ACIT-19(3), MUMBAI, PIRAMAL CHAMBER vs. ROMIL DIAM, MUMBAI

9. The appeal is being filed before the Hon’ble ITAT, as the tax effect involved in this case is Rs. 70,92,030/-,which is above the prescribed limit mentioned in the CBDT’s Circular F. No. 279/Misc.142/2007-ITJ(Pt) amended vide No. 09/2024 dated. 17.09.2024 and this case also falls under one of the exceptions specified in paragraph 3.1(h) of the CBDT’S Circular No 05/2024 Dated. 15.03.2024, wherein it is stated that in cases involving “Organized Evasion” including cases of Tax accommodation entry of bogus purchases.

2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai 3.1 Facts in brief are that the assessee is a trader in cut and polished diamonds. She filed her return declaring total income of Rs. 6,49,860/-.The case was reopened u/s 147 of the Act based on certain information by the Investigation wing of the Department that she availed entries of bogus purchases from a few parties i.e Rare Diamond, KALASH,AADI etc. aggregating to Rs. 2,14,04,724/-. The AO observed that these concerns belonged to Rajendra Jain Group who were Entry/Accommodation bill facilitators of fraudulent financial transactions. The above concerns managed by Rajendra Jain were all dummy ones. It was well established during the search and seizure in this group that it was engaged in the business of issuing non-genuine purchase bills and also unsecured loan accommodation 'entries' through a Syndicate Group operated by Sri Rajendra Jain along with his some trusted men. The Investigation Wing, through some discreet enquiries, came to know about the aspect of the modus operandi involved in the Diamond industry for issuance of fake bills. It is stated that there were almost 10 concerns issuing of bogus sale bills to various parties etc. The Investigation Wing revealed that the partners/directors of these concerns did not have any in depth knowledge of diamond industry. These persons were employees and were associated with the office with 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai no genuine knowledge of diamond business. The real control and management of all these concerns lay in the hands of Sri Rajendra Jain. In their respective statements recorded, they admitted no personal contact with the importers. All these persons were in receipt of salary, mostly in cash. Shri Rajendra Jain too, in his statement recorded under section 132 (4) of the Act on 05/10/2013 had admitted the modus operandi. The onus was clearly on the assessee to prove the genuineness of the purchases. The AO noted that mere documentation, either in form of bank account entries or otherwise of the claimed transaction could not make a fictitious transaction a real one. The assessee claimed the alleged purchase as genuine submitting that the transaction were made through bank accounts and sale and purchase invoices showed that the purchases were genuine. However, the AO concluded that the impugned purchase were not genuine and only fake entries of purchases which were never made. Reliance was placed by him on Hon. Apex Court decision in the case of N. K. Proteins Ltd vs DCIT in Tax Appeal no 240- 242.

5.1 Per contra, the ld.AR has placed reliance on the appellate order and has further supported his arguments on various court and tribunal decisions claiming that the only profit element could be added and not the entire purchase could be disallowed as the AO has accepted the sales without questioning it. The ld.AR has contended that all relevant details were submitted by the assessee. Based on various decisions of the coordinate benches of ITAT, it is stated that only the profit element could be taxed. It is also pleaded that the cases of Kanak Impex and Drisha Impex relied by the ld.DR are distinguishable on facts claiming that in the instant case the assessee always participated in the assessment proceedings and filed necessary details. It is also stated that the aforesaid decisions have been distinguished by the coordinate benches of ITAT in several cases.

6.1 The ld.CIT(A) applied the profit rate of 8% on the purchases for restricting the addition made at the rate of 100% amounting to Rs 2,14,04,724/- of the impugned bogus purchases though he concurred with the findings of the AO regarding bogus nature of the purchases. The order suffers from certain glaring errors in as much the ld.CIT(A) has on more than one occasion named the entry provider to be Bhanwar Lal Jain though the entry provider is clearly stated by to be Sri Rajendra Jain. Moreover, he failed to make any observation or made any attempt to distinguish the landmark decision of hon’ble Supreme Court in the case of N.K. Protein P.Ltd(supra). In such a situation, making an 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai estimated addition defies any cogent basis. Rather, in a series of recent judgements, the hon’ble Bombay High Court in similar case of bogus purchases has come down heavily on such dubious transactions and held categorically that entire non genuine purchase, if not proved are liable to be treated as bogus and added to the income and no addition was justified on estimate basis, once there is a finding by the authorities that the purchases could not be proved by the assessees. In fact, such estimations made by the appellate authorities including the CIT(A) and ITAT have not been appreciated by the hon’ble Court. The decisions clearly bring out the finding that any such transaction would be either genuine or bogus and needs to be allowed/disallowed in toto, depending upon the facts and the circumstances of the case. The hon’ble Court has also observed that such estimation, in fact, gives legitimacy to the other remaining deleted part of the addition, despite being bogus and unproved transactions. The AO has meticulously narrated the entire modus operandi of fake invoicing and claim of inflated expenses under the garb of bogus bills. None of these findings deserved any mention in the appellate order. It is worth mentioning here that the ld.CIT(A) has given a categorical finding in para6.3“I have considered the facts of the case and the grounds of appeal of the appellant. As the relevant purchases have been debited to the P & L account and claimed as a deduction in computing the profits of the business chargeable 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai to tax, the onus was on the appellant to prove the genuineness of the purchases with satisfactory evidences. The onus that was cast on the appellant was of a greater degree in the present case owing to the facts of the case wherein the AO was in a possession of information received from the DGIT (Inv) indicating strongly that the supplier concerned was only involved in providing accommodation entries and was not carrying out any real business.” Further, he has also held that: Though the appellant’s claims that the payments for these purchases were made through cheque but that alone will not determine the genuineness of these purchases as the Hon’ble Supreme Court had in case of Kanchawala Gems (2007) 288 ITR

10. (SC). Thus, the claim of the assessee that the said purchases are genuine cannot be accepted in totality.

6.2 However, despite upholding the findings of the AO that the impugned purchases were non genuine, the ld.CIT(A) restricted the addition to 8% of the total amount of Rs 2.14 cr. which is apparently contrary to decisions of jurisdictional High Court. The assessee, has not preferred any appeal w.r.t. such observations and findings, thus accepting that the transactions of alleged purchases were bogus and she failed to prove and discharge the onus in this regard. The assessment order is self-explicit as the statement of the entry provider has been reproduced wherein he has categorically admitted that these entities under his control were formed for providing bogus entries. The statements were also supplied to the assessee for comments which does 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai not appear to have been made by it. At no point ,the assessee has been able to rebut the admission of the entry provider and the real person creating such bogus entities so as to legitimise the purchases from the grey market.

6.3 In view of recent decisions of hon’ble jurisdictional High Court in several cases concerning similar issue of bogus purchases through entry providers, such purchases if not proved by the assessee are liable to be treated as non-genuine or bogus and there is no question of application of estimated profit vis-à-vis the bogus purchases. In this regard, we refer to the landmark decision in the case of Kanak Impex in Income Tax Appeal No. 791 of 2021 dated 03.03.2025.In this case Rs.20,06,80,150/- was added on account of bogus purchases since the genuineness of the purchases could not be verified. Relevant paras are extracted as below for ready reference: “The CIT(A) further observed that the activities of the accommodation entries in the trading community are not unheard of and further stated that the investigation by the Sales Tax Department concerning VAT violations cannot be lost sight of more particularly since the names of the bogus sellers supplied by the Sales Tax Department are appearing in the books of respondent- assessee and, therefore, the link of involvement of the respondent- assessee in getting bogus bills is established. However, after giving the findings on the bogus purchases, the CIT (A), without any further reasoning, straight away referred to the decision of the Gujarat High Court in the case of CIT Vs. Simit P. Shethi and estimated 12.5.% of the bogus purchases as the additions to be made instead of confirming entire bogus purchases.

2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai 18. The CIT(A) has also given a finding against the respondent- assessee in paragraph 5.2.1, stating that the respondent-assessee failed to prove the genuineness and source of the purchases and confirmed its involvement in the modus operandi. In our view, CIT(A) was not justified after giving such a finding that the additions should be restricted only to 12.5% of such purchases and not entire purchases. The issue before the CIT(A) was not whether the profit disclosed by the respondent-assessee was low so as to justify the estimation of the profit of 12.5%. The issue before CIT(A) was whether the purchases had been proved and the CIT(A), having observed against the respondent-assessee on this issue, ought to have confirmed the additions of the entire purchases. In our view, the CIT(A) misdirected himself by estimating a profit of 12.5%.

23. If the approach of the Appellate Authorities is accepted, then the provision of Section 69C, which is an enabling provision, would become redundant. Section 69C provides that where an assessee has incurred any expenditure and offers no explanation about the source of expenditure or the explanation offered is not in the opinion of the AO satisfactory, then the amount of expenditure may be deemed to be the income of the assessee and such unexplained expenditure which is deemed to be the income of the 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai assessee shall not be allowed as a deduction under any head of income. In our view, if the approach of the CIT(A) and the Tribunal is accepted, then it would amount to endorsing outright conduct of illegality, contrary to the express provisions of Section 69C of the Act, which the Appellate Authorities have entirely ignored. In the above example, by estimating 10% and thereby impliedly giving a deduction of Rs.90/-, in the teeth of the provisions of Section 69C of the Act, which expressly bars the allowability of unexplained expenditure.

2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai 38. In our view, in the instant case, the respondent-assessee has offered no explanation of the source of the expenditure incurred on account of purchases of Rs.20,06,80,150/- and, therefore, the AO was justified in making an addition of the said amount and the Appellate Authorities were not justified in estimating the profit rate and thereby impliedly grant deduction of such unexplained expenditure which is contrary to the express provision of Section 69C of the Act. 6.4 We find that the instant case is duly covered by the above decision since the ld.CIT(A) upheld the conclusion of the AO that the assessee failed to prove the genuineness of the impugned purchases and despite this finding he restricted the addition to 8% only. Moreover, the assessee did not contest the findings of the ld.CIT(A) in subsequent appeal confirming the findings that the impugned purchases were bogus.

6.5 In another case of Shree Ganesh Construction in dated 05.03.2025 hon’ble Bombay High Court observed and held as under: “4. On 29 May 2015, the CIT (A) with respect to the alleged bogus purchases deleted the additions with regard to all the suppliers except M/s Neptune Trading Co. and Hari Om Traders. With respect to these two parties, the additions made by the Assessing Officer (AO) was confirmed to the extent of only 12.5% of the purchases made from these parties.

5. The appellant-revenue challenged the order of the CIT (A) by filing an appeal to the Tribunal. In the grounds of appeal, the appellant-revenue challenged the deletion of the purchases made from various parties. With respect to M/s Neptune Trading Co. and Hari Om Traders, a specific ground was also taken by the appellant-revenue to the effect that the CIT (A) erred in estimating profit at 12.5% on the bogus purchases. It is important to note that the respondent-assessee has not challenged the additions sustained by the CIT (A) to the extent of 12.5% on the purchases made from M/s Neptune Trading Co. and Hari Om Traders.

2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai 12. Admittedly, the respondent-assessee did not discharge its onus of proving the purchases made from various parties during the course of the assessment proceedings. The respondent-assessee did file some evidence before the AO but same was not to the satisfaction of the AO and, therefore, the AO rejected the explanation of the respondent-assessee with respect to various parties referred to in paragraph 4 of the assessment order and made an addition of Rs.14,30,90,442/-.

21. The Co-ordinate Bench of this Court in the case Shoreline Hotel (P.) Ltd. Vs. Commissioner of Income-tax, Central-I13 had an occasion to adjudicate a very similar issue. In that case, the Officer made an addition of 15% of the purchases which were not proved. The CIT (A), while exercising his jurisdiction under Section 263 of the Act held that in such a case, the total purchases should have been added and not only 15%. The matter was carried unsuccessfully before the Tribunal and thereafter before this Court. This Court observed that once certain percentages of the purchases which are admitted has been not proved then, the Officer could not have added only that percentage but ought to have added full purchases. Although this was a case 13 (2018) 98 taxmann.com 234 (Bombay) 11 901.itxa-719.18 (j).docx arising out of revisional proceedings under Section 263 but in the revisional order, the Commissioner had given a definite finding that the entire purchases should have been added. Therefore, the counsel for the respondent- assessee was not justified in distinguishing this judgment on the ground that it deals with the proceedings under Section 263 and not Section 143(3) of the Act.

22. The issue is not under which section the proceedings were initiated but the issue is that if an assessee accepts certain percentage of unproved purchases as his income then whether the additions should be made of certain percentage or the entire purchases. In our view, this decision supports the view which we have taken in the present case. The respondent-assessee having accepted 12.5% of the purchases made from M/s Neptune Trading Co. and 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai Hari Om Traders, the natural corollary was that both the Appellate Authorities ought to have sustained total purchases from these parties and not 12.5%.

7.1 In the light of the legal position emerging from the above cited decisions and the facts of the instant case being identical, we are of the considered view that the assessee has failed to discharge the primary onus in proving the impugned purchases as genuine and also the ld.CIT(A) erred in restricting the disallowance to 8% of the impugned sums, thus in the view of the hon’ble Court legitimising the balance non genuine transaction. 7.2 We therefore, set aside the appellate order as not sustainable and restore the assessment order upholding the addition made by him, thus allowing the grounds of appeal of the Revenue.

8. In the result, appeal of the Revenue is allowed.

2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai 1. “Whether the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the GP rate to the extent of 8%, as against the 100% made by the AO, on account of bogus purchases transaction of Rs. 2,33,32,712/- with M/s. Rare Diamonds pvt. ltd, M/s. Euro Diam & Nazar Impex Private Limited, all are identified as bogus /paper entities of Mr. Bhanwarlal & Rajendra Jain Group ?” 2. “Whether on the facts and circumstances of the case and in law, Ld CIT(A) has erred in restricting GP rate to the extent of 8% as against the 100% addition of Rs. 2,33,32,712/-by ignoring the fact that action of the Assessing officer was based on the information of the DGIT (Investigation Wing) Mumbai, who has proved beyond doubt with the evidences & recorded statements that all these Three paper concerns/entities were managed controlled by Mr. Bhanwarlal & Rajendra Jain Groups with a sole purpose of providing accommodation entries of bogus purchases & Loans and the assessee firm was found to be one of beneficiary who has obtained accommodation entries of bogus purchases of diamonds without actual delivery and this transaction were undertaken to generate paper tail only?” 3. “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting that GP rate to the extent of 8% as against 100% addition of Rs. 2.33,32,712/-without appreciating the fact that during the Search operations conducted no stock of diamonds or related materials was found and during the re-assessment proceedings, the assessee has failed to prove genuineness and creditworthiness of transactions as well as parties for vindication, by not producing the documents/evidences /delivery challans, stock registers etc. before Assessing officer?”“ 4. “Whether in the facts and circumstances of the case, the Hon’ble ITAT was justified in confirming the addition to the extent of 8% as against 100% addition of total value of bogus purchase transaction, although there was no dispute that the bogus purchases were made and so set of infraction of l ow was committed by the assessee on provision of section 74(1A) of the Maharashtra Value Added Tax Act 2002 and such purchases are not allowable as per express provision u/s. 37 of the Act?” 5. “Whether in the facts and circumstances of the case, the Ld. CIT(A) is perverse in not considering the order of H on’ble Gujarat High Court in case of N.K. Industries Ltd (2016)72 (Guj.) Relating on similar issue of bogus Taxman.co 289 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai purchase, which have been confirmed by the Hon’ble Supreme Court big dismissing SLP in SLPICC) of 963/2017 dated 16.01.2017?” 6. “Whether on the facts and circumstances of the case and in law. Ld. CIT(A) has erred in restricting the addition to the extent of 8%, without appreciating the decision of the Hon’ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj) 354. Dated. 16.01.2017, wherein the Hon’ble Court has held that Once a findings of act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P &L account are established as bogus, then restricting the addition to a curtained percentage goes against the principles of section 68 and 690 of the Income Tax Act, 1961?” 7. “Whether on the facts and circumstances of the case and in law, the order of the Ld. CIT(A) is perverse in not considering that the order of Hon’ble Supreme Court in the case af M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj) 354. Dated. 16.01.2017, which is on the similar issue of bogus purchases was already the law of the land when the Ld. CIT(A) has pronounced it’s order on 09.01.2025 ?” 8. “Whether on the facts and circumstances of the case and in law. Ld. CIT(A) has erred in restricting the addition without appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon’ble ITAT, Ahmadabad had 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 the Hon’ble Supreme Court?”

are exactly the same as in AY 2010-11, involving bogus purchases based on the Investigation wing 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai report. The only difference being the fact that here the alleged sellers are different entities though also under the control of the above named entry provider Sri Rajendra Jain. Briefly stated, the assessee filed return of income declaring total income of Rs. 2,57,069/-. Since, the assessee was also one of the beneficiaries of the accommodation entries provided by Sri Rajendra Jain etc. in respect of purchases from certain parties i.e M/s. Rare Diamonds Pvt. Ltd., M/s. Euro Diam and M/s. Nazar Impex Private Limited amounting to Rs. 2,33,32,712/-,the AO proceeded to add this amount as bogus/unexplained purchases on the same line as discussed in for AY 2010-11.In the subsequent appeal, the ld.CIT(A) dittoed his findings as in discussed at length in appeal for AY 2010-11, holding that as the relevant purchases had been debited to the P & L account and claimed as a deduction in computing the profits of the business chargeable to tax, the onus was on the appellant to prove the genuineness of the purchases with satisfactory evidences. The onus that was cast on the appellant was of a greater degree in the present case owing to the facts of the case wherein the AO was in a possession of information received from the DGIT (Inv) indicating strongly that the supplier concerned was only involved in providing accommodation entries and was not carrying out any real business. Finally, he applied profit margin of 8% on the impugned 2167Mum 2025 A.Y. 2010-11, 2011-12 M/s Romil Diam, Mumbai bogus purchases restricting the addition of 100% made by the AO partly allowing the appeal.

11. On careful consideration of the facts, we find that the issue in hand is fully covered by our decision rendered in para 7.2 above hereby the appeal of the Revenue has been allowed. Therefore, the decision in ITA No.2166/Mum/25(supra) applies mutatis mutandis to the instant appeal also. Thus, the grounds of appeal of the Revenue is allowed.

Order pronounced in the open court on 10.11.2025.