paying for such Explaining the source of purchases would be one of the considerations for concluding whether the purchases have from accounted or unaccounted sources and to test the the money from his bank account and return the cash so withdrawn to Mr A. By this process, the purchases made by Mr. A unaccounted cash enter the books of account as if the purchases made from Mr. B. However, what has actually happened is that unaccounted money of Mr. A is shown to have entered the account by such a modus operandi and Mr. A gets back his 15. The source of such unaccounted cash, which was utilised by buy goods originally, must be examined. Mr. B is only a provider. Therefore, the purchases are made from someone through Mr. B they get formalised in the books of account so that sales can be made and recorded in the books of account. However, what needs to be examined is how he financed the original purchases. If such financing is out of unaccounted income, then the same has to be brought to tax, and if it is out of accounted income, it cannot be brought to tax. The to show the source of financing for the original purchase give the correct details from whom he has purchased the good originally. This is the simplest model of accommodation entry. various complex models are adopted to avoid tracing the This menace is harmful to the country's economy, and it amounts to routing unaccounted cash into the formal economy without the original unaccounted income being taxed. 16. The genuineness of the purchases would inter alia also with regard to the source for paying for such Explaining the source of purchases would be one of the considerations for concluding whether the purchases have from accounted or unaccounted sources and to test the Abhishek Navnit Doshi 8 ITA No. 502/SRT/2025 the money from his bank account and return the cash so purchases made by Mr. A by unaccounted cash enter the books of account as if the purchases are made from Mr. B. However, what has actually happened is that the unaccounted money of Mr. A is shown to have entered the books of di and Mr. A gets back his unaccounted 15. The source of such unaccounted cash, which was utilised by Mr. A to buy goods originally, must be examined. Mr. B is only a paper entry someone else, but of account so that sales account. However, what needs the original purchases. If such me, then the same has to be brought accounted income, it cannot be brought to tax. The to show the source of financing for the original purchase give the correct details from whom he has purchased the goods originally. This is the simplest model of accommodation entry. However, various complex models are adopted to avoid tracing the flow of money. and it amounts to nomy without the original 16. The genuineness of the purchases would inter alia also include with regard to the source for paying for such purchases. Explaining the source of purchases would be one of the prime considerations for concluding whether the purchases have been made from accounted or unaccounted sources and to test the veracity of Printed from counselvise.com transaction being only accommodation entry. It is well undisputed that the onus of proving any genuineness of claimed as deduction is on the assessee. The assessee to discharge his burden to prove assessee has claimed as a deduction under arriving at the taxable income. 5.3 The Hon’ble Bombay High Court has considered existing decisions where a part of the profit was purchases. 5.4 In the present case, it is apparent that the assessee has not furnished any credible explanation as to the source of the fu used for procuring the goods allegedly sourced from the grey market. The documents filed ostensibly complete— against the concrete findings of the investigation wing. The onus that lay upon the assessee to establish the genuineness and source of the purchases remains wholly undischarged. 5.5 It is thus manifest that the approach of the Ld. CIT(A) in mechanically following the earlier Tribunal decision without adverting to the ratio laid down by the Hon’ble High Court in Impex (supra) cannot be sustained in law. The principle now stands clarified that the explanation of the integral to determining their genuineness, and that mere estimation transaction being only accommodation entry. It is well undisputed that the onus of proving any genuineness of claimed as deduction is on the assessee. The primary onus is on the assessee to discharge his burden to proven the purchases, which an assessee has claimed as a deduction under the Income Tax Act for arriving at the taxable income. on’ble Bombay High Court has considered existing where a part of the profit was upheld in respect of bogus In the present case, it is apparent that the assessee has not furnished any credible explanation as to the source of the fu used for procuring the goods allegedly sourced from the grey market. The documents filed—though neatly arranged and —are of no probative value when juxtaposed against the concrete findings of the investigation wing. The onus upon the assessee to establish the genuineness and source of the purchases remains wholly undischarged. It is thus manifest that the approach of the Ld. CIT(A) in mechanically following the earlier Tribunal decision without adverting to the ratio laid down by the Hon’ble High Court in cannot be sustained in law. The principle now stands larified that the explanation of the source of bogus purchases is integral to determining their genuineness, and that mere estimation Abhishek Navnit Doshi 9 ITA No. 502/SRT/2025 transaction being only accommodation entry. It is well settled and undisputed that the onus of proving any genuineness of the expenditure primary onus is on the the purchases, which an the Income Tax Act for on’ble Bombay High Court has considered existing in respect of bogus In the present case, it is apparent that the assessee has not furnished any credible explanation as to the source of the funds used for procuring the goods allegedly sourced from the grey though neatly arranged and are of no probative value when juxtaposed against the concrete findings of the investigation wing. The onus upon the assessee to establish the genuineness and source It is thus manifest that the approach of the Ld. CIT(A) in mechanically following the earlier Tribunal decision without adverting to the ratio laid down by the Hon’ble High Court in Kanak cannot be sustained in law. The principle now stands of bogus purchases is integral to determining their genuineness, and that mere estimation Printed from counselvise.com of profit without examining the source of purchase funding would defeat the very object of the statute. 5.6 In the light of the foregoing discussion, and respectfully following the binding ratio of the Hon’ble Bombay High Court in Kanak Impex (India) Ltd. (supra) the impugned order of the Ld. CIT(A) warrants reconsideration. Accordingly, we set aside the order of the Ld. CIT(A) and restore the matter to her file for fresh adjudication, with a direction to decide the same in accordance with law and in the light of the principles enunciated by the Hon’ble High Court. 5.7 The grounds of appeal for statistical purposes. 6. In the result, the appeal of the Revenue is allowed for statistical purposes. Order pronounced by way display o on 30/10/2025 under Rule 34(4) of ITAT Rules, 19 Sd/ (SANDEEP GOSAIN JUDICIAL MEMBER Dated: 30/10/2025 Rahul Sharma, Sr. P.S. of profit without examining the source of purchase funding would defeat the very object of the statute. f the foregoing discussion, and respectfully following the binding ratio of the Hon’ble Bombay High Court in Kanak Impex (India) Ltd. (supra), we are of the considered view that the impugned order of the Ld. CIT(A) warrants reconsideration. set aside the order of the Ld. CIT(A) and restore the matter to her file for fresh adjudication, with a direction to decide the same in accordance with law and in the light of the principles enunciated by the Hon’ble High Court. of appeal of the Revenue are accordingly allowed for statistical purposes. In the result, the appeal of the Revenue is allowed for Order pronounced by way display of result on notice board /10/2025 under Rule 34(4) of ITAT Rules, 19 Sd/- Sd/ (SANDEEP GOSAIN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Abhishek Navnit Doshi 10 ITA No. 502/SRT/2025 of profit without examining the source of purchase funding would f the foregoing discussion, and respectfully following the binding ratio of the Hon’ble Bombay High Court in , we are of the considered view that the impugned order of the Ld. CIT(A) warrants reconsideration. set aside the order of the Ld. CIT(A) and restore the matter to her file for fresh adjudication, with a direction to decide the same in accordance with law and in the light of the principles of the Revenue are accordingly allowed In the result, the appeal of the Revenue is allowed for f result on notice board /10/2025 under Rule 34(4) of ITAT Rules, 1963. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER Printed from counselvise.com Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Surat 5. Guard file. //True Copy// Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Surat Abhishek Navnit Doshi 11 ITA No. 502/SRT/2025 BY ORDER, (Assistant Registrar) ITAT, Surat Printed from counselvise.com "