TaxTMI 
TaxTMI 
2026 (6) TMI 1267
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee was reopened under Section 147 of the Act by recording the reasons for reopening and issuing the notice under Section 148 of the Act dated 26.02.2015, on the basis of the following information: - "A search & seizure action was conducted on Shri Bhanwarlal Jain & his Group Concerns on 03.10.2013 by the DGIT (Inv.), Mumbai. During the course of the search proceedings, it was established that the group concerns are all paper companies/firms/proprietorship concerns with no real business activities, operating solely with the purpose of facilitating fraudulent financial transactions which include, among others, providing accommodation entries in the form of unsecured loans to interested parties, issuing bogus sale bills to various parties and providing a bogus front to concerns which do not want to import diamonds in their own hands/books of accounts. On going through the documents forwarded by the DGIT (Inv.), Mumbai, it was found that the above-mentioned assessee had obtained accommodation entries of bogus purchases from various concerns of Shri Bhanwarlal Jain & Others during the financial year 2009-10 relevant to A.Y. 2010-11, the details of which are given ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t payee cheques are not sacrosanct. Thus, from the above analysis of the facts, it is crystal clear that the purchases made by the assessee from the above parties and claimed as expenses in its profit and loss account are not genuine. Since the purchases to that extent remained unverifiable and cannot be accepted, the books of accounts are rejected as provided in Section 145(3) of the IT Act." 6. The AO, from the analysis of above facts, has held that it is crystal clear that the purchases made by the Assessee from the above parties and claimed as expenses in its profit and loss account are not genuine. Since the purchases to that extent remained unverifiable and cannot be accepted, the books of accounts are rejected as mandated under Section 145(3) of the Act. From the above discussion, one can simply conclude that the Assessee had obtained only the bills from Bhanwarlal Jain and his group concerns, without actually receiving the material. Thus, the bills issued by Bhanwarlal Jain and his group concerns are nothing but accommodation entries. 7. The AO, after holding the purchases made by the Assessee as alleged bogus accommodation entries, proceeded with the case to....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the appellant failed to satisfy the AO regarding the actual delivery of the goods. The Assessee is among those identified by the Investigation Wing as beneficiaries of the Bhanwarlal Jain Group. Statements of Shri Bhanwarlal Jain and his sons were recorded under Section 132(4) of the Act and, therefore, the absence of stock and the lack of genuine infrastructure to carry on business support the AO's conclusion that these entities were not engaged in genuine trade. 11. With regard to the non-providing of an opportunity for cross-examination to the Assessee, the ld. Commissioner observed that this procedural lapse cannot be said to vitiate the assessment in its entirety when the AO's conclusion is based upon specific information received from the Investigation Wing about the Assessee being a beneficiary of accommodation entries provided by Bhanwarlal Jain. The AO had specific information about the entries of the Bhanwarlal Jain Group, with whom the Assessee carried out the impugned transactions and how they were recorded in the books of the bogus entities. The specific and accurate nature of the information lends justification to the AO's action of not granting an opportunity fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act, as alleged. Further, the Assessee has also filed affidavits of the purchase parties, specifically confirming the transactions with the Assessee. It is also a fact that the authorities below have not pointed out any deficiency in the documents submitted by the Assessee, nor have they brought on record any material to controvert such documents. Further, it is also a fact that no material or statements, as relied upon by the authorities below, were provided to the Assessee, and no corroborative evidence has either been placed on record or referred to by the AO while making the addition. Further, it is also a fact that no notice under section 133(6) of the Act or summons under section 131 of the Act was issued to the purchase parties or Shri Bhanwar Lal Jain. 18. We observe that admittedly, the ld. Commissioner duly accepted the sales transactions undertaken by the Assessee as genuine, but only doubted the purchase documents by alleging that, though the purchases may have been made from certain parties, the Assessee had obtained the alleged documents, which is a common practice among beneficiaries of accommodation entries. Further, the ld. Commissioner has specifically obs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... documents filed by the Assessee before the authorities below were based on bogus purchases. Further, the order passed by the ld. Commissioner is liable to be affirmed in view of the judgment passed by the Hon'ble Bombay High Court in the case of PCIT vs. Kanak Impex (India) Ltd. (2025) 172 taxmann.com 283 (Bombay). 22. We observe that in Kanak Impex case (supra), the Assessee therein not only failed to participate during the assessment proceedings but, in fact, never submitted the relevant documents to prove the genuineness and source of the alleged purchases, resulting in a failure to discharge the prima facie onus cast under section 69C of the Act. Further, in the instant case, as observed above, the Assessee has duly submitted the relevant documents/evidence, such as ITR acknowledgements of the purchase parties, confirmations from the parties, purchase invoices, bank statements, details of the purchase parties, and mapping/correlation of the alleged purchases with the subsequent sales, in order to prove the genuineness of the transactions under consideration and has, therefore, prima facie discharged the onus cast under the applicable provisions of law. 23. We further obs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry evidences stood filed on record. However, the learned CIT(A) confirmed the addition by largely reiterating the findings of the Assessing Officer. 7. We have heard the rival submissions at length and have carefully perused the material available on record. It is an admitted and undisputed position that the assessee has furnished comprehensive documentary evidence in support of the purchases made from both M/s. Aadi Impex and M/s. Kailash Enterprises. The evidences placed before the Assessing Officer, in respect of both the parties, include income tax return acknowledgements, copies of purchase invoices, account confirmations, bank statements evidencing payments through account payee cheques, and sworn affidavits affirming the genuineness of the transactions. These documents, taken cumulatively, establish the identity of the suppliers, the genuineness of the purchase transactions, and the fact that such purchases were duly recorded in the regular books of account maintained by the assessee in the normal course of business. 8. Apart from the aforesaid primary evidences, the assessee has also furnished a detailed quantitative statement mapping the purchases with co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd to demonstrate that the payments routed banking channels had flown back to the assessee in cash or otherwise. Such omissions assume particular significance in the context of diamond trading, where the business operates on thin margins, rapid inventory turnover, and export-linked transactions. 12. Another material aspect emerging from the record is the gross profit declared by the assessee. As per the tax audit report, the assessee has disclosed a gross profit rate of 6.26%. It has been specifically clarified that the gross profit rate relatable to the impugned purchases works out to 5.56%, resulting in a marginal variation of merely 0.71%. Such a negligible deviation, viewed in the backdrop of accepted turnover, undisputed exports, and reconciled stock movement, does not justify the extreme inference that the entire purchases are non-genuine. 13. The reliance placed by the Revenue on the judgments of the Hon'ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd. and PCIT v. Drisha Impex Pvt. Ltd. is clearly distinguishable on facts. Those decisions were rendered on materially different factual foundations where the assessee's had failed to substantiate the g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onciliation of purchases and sales, and did not find any incriminating material, etc. and thus, ultimately deleted the identical addition. 24. Thus, on the aforesaid analysis, we are unable to sustain the addition made by the AO @ 8% of the alleged bogus purchases, as enhanced to 10% of the alleged bogus purchases by the ld. Commissioner, that too without providing any opportunity and/or issuing any notice for enhancement. 25. Thus, JAO is accordingly directed to delete the addition sustained and enhanced to @ 10% of the bogus purchases by the ld. Commissioner; however, as a measure of abundant caution, subject to verification of the alleged purchases with the corresponding sales and offering of the profit @ 4.87% earned thereon, to income tax. 26. Thus, in view of the above analysis and findings, the Assessee's appeal, i.e., ITA No. 8462/M/2025, stands allowed, however, subject to the limited purpose of verification, as directed above. 27. Coming to Assessee's appeal i.e. ITA No. 8461/M/2025 {AY 2012- 13}, which relates to the affirmation of the addition to the extent of 10% {Rs. 1,17,25,863/-} of the alleged bogus purchases by the ld. Commissioner vide the impugned or....