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Facts
The assessee, a proprietor of Vitrag Diam dealing in cut and polished diamonds, was suspected of receiving accommodation entries from Namo Diamonds Pvt. Ltd. for transactions amounting to Rs. 10,02,650/-. The Assessing Officer (AO) initiated reassessment proceedings and treated this transaction as unexplained credit under Section 68, based on information from the Directorate of Revenue Intelligence (DRI).
Held
The Tribunal held that the AO's action of making an addition under Section 68 was not justified. The assessee had discharged its primary onus by providing complete details of the transaction, including sale invoices and bank statements, which were not disputed by the AO except for the observation that banking channels are not sacrosanct. The AO failed to bring any adverse material against the evidence.
Key Issues
Whether the addition made under Section 68 by the AO, based on third-party information about accommodation entries, is sustainable when the assessee has provided documentary evidence of a sale transaction?
Sections Cited
147, 144B, 148, 69C, 68, 147, 144B
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee is directed against the order of ld. CIT(A) dated 14.05.2025 for A.Y. 2018-19. The assessee has raised following grounds of appeal:
“1. The Commissioner of Income Tax Appeals has erred in confirming the addition of Rs. 10,02,650/- passed by the order of the Assessing Officer passed u/s 147 r.w.s 144B.
2. The CIT Appeals has erred in confirming the actions of Assessing officer by validating initiation of reassessment proceedings u/s 148
The CIT Appeals has erred in treating the addition as unexplained expenditure u/s 69C.
The Appellant craves to leave, to add, to alter or modify the grounds of appeal as stated above, at any time on or before the hearing the appeal.”
Brief facts of the case are that the assessee is a proprietor of Vitrag Diam, engaged in the business of cut & polished diamonds. The assessee filed his return of income for A.Y. 2018-19 on 31.10.2018 declaring income of Rs. 40,38,650/-. In the computation of income, the assessee has shown turnover of Rs. 39.17 crore. In the month of March, 2022, the assessing officer received information that assessee is beneficiary of accommodation entry provider namely Namo Diamonds Pvt. Ltd. The assessing officer was also informed that there was group of certain companies which were operating only on papers and providing different types of entries to beneficiaries. The assessing officer recorded that he has information that assessee has entered into transaction of Rs. 10,02,650/- with Namo Diamonds Pvt. Ltd. On the basis of such information and suspicious transaction, the assessing officer issued notice under section 148 dated 19.04.2012, with a specific observation to verify the transaction with accommodation entry providing companies. Such fact is recorded on page 5 in para 2 of assessment order. The assessing officer noted that in response to show causes notice under section 148 dated 19.04.2022, the assessee filed his return of income on 13.05.2022 declaring same income as declared originally. The assessing officer issued show cause notice to substantiate such transaction. The assessee in responses to show cause notice filed his reply dated 05.03.2024. The contents of reply are recorded on page no. 11 of assessment order. The assesse in its reply submitted that he has proprietor of Vitrag Diam and regularly filing return of income. The assessee is engaged in business of trading in cut & polished diamonds. The assessee has made transaction of sale of diamonds with Namo Diamonds Pvt. Ltd. and necessary details were furnished. The assessee also furnished ledger of said party in F.Y. 2017-18, copy of invoices of sale, delivery note and bank statement highlighting receipt of payment and confirmation of account. The assessee in its reply reiterated that he has made a transaction of sale with Namo Diamonds. The assessing officer not accepted the explanation and evidences furnished by assessee. The assessing officer recorded that “assessee has taken accommodation entry from Namo Diamonds Pvt. Ltd. via sales/purchase of Rs. 10,02,650/-“. The assessing officer instead of giving any finding on various evidences simply held that mere transaction through banking system does not established genuineness of transaction. The bank channel is used to give colour to the accommodation entry. The assessing officer treated the transaction with Namo Diamonds Pvt. Ltd. as unexplained credit under section 68 in the assessment order passed under section 147 rws 144B on 22.03.2024.
3. Aggrieved by the additions in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detailed statement of fact and written submission. In the statement of fact as well as in written submission, the assessee submitted that disallowance of Rs. 10,02,650/- were made by treating the sale as bogus. The assessee has made sale to the Namo Diamonds Pvt. Ltd. They are not beneficiary of purchases. The assessee has only one transaction with Namo Diamonds Pvt. Ltd. during the F.Y. 2017-18. The assessee furnished tax invoices dated 30.01.2018 and other details of sale transaction. The assessee also
4. The ld. CIT(A) after considering the submissions of assessee confirmed the action of assessing officer. By referring information prepared by Investigation Wing, Surat wherein it was reported that as per report of Directorate of Revenue Intelligence (DRI) various business entities imported cheap diamond and overvalued rough diamonds and in a layer transaction and issued bogus bills and Namo Diamonds Pvt. Ltd. is one of such entity. The ld CIT(A) also upheld addition under section 68 of the Act.
Further, aggrieved the assessee has filed present appeal before Tribunal.
We have heard the submissions of learned Authorised Representative (ld.
AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue and have gone through the orders of lower authorities carefully. The ld. AR of the assessee submits that assessee is in a business of cut and polished diamond. During the year under consideration, the turnover of assessee was more than Rs. 39 crore. The assessee has shown income of more than Rs. 40 lakh. The case of assessee was reopened on the basis of third party information that assessee is one of the beneficiary of bogus transaction. The information is absolutely baseless so far as assessee is concerned. The assessee made a transaction of sale with Namo Diamonds Pvt. Ltd. of Rs. 10,02,650/-. The assessing officer despite bringing such fact in his notice has not verified such fact and made addition under section 68. Thus, the addition itself is without any basis. There is no applicability of section 68 on the transaction of sale of goods. The purchase of assessee qua the sale was not disputed.
No sale is possible in absence of purchase. The ld. AR invited our attention on page no. 13 of assessment order wherein the assessing officer recorded “On further inquiry, it was found that the assessee, GAURAV VIKRAM SHAH (PAN AADPS4826M) (hereinafter “the beneficiary”) has taken accommodation entries from the party “Namo Diamonds Pvt. Ltd.” via sale/purchases of the total amount of Rs. 10,02,650/- during F.Y. 2017-18.”
The ld AR of the assessee submits that such observation is vague and cannot be made a basis of addition against genuine business transaction.
The ld. CIT(A) confirmed the action of assessing officer without giving any independent finding except extracting the contents of information allegedly received from Investigation Wing, Surat. The impugned transaction is a minor transaction vis-à-vis, the total turnover of the assessee which is more than Rs. 39 crore. The lower authorities ignored the vital fact and made the addition under section 68. No such addition is permissible under section 68 of Act. The assessing Officer and ld CIT(A) has not discussed about the scope and applicability of section 68, when the assessee provided, sale bill, address and bank statement of Namo Diamonds.
In without prejudiced submission, the ld. AR of the assessee submits at one place, the assessing officer treated the assessee as part of conduit of entry provider and on another place the assessee was treated as a beneficiary of entry provider. Despite such observation, the assessing officer made addition of entire transaction instead of considering the component of income on such transaction. To support his submission, the ld. AR of the assessee relied on following case laws; ACIT Vs Gunwanti Omprakash Ranka in CIT Vs Uttamchand Jain 320 ITR 554 (Bom)
On the other hand, ld. Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of lower authorities. The ld. Sr. DR submits that ld. CIT(A) in his order clearly recorded his finding that there is no stamp and seal of delivery of goods by receiving entity. Thus, the authenticity of transaction is doubtful.
In rejoinder submission, the ld. AR of the assessee submits that it is settled position in law that suspicious however is strong, it may be cannot substitute the evidence.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also gone through the various evidences furnished by assessee and case laws relied by his ld. AR. We find that assessing officer solely made addition on the basis of information received from Investigation Wing, Surat which were based on report of Directorate of Revenue Intelligence (DRI). We further, find that assessing officer while making the addition solely relied upon the information of Investigation Wing. Even at the time of assessment, the assessing officer has not clearly brought the fact on record, if the assessee has made sale or purchase, rather vaguely recorded his finding. We further find that assessee right from the beginning the assessee claimed that he is not beneficiary of purchase of purchases from Namo Diamonds Pvt. Ltd., rather he has made sales of Diamonds The assessee furnished complete details of Namo Diamonds Pvt. Ltd. including sale invoices, bank statement and delivery challan. No such evidence was disputed by assessing officer, except making observation that payment from banking channel is not sacrosanct. The assessing officer made addition under section 68. In our view, the action of assessing officer is not justified without when the assessee has discharged his primary onus and the assessing officer failed to bring any adverse material against such evidence. Hence, we direct the assessing officer to delete the entire addition. In the result, grounds of appeal raised by assessee are allowed.
In the result, appeal of the assessee is allowed.
Order was pronounced in the open Court on 14/11/2025.