AI Insights
The case involves an appeal by the Income Tax Officer against the decision of the CIT(A), which had restricted the addition on account of alleged bogus purchases to 6% of the total purchases made from entities linked to a known accommodation entry provider. The Assessee, Sahen Enterprises, argued that the purchases were genuine, supported by documentation of exports and payments through banking channels. The Revenue contended that the CIT(A) erred in not adding the entire amount of the alleged bogus purchases to the Assessee's income. The Tribunal considered various precedents and the specific circumstances of the case, including the nature of the business and the profit margins declared, before arriving at its decision.
Appeal Details
Counselvise Citation
[2026] 140 COUNSELVISE.COM (IT) 848119 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-03-2026
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Mumbai
Assessment Year
2012-2013
Appeal Filed On
29-09-2025
Judgement Text
"IN THE INCOME TAX APPELLATE TRIBUNAL \"F\" BENCH, MUMBAI SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No.6127/MUM/2025 (Assessment Year: 2012-2013) Income Tax Officer 19(3)(1), Mumbai Room No.405, Piramal Chambers, Parel, Mumbai – 400012. Maharashtra. …………. Appellant Sahen Enterprises G Block DW 3400, BKC, Bharat Diamond Bourse, BKC Complex Bandra East, Mumbai – 400051, Maharashtra [PAN:AABFS0340J] Vs …………. Respondent Cross Objection No.13/Mum/2026 (In ITA No.6127/Mum/2025) (Assessment Year:2012-2013) Sahen Enterprises G Block DW 3400, BKC, Bharat Diamond Bourse, BKC Complex Bandra East, Mumbai – 400051, Maharashtra [PAN:AABFS0340J] …………. Appellant Income Tax Officer 19(3)(1), Mumbai Room No.405, Piramal Chambers, Parel, Mumbai – 400012. Maharashtra. Vs …………. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Rahul Hakani Shri Vivek Perampurna Date Conclusion of hearing Pronouncement of order : : 18.03.2026 27.03.2026 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Revenue and Cross Objection filed by the Assessee arises from the Order, dated 24/07/2025, Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 2 passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as ‘CIT(A)’] whereby the Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 19/12/2019, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2012-2013. 2. The Revenue has raised following grounds of appeal: “1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT Appeal has erred in not appreciating the fact that in the case of Ms. 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 Supreme Court. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT Appeal has erred in not appreciating the ratio of the decision of the Hon’ble Bombay High Court in case of РСIТ S. V. Jiwani 2022 145 taxmann.com Bombay and Hon’ble Gujarat High Court in case of CIT Vs Simit Sheth, wherein the Court upheld the decision of the Hon’ble ITAT, Mumbai and Ahmadabad respectively, which had held that entire purchases made by the assessee could not be added back as income, but only as profit element embedded therein and had restricted the addition to 12.5 percent of the purchases. 3. The tax-effect involved in the instant case is Rs. 50,70,920, which is below the prescribed limit as per CBDTs Circular F.No.279 Misc. 142/2007 ITJ Pt amended vide No 09/2024 dated. 17.09.2024. Further, this case falls under one of the exceptions specified in paragraph 3.1 of the CBDTS Circular No.05 of 2024 Dated. 15.03.2024, wherein it is stated that in cases involving Organized Tax Evasion including cases of accommodation entry of bogus purchases, the decision to file Appeal OR SLP shall be taken on merit without regard to the tax effect and the monetary limit. 4. The appellant craves leave to amend or alter any grounds OR add a new ground which may be necessary. 5. Whether on the facts and circumstances of the case and in law, Ld. CIT Appeal has erred in restricting the addition to the extent of 6 percent as against 100 percent of bogus purchases amounting to Rs. Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 3 84,48,501 on account of bogus purchases of diamonds from Ms. Surya Diam and Ms. Daksh Diamond, even when Ld. CIT Appeal itself agreed with the conclusion drawn by AO that the purchases were in fact bogus. 6. Whether on the facts and circumstances of the case and in law, Ld. of CIT Appeal has erred in restricting the addition to the extent 6 percent as against 100 percent of bogus purchases, by ignoring considering the fact that reports trusted by Ld. CIT Appeal were not prepared and were for a business with no tainted purchase. 7. Whether on the facts and circumstances of the case and in law, Ld. CIT Appeal has erred in restricting the addition to the extent appreciated of 6 percent as against 100 percent of bogus purchases, without appreciated the addition made by the AO on the basis of Report the DGIT Investigation Wing, Search and Seizure action on Shri. Bhanwarlal Jain Group, it was found that Ms. Surya Diamond and Ms. Daksh Diamond were bogus entities involved in providing accommodation entries of bogus purchases and the assessee firm was found to be one of the beneficiaries in obtaining the accommodation entries of bogus purchases without actual delivery of diamonds. 8. Whether on the facts and circumstances of the case and in law, ld. CIT Appeal has erred in restricting the addition to the extent of 6 percent as against 100 percent of bogus purchases amounting to Rs. 84.48,501 on account of bogus purchases of diamonds from Ms. Surya Diamond and Ms. Daksh Diamond, without appreciating that during the Search Action of Investigation wing(Mumbai), on Shri. Bhanwarlal Jain Group no stock of diamonds was found and during the re-assessment proceedings, the assessee firm failed to provide relevant documents/evidences /delivery challans etc. which proved that transactions made by the assessee firm were not a genuine. 9. Whether on the facts and circumstances of the case and in law. Ld. CIT Appeal has erred in restricting the addition to the extent of 6 percent as against 100 percent of bogus purchases amounting to Rs. 84,48,501 by ignoring that in his statement Shri. Bhanwarlal Jain Group, admitted his involvement in providing only accommodation entries to various bogus entities, including assessee firm through MS. Surya Diamond and MS. Daksh Diamond, without supply of actual diamonds and these transactions were undertaken only to generate paper tail only. 10. Whether on the facts and in the circumstances of the case and in that law, the order of Ld. CIT Appeal has erred in not considering Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 4 that this was not a case of estimation of percentage of gross profit but of allowance and disallowance of an expenditure in books which was incurred flouting laws of the land. 11. Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT Appeal is perverse in not considering that Honble Apex Court dismissed SLP filed by assessee against the order of ld. CIT Appeal, Ahmadabad in the case of N.K. Protein Ltd Vs. Dy. CIT 2016 292 CTR Guj. 354 11 Dated. 16.01.2017, which is on the similar issue of bogus purchases and that this order of the Honble High Court of Gujarat disallowing 100 percent of the bogus purchases was already order law of the land when the ld. CIT Appeal pronounced its order on 24.7.2025.” 2.1. The Assessee has raised following Grounds of Appeal in the Cross Objection: “Reopening is bad in law 1. The learned CIT(A) failed to appreciate that the reopening of assessment under Section 148 is bad in law. 2. The learned CIT(A) failed to appreciate that the reopening is bad in law as it was done on the basis of borrowed satisfaction, and there was no independent application of mind by the Assessing Officer before reopening and there did not exist any tangible material to reopen and hence reopening is bad in law On Merits- Addition of INR.5,06,901/- is bad in law: 3. The learned CIT(A) erred in confirming the addition of 6% (Rs.5,06,901/-) of the alleged bogus purchases of Rs.84,48,501/- without appreciating that assessee had submitted all relevant documentary evidences to prove that the purchases were genuine and further the addition of alleged bogus purchase was made against on the basis of third party statement and no opportunity of cross-examination was provided to the assessee and hence the addition of Rs.5,06,901/- sustained by the Ld. CIT(A) may be deleted” 3. With the consent of both the sides we proceed to adjudicate the Grounds raised by the Revenue and the Cross Objection filed by the Assessee. The delay of 54 days in filing the Cross Objection is condoned in view of the judgment of Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. Katiji 167 ITR 471 (SC) Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 5 accepting the explanation offered by the Assessee vide Application, dated 20/01/2026, as bonafide and reasonable. We hold that the Assessee was prevented from sufficient cause from filing the Cross Objection within the prescribed time. 4. The relevant facts in brief are that the Assessee, a partnership firm is engaged in the business of trading/exporting polished diamonds filed return of income for the Assessment Year 2013-2014 on 01/11/2012. The said return was processed under Section 143(1) of the Act. 5. Subsequently, reassessment proceedings under Section 147 of the Act were initiated in the case of the Assessee on the basis of information received from Director General of the Income Tax (Investigation), Mumbai to the effect that the Assessee had taken bogus accommodation entries from Bhanwarlal Jain Group. During the reassessment proceedings Assessing Officer noted that the Assessee had made purchases aggregating to INR,84,48,501/- from the following parties managed/controlled by Bhanwarlal Jain Group: Name of Entry Provider PAN Amount of Sales to Assessee in F.Y. 2011-12 (in INR.) Surya Diam ABMFS0062K 10,71,329/- Daksh Diamond AURPS3696K 73,77,172/- Total 84,48,501/- The Assessing Officer completed the assessment vide Assessment Order, dated 19/12/2019, making addition of INR.84,48,501/- holding the above purchases to be bogus. 6. In appeal preferred by the Assessee, the Learned CIT(A) restricted the addition on account of alleged bogus purchases to INR.5,06,901/- (6% of bogus purchases of INR.84,48,501/-) and deleted the balance addition of INR.79,41,600/-. 7. Being aggrieved, the Revenue has preferred the present appeal before the Tribunal while the Assessee has filed Cross Objections and Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 6 seeking deletion of addition of INR.5,06,901/- confirmed by the Learned CIT(A). 8. We have considered the rival submissions and have perused the material on record. 9. On perusal of the order impugned, we find that the Assessee had made following submission before the Learned CIT(A): “5.1 The Ld. AO made addition of 100% of the purchases made by the appellant from the entities linked with the BJ group to the tune of Rs. 84,48,501/- without considering the documents submitted by the appellant during the course of the assessment proceedings. The appellant had submitted the documents as mentioned below vide letter dated 13.08.2019 and 14.11.2019, copy enclosed herewith at Page No. 52-77 and 78-101 respectively: a. Copy of bills for purchases made from M/s Daksh Diamonds and M/s Surya Diamonds along with copy of export invoices for sales made against the purchases made from Mis Daksh Diamonds and M/s Surya Diamonds enclosed herewith at Page No. 79-101. b. Copy of bank statements evidencing payments made to M/s Daksh Diamonds and M/s Surya Diamonds for the purchases made from them enclosed herewith at Page No. 67-72. c. Copy of the income tax return filed for the year under assessment, copy of computation of income and financial statements enclosed herewith at Page No. 20-29. d. Stock register for cut & polished diamonds for FY 2011-12 showing the purchases made from M/s Daksh Diamonds and M/s Surya Diamonds and the subsequent exports made from such purchases enclosed herewith at Page No.73. e. Details of purchases and purchase register for the year under assessment enclosed herewith at Page No. 74-75. f. Details of purchases and purchase register for the year under assessment enclosed herewith at Page No. 76-77. Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 7 5.2 It is pertinent to note that all the purchases made by the appellant from M/s Daksh Diamonds and M/s Surya Diamonds which were allegedly linked with the BJ Group were exported outside India and the appellant had provided all the export bills in which the quantity of diamonds exported were matching with the quantity of purchases made by the appellant from M/s Daksh Diamonds and M/s Surya Diamonds. Therefore, we submit that when the sales made by the appellant from the purchases made from such alleged bogus parties was not doubted then how can the purchases be doubted. 5.3 We present here below a detailed chart prepared on the basis of the purchases and export invoices wherein we have incorporated the details of purchases made by the appellant from M/s Daksh Diamonds and M/s Surya Diamonds and the details of each exports made date wise against each such purchases. The below mentioned table provides a clear picture as to how the stock of diamonds has moved towards the ultimate exports done by the appellant. Details of Purchases Details of Exports Party Name Date of purchase Invoice No. of the purchase Inward Quantit y (in carats) Date of Export Invoice No. of the export Name of the party to whom export is made Outward Quantity (in carats) Daksh Diamonds 02-04-2011 DD/PD/APR/02/2 011-12 32.18 05-04-2011 SE/EXP/001/2 011-12 Rideau Recog 17.34 xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx Surya Diamonds 20-09-2011 SD/PD/SEP/04/2 011-12 80.59 20-09-2011 SE/EXP/005/2 011-12 Rideau Recog 14.62 xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx 601.24 601.24 5.4 We can infer from the above table that the diamonds purchased by the appellant M/s. Daksh Diamonds and M/s Surya Diamonds were exported within 7-10 days from such purchase. Also, all the documents pertaining to such exports were submitted during the course of the assessment proceedings vide letter dated 14.11.2019 enclosed herewith at Page No. 79-101. Therefore, the addition made by the Ld. AO is highly unjustified when there are substantial documents to prove the purchases and the subsequent sales made against such purchases. 5.5 We submit that the Ld. AO cannot make disallowance of alleged Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 8 purchases where the appellant brings on record name and address of the suppliers, date of bills and details of cheques issued to these suppliers etc. in order to establish genuineness of purchase transactions. When the appellant has submitted all these documents as enclosed herewith at Page No. 55 to 57, the disallowance @ 100% is unwarranted and merits to be deleted.” 10. The above submission found favour with the Learned CIT(A) and the Learned CIT(A) restricted the addition to INR.5,06,901/- (6% of bogus purchases of INR.84,48,501/-) and balance amount of INR.79,41,600/- holding as under: “6.3 The third ground of appeal of the appellant is against 100% disallowance of purchases made from the two parties i.e. are M/s Surya Daim and M/s Daksh Diamonds. In response to the notice u/s 148 the appellant filed ROI on 23.04.2019 declaring total income of Rs. 1,26,769/-. Subsequently, notices u/s 143(2) and 142(1) were issued and the assessment proceedings were carried on and the assessment was completed vide the impugned order by making an addition of Rs. 84,48,501/- being the amount of bogus purchases made by the appellant. The proceedings of the case are based upon an investigation conducted Investigation Wing of the department. The details of this investigations have been discussed in detail by the AO in Paras 7 and 8 of the assessment order reproduced above. The investigations started with a search u/s 132 and ultimately resulted in the finding that a number of companies and other entities were involved in generation of bogus purchase and sale bills of diamond and providing of accommodation entries. Two of such entities are M/s Surya Daim and M/s Daksh Diamonds. The modus operandi has also been discussed in detail. From the facts discussed in the assessment order in detail it is clear that the whole arrangement is a planned conspiracy and the two entities mentioned above are also a part of this conspiracy. It is clear that these are involved in some clandestine operations. There is every possibility that these are issuing fake and inflated bills to the desirous persons. The appellant has furnished the copies of purchase bills, copies of account and other documents. It has been contended that the payments for the purchases have been made through banking channels, the purchases are duly recorded in purchase register, the diamonds purchased from these concerns have been exported within a short period and such claims have been made. Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 9 All these are the normal records and proceedings. These are there is every case, be it a fully genuine and normal one or a case involving something clandestine. In the absence of anything to the contrary these records are accepted. However when the veil between these records and actual happenings is removed, then the real picture has to prevail. The present case is one such case. Hence these documents and contentions don’t come to the rescue of the appellant and the purchases are liable to be held bogus. Accordingly, no fault can be found in the findings of the AO in this regard. 6.3.1 Since, the purchases from these parties have been held and confirmed to be bogus, now comes the question as to how this has affected the profit and taxable income of the appellant. The Ld. AO has disallowed the whole amount of purchases and added this to the income of appellant. On going through the facts in deeper detail, it is observed that these purchases in question are the only purchases of the appellant. With this disallowance, all the purchases stand disallowed. This is very absurd situation. How can anyone make sales/exports without any purchases? As such the decision of the AO is not acceptable and cannot be upheld. In para 13 of the assessment order the AO has observed as under: “However, it is also a matter of fact that the material so debited against impugned entities, has entered into the stock register and the assessee has shown corresponding sales against the said purchases debited. The assessee Trading, Manufacturing & Exporting of cut and polished Diamonds In the A.Y. under consideration, the assessee has claimed to have purchased from an impugned party and it was also seen that the entire purchase has been sold. Given these facts of the case the probable presumption that is thrown up is that the assessee has procured goods of an amount equivalent to the purchase from some other source. The honourable Tribunal's/High Courts when seized with issues wherein such presumptions were thrown up, have held that in such transactions it is only the profit margin that would be embedded therein which could be exigible to tax. The issue was discussed with the AR of the assessee who stated that in the absence of any categorical finding of any cash having been found in the course of investigation pertaining to the tainted group, it would be incorrect to hold that there was a transfer of cash in lieu of the accommodation bill purported to have Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 10 been given by the said tainted party.” The Ld. AO started with the premise that the appellant made purchases from some other source. He has also mentioned about the decisions of various Hon’ble Courts that in case of such transactions, only the extra profit margin embedded in these transactions can be taxed. However he ended up taxing the whole amount. This error needs to be corrected. Since, it has been held that the appellant has shown bogus purchases from these two concerns, it is clear that this has been done to get some advantage. Apparently the advantage is to overstate the expenses/purchases with a purpose of reducing tax liability. There is another aspect. Since, such clandestine activities are prevailing in the market, often the diamonds are available in grey market. Such transactions are not subject to any type of tax or levy like VAT/ GST/Income Tax etc. Moreover, these are obtained and sold in a hush-hush manner and there is no need to have any establishment like shop or showroom. As a result of all these economies, the goods are available at rates lower than the rates of recorded transactions. Therefore, there is no infirmity in assuming and holding that a higher rate of profit is earned by making purchases in this manner and obtaining purchase bills from some other source. From all the facts and circumstances of the present case, it is clear that the appellant too has indulged in the same practice and has earned higher income than shown by him in the books of account and return of income. The appellant has cited a number of case laws in which the Hon’ble benches of ITAT and Hon’ble Courts have held extra profit rate of 6% on such transactions as reasonable. Following the same, it is felt that the appellant too has earned extra profit @ 6% from these transactions in the manner described above. Accordingly the addition is restricted to 6% of the amount of purchases i.e. Rs. 84,48,501/-, which comes to Rs. 5,06,901/-. Addition to that extent is confirmed and the appellant gets relief of Rs. 79,41,600/-. The third ground of appeal is allowed partly” (Emphasis Supplied). 11. The contention of the Revenue is that the Learned CIT(A) erred in restricting the addition to 6% of the alleged bogus purchases and therefore, the same should be reinstated to 100% of the alleged bogus purchases as was done by the Assessing Officer. However, reliance has been placed on behalf of the Revenue on judicial Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 11 precedents wherein the addition on account of alleged bogus purchases was restricted to 12.5% of alleged bogus purchases. 12. On perusal of the submission of the Assessee as recorded by the Learned CIT(A) as well as the documents forming part of the paper- book furnished by the Assessee, we find that in the present case the Assessee exported the diamonds purchased and was able to provide one to one reconciliation of the alleged bogus purchases with the export sales. In support, the Assessee filed purchase bills, sale invoice, stock register, purchase register, bank statements before the Assessing Officer. The export sales have not been disputed by the Assessing Officer. Therefore, the contention of Revenue that entire amount of bogus purchases should be added in the hands of the Assessee cannot be accepted. 13. As regards the estimation of profits embedded in alleged bogus purchases made from grey market is concerned, in our view the issue, the same would have to be decided keeping view the facts and circumstances of each case. The Co-ordinate Bench of the Tribunal had in the case of Sky Gem Vs. DCIT, Central Circle 1(1), Mumbai [ITA No.787 to 790/Mum/2023, Assessment Year 2010-2011 to 2013-2014, Common Order dated 23/08/2023] has observed that addition of profits embedded in alleged bogus purchases would have to be keeping in view the declared profits on normal sales. The relevant extract of the decision of the Tribunal reads as under: “14.7. We note that the Assessing Officer had in the present case concluded that only the profit element embedded in the bogus purchases, estimated at 3% for polished diamonds or 5% for rough diamonds, can be brought to tax. However, in our view, the application of the aforesaid rates to make the addition may not yield desirable results in all cases. Both, an assessee grossly understating profits (at say 1%) and another assessee marginally understating profits (at say at 4%), would suffer Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 12 addition at the rate of 3% of bogus purchases irrespective of the profits disclosed. Therefore, subject to the availability of reliable information, the profit margin disclosed by the Appellant on normal sales (which would vary depending upon the industry in which an assessee operations and the state of business operations of the assessee) would be a relevant factor to be considered while estimating profit element embedded in bogus purchases. At this juncture it would pertinent to consider the judgment of the Hon’ble Bombay High Court in the case of The Principal Commissioner of Income Tax-17 Vs. Mohommad Haji Adam & Co.: Income-Tax Appeal Nos. 1004, 1012, 1013, 1059, 1064, 1075, 1095 And 1204 of 2016, 11/02/2019 reported in [2019] 103 taxmann.com19 (Bombay)[11/02/2019]. In that case the Revenue was aggrieved by the decision of Tribunal whereby the addition on account of bogus purchases to the difference between the gross profit rates of genuine sales and bogus sales. Before the Hon’ble Bombay High Court the Revenue had contended that entire purchases should be added. The Hon’ble Bombay High Court rejected the contention of Revenue and declined to frame question of law……….” (Emphasis Supplied) 14. We note that the Assessee had disclosed gross profit margin to 13.62% for the Assessment Year 2011-2012 and 14.86% for the Assessment Year 2012-2013. There are no allegations of allegations of alleged bogus purchases during the Assessment Year 2011-2012. Therefore, the Gross Profit Margin declared for the Assessment Year 2012-2013 are more than immediately preceding assessment year wherein there were no allegations of alleged bogus transactions. 15. We note that Revenue has placed reliance upon the Judgment of Hon’ble Gujarat High Court in the case of Commissioner of Income- tax vs. Simit P. Sheth [2013] 38 taxmann.com 385 where the additions made in respect of alleged bogus purchases were restricted to 12.5%. On perusal of the said judgment, we find that the assessee Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 13 in that case was engaged in supplying steel and had declared profit margin of only 3.56%. Taking into consideration the nature of business of the assessee and the gross profit margin declared, the Hon’ble Gujarat High Court declined to interfere with the decision of the Co-ordinate Bench of the Tribunal to restrict the addition to 12.5% as alleged bogus purchases. Similarly, in the case of Principal Commissioner of Income-tax vs. S.V. Jiwani [2022] 145 taxmann.com 230 (Bombay) [03-10-2022], the Hon’ble Bombay High Court upheld the decision of the Tribunal to restrict the additions on account of alleged bogus purchases to 12.5% of alleged bogus purchases taking into account the fact that the assessee in that case was engaged in execution of contract work for Municipal Corporation of Greater Mumbai (MCGM) a state authority. In the present case Assessee is engaged in trading of diamonds. During the course of hearing the Learned Authorised Representative for the Assessee had placed reliance upon the Mumbai Bench of the Tribunal in the case of Arham Star vs. Income-tax Officer [2025] 180 taxmann.com 44 (Mumbai - Trib.)/[2025] 128 ITR(T) 192 (Mumbai - Trib.)[26-09- 2025] wherein it was observed by the Co-Ordinate Bench of the Tribunal that the profit margin in the diamond sector is generally in the range of 1% to 3% as per the Task Force Report of Government of India1. The Assessee in the present case has declared Gross Profit Margin of 14.86% which is already more than the benchmark of estimated profit element of 12.5% of alleged bogus purchases adopted on the basis of judicial precedents relied upon by the Learned Departmental Representative. Therefore, a further addition of 6% of alleged bogus purchases as directed by the Learned CIT(A) cannot be sustained since the same would take the effective gross profit margin to 20.86%. Given the facts and circumstances of the 1 Report of the Task Group for Diamond Sector to make India an “International Trading Hub For Rough Diamonds” Government of India Ministry of Commerce and Industry Department of Commerce, February 2013 Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 14 present case, we estimate the profit element in the alleged bogus purchases to 15.5% [12.5% plus 3%] of the alleged bogus purchases with the directions to the Assessing Officer to reduce the gross profit already declared by the Assessee from the same. Our view draws strength from the recent decision of the Tribunal in the case of ITO 19(3)(1), Mumbai Vs. Tagaram Ganesiiram Prajapati [ITA No.1006/Mum/2006] and Chirag Praful Punatar Vs. ITO Ward 42(1)(4), Mumbai [ITA No.8824/Mum/2025]. 16. In view of the above, all the Ground raised by the Revenue are dismissed. On the other hand the Cross Objection No.3 raised by the Assessee is partly allowed in terms of Paragraph 15 above. 17. As regards, Cross Objection 1 & 2 raised by the Assessee challenging the reassessment proceedings is concerned, we do not fine any merit in the same. We note that reassessment proceedings were initiated on the basis of Investigation Wing which form sufficient tangible material to initiate reassessment proceedings in the case of the Assessee. As per the information received, the Assessing Officer received information that the Assessee had made bogus purchases from entities controlled and managed by Bhawarlal Group engaged in providing accommodation entries. 18. It is settled legal position that in the case of Raymond Woollen Mills Ltd. vs. Income-tax Officer [1999] 236 ITR 34 (SC) it was held by the Hon’ble Supreme Court that at the stage of issuance of notice under Section 148 of the Act for initiating reassessment proceedings under Section 147 of the Act prima facie there must be some material on the basis of which reassessment proceedings could be initiated and the sufficiency or correctness of the such material is not to be considered at that stage. We reject the challenge mounted by the Assessee to the validity of the reassessment proceedings under Section 147 of the Act and dismiss Cross Objection No.1 to 2 raised Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 15 by the Assessee as being without merit. 19. In conclusion, the appeal preferred by the Revenue is dismissed and the Cross Objection preferred by the Assessee is partly allowed. Order pronounced on 27.03.2026. Sd/- Sd/- (Vikram Singh Yadav) Accountant Member (Rahul Chaudhary) Judicial Member मुंबई Mumbai; िदनांकDated : 27.03.2026 Milan, LDC Printed from counselvise.com ITA No.6127/Mum/2025 & C.O. No.13/Mum/2026 Assessment Year 2012-2013 16 आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent. 3. आयकर आयुƅ/ The CIT 4. Ůधान आयकर आयुƅ/ Pr.CIT 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, मुंबई/ DR, ITAT, Mumbai 6. गाडŊ फाईल / Guard file. आदेशा नुसार/ BY ORDER, सȑािपत Ůित //True Copy// उप/सहायक पंजीकार /(Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai Printed from counselvise.com "
Other Referred Cases
Ms. Swetamber Steels Ltd. vs. ITAT, Ahmadabad, PCIT vs. S.V. Jiwani, CIT vs. Simit Sheth, N.K. Protein Ltd vs. Dy. CIT, Raymond Woollen Mills Ltd. vs. Income-tax Officer, Sky Gem vs. DCIT, Central Circle 1(1), Mumbai, The Principal Commissioner of Income Tax-17 vs. Mohommad Haji Adam & Co., Tagaram Ganesiiram Prajapati vs. ITO 19(3)(1), Mumbai, Chirag Praful Punatar vs. ITO Ward 42(1)(4), Mumbai, Arham Star vs. Income-tax Officer
Laws Referred To
Income Tax Act, 1961
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1:1 Consultation on Business Valuations
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Convertible Note Agreement
Mehul₹5000
Form AOC-2 - Disclosure of Related Party Transaction
Mehul₹50
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