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Facts
A search and survey action led to the discovery of a pen drive and estimation sheets containing parallel cash accounts, allegedly linked to the assessee's involvement in providing accommodation entries through bogus purchases. The additions were made based on information from the Investigation Wing, linking the assessee to a group controlled by Bhanwarlal Jain.
Held
The Tribunal held that the assessee was part of a group managed by Bhanwarlal Jain, involved in providing accommodation entries. While upholding additions related to suspicious purchases from certain parties, the Tribunal directed deletion of additions concerning parties whose transactions were denied by the assessee without contrary findings from lower authorities.
Key Issues
Whether the additions made on account of alleged bogus purchases are justified, and if the principles of natural justice were violated by the assessment proceedings and the CIT(A)'s order.
Sections Cited
143(3), 147, 132, 132(4), 145(3)
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Before: SHRI PAWAN SINGH & SHRI PRABHASH SHANKAR
Date of Hearing 20.08.2025 Date of Pronouncement 06.10.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal is filed by the assessee against the order passed by the Ld. Commissioner of Income-tax, Appeal, CIT(A) 47, Mumbai[hereinafter referred to as ‘CIT(A)’] pertaining to assessment order passed u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 [hereinafter referred to as “Act “] dated 27.03.2015 for the Assessment Year [A.Y.] 2012-13.
A.Y. 2012-13 Rikin Kirit Shah, Mumbai 2. The grounds of appeal are as under:-
1. On the facts and circumstances of the case and in law the Ld. CIT(A) failed to consider that assessment order passed without providing an opportunity of cross examination and without providing the statement of third party to the appellant which is against the principles of natural justice.
2. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in confirming disallowances of Rs. 15,21,653/-being 2% of genuine purchase of Rs. 7,60,82,657/- on allegation that purchases are suspicious from Bhanwarlal Jain group concerns.
3. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in confirming disallowances of Rs. 3,16,977/-,being 3.10% of the alleged purchases of Rs. 1,02,25,079/- from More Gems and A Z Jewels without considering the fact that appellant has no purchases from these alleged parties.
4. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in confirming the action Ld AO in confirming the assessment under section 143(3) even when the Ld AO has mentioned the provisions of section 145(3) in the body of the Assessment order and thus the entire assessment proceedings is bad in law and liable to be quashed.
3. Briefly stated facts are that the assessee filed return of income declaring total income of Rs. 7,41,592/-. A search and survey action was conducted in the case of one Shri Bhanwarlal Jain and others on 03.10.2013 by DGIT (Inv.), Mumbai which also covered certain name sake/dummy directors/partners/proprietors of various concerns that were being actually managed, controlled and operated by Bhanwarlal Jain and family u/s 132 of the Act. Based on the information received from the Investigation Wing, the case was taken up for scrutiny. After considering the replies of the assessee, the addition was made on Gross
4. In the subsequent appeal before the ld.CIT(A),during the course of appellate proceedings, the assessee raised an objection that the AO had made query regarding the alleged accommodation entry taken from four parties namely Laxmi Trading, Mimixa Diamonds, Mother exports, Rose Impex amounting to Rs 7,60,82,707/- and no queries were raised regarding More Gems and AZ Jewels while final addition in the assessment order was made after taking into account alleged purchases from six parties. A remand report was called from the AO in this regard to verify the claim of the assessee. However the AO in his report showed his inability to provide any clarification in the matter in the absence of complete records. The ld.CIT(A) stated that he went through the show cause dated 16.03.2015 issued by the AO and noted that he had raised query only about four parties. It was also noted that the AO had taken into account all the six parties while passing the assessment order. The appellant had submitted that it did not make any purchase from More Gems and AZ Jewels. The ld.CIT(A) further noted that considering the modus operandi adopted in such cases and the fact that it had been established in the case of A.Y. 2012-13 Rikin Kirit Shah, Mumbai Bhanwarlal Jain that these parties were used for providing accommodation entries through bogus bills, he opined that the purchases made from these parties had not been reflected in the books by the assessee. The assessee’s contention that no show cause was issued before AO made any additions was also correct. However, before him the assessee had not been able to explain the purchases from the two parties and had denied to have entered into any transaction with them. Thus, although the AO did not provide any opportunity to it to explain the alleged purchases from the two parties, the assessee had been provided ample opportunity to explain during the appellate proceedings.
4.1 The ld.CIT(A) further observed that in the grounds the appellant argued that the AO erred in making addition of gross profit of Rs. 69,04.619/- @ 8% margin on Rs.8,63,07,736/- by treating the same as accommodation entry and without furnishing a copy of the statement of Bhanwarlal Jain and associates. It was also submitted that the AO be directed to delete the addition or reduce the addition by the gross profit margin already declared by it. The ld.CIT(A) observed further that that in this case information was received from Investigation wing Mumbai that appellant had made bogus purchases from various parties A.Y. 2012-13 Rikin Kirit Shah, Mumbai amounting to Rs 8,63,07,736/-. The AO held that since it had submitted stock statement, the assessee might have made purchases from open markets and thus it was a beneficiary of accommodation bills. The AO held that genuineness of transaction could not be proved. Also the AO had not questioned the sales, so GP of 8% was adopted and additions were accordingly made. Before him, the assessee submitted that it had also filed various details like bank statement, ITR, invoices, quantitative details and that all transaction was done through banking channels. It was noted that Laxmi Trading, Mimixa Diamonds, Mother exports, Rose Impex, More Gems and AZ Jewels were some of the group concerns which were being controlled by Bhanwarlal Jain. Detailed enquiries had been conducted by the Investigation wing that the said group through their entities was indulging in providing accommodation entries on bogus purchases. The Hon’ble ITAT, B Bench, Mumbai, in the combined order dated 06.08.2021 (ITA No. 98-104, 108-114, 2669, 3509/M/2018) in the case of Bhanwarlal M. Jain, had extensively examined the modus operandi of Bhanwarlal M. Jain and 70 odd associates. The assessee is one of the 70 associates, as mentioned in the preceding paragraphs. The relevant findings of the Tribunal are reproduced as below- “4. We have carefully heard the rival submissions, oral as well as written. We have duly appreciated the factual matrix as enumerated by us in the preceding paragraphs. The judicial pronouncements including order in A.Y. 2012-13 Rikin Kirit Shah, Mumbai Rajendra P. Jain vis DCIT (ITA Nos.298/Mum/2018 & ors order dated 03/05/2019), as cited before us during the course of hearing had been deliberated upon. We proceed to deal with the issues in the following, 5.The first and foremost argument taken before us is that the pen drive as found during the course of search proceedings was planted from outside and the admission thereof was taken forcibly in statement of assessee u/s 132(4). The Ld. AR has impressed upon the idea that the search took place on 03/10/2013 whereas the said pen drive was not inventorized for 6 days. It has been submitted that the same could have been seized or inventorized on 04/10/2013 along with the inventory made for credit cards, bank account and jewellery etc. Further, the seizure of the pen drive was not made part of Panchnama annexure, officially drawn on 04/10/2013 and the admission about the same from his son Shri Rajesh Jain was extracted forcibly. 6 Going by the factual matrix as enumerated in preceding paragraphs, we find that the attitude of the assessee during the course of proceedings was totally non-cooperative. In fact, the assessee remained absent during search proceedings for 3 days. The summonses were not complied with and no explanation was furnished on incriminating material. Pertinently, voluminous hand written estimation sheets have been found at various premises of the assessee. The sheets have been admitted to be in the hand writing of assessee's son as well as an employee of the assessee. These sheets contain parallel cash accounts. The entries in the estimated sheets were in the nature of square-off transaction wherein cash received from one party was paid back to another party through Angadiya Account. The pen drive contained calendar year-wise names of beneficiaries, the amount of cash, details of brokerage and commission etc. It also contained complete details of Angadiya Account since 2004 in electronic form. The parallel account maintained on the pen-drive pertained to various concerns, 70 to be precise, being managed and controlled by assessee group. The password of the pen drive was cracked with the help of software programmers. After decrypting the data, print outs were taken and matched with the estimation sheets as well as other data gathered during the course of search action from various premises, disclosed as well as secret. The data was found to be Identical. The complete correlation was established between the parallel books of accounts found on the pen drive with books of 70 concerns being managed and controlled by the assessee. It transpired that the daily accounts were first written manually on estimation sheets and thereafter entered into pendrive electronically. So much so, identical pen drive was found from the possession of Shri Rohit Birawat at CST Terminus who was apprehended by the search team while attempting to flee from Mumbai to Rajasthan with incriminating material.
A.Y. 2012-13 Rikin Kirit Shah, Mumbai 7. All these facts have been admitted not only by the assessee but also by his son as well as trusted employees in various statements as or) oath u/s 132(4) at various points of time. The statements were recorded in the presence of independent witnesses. The contents of the statement were said to be duly explained to the assessee at the time of recording thereof.
In the backdrop of such clinching and overwhelming evidences, no substance could be found in the plea that the pen-drive did not belong to the assessee or the same was not found from assessee's premises particularly when the contents of the pen drive completely matched with incriminating material found during the course of search operations. The seizure of the same was duly recorded in the Panchnama which was vouched by independent Panchas. The vital link was established between the pen drive and the estimate sheets as well as the regular books ofbenami concerns being run by the assessee. Therefore, we do not find any substance in this plea as raised by Ld. AR before us and therefore, we reject the same. So far as the other arguments are concerned, we find that that the assessee was running more than 70 benami concern under name-sake directors / partners /proprietors. These persons were acting as per the direction of the assessee against remuneration. Most of them, in their statement u/s 132(4), made admission of those facts. They also made ion that they assisted / abetted the assessee in the business of providing accommodation entries. Their PAN Cards, IDs, blank signed cheques books etc were found at centralized premises. They were visiting centralized premises to sign the blank cheque books as per the books of the assessee. All these persons had superficial knowledge about nature of business being conducted by their respective concerns. Further, most of these persons were residing at premises owned by the assessee group. The books of accounts of all these entities were being maintained at two premises in a centralized manner. The books were found in the same computer and audited by common Auditor. The auditor admitted to have signed the financial statements as per the directions of Shri Lunkaran Parasmal Kothari without verifying the books of accounts. This is further fortified by survey action at BKC, Mumbai 28 Shri Bhanwarlal M. Jain wherein more than 30 firms were found to be operating from common premises. All the 70 entities were found to have common features in their respective financial statements. All these factors strongly prove the allegations of the department that all the concerns were being run by the group in a combined manner with a view to provide accommodation entries to various beneficiaries against commission. So far as the retraction of the statement made by the assessee is concerned, we find that the retraction was made after more than 8 months and the same was devoid of any material evidence. The statements were made on oath u/s 132(4) and heavy onus was on assessee to rebut the same with cogent material while retracting the A.Y. 2012-13 Rikin Kirit Shah, Mumbai same. However, nothing of that sort as done by the assessee, has been shown before us. Glaring contradictions as well as similarities has been found in the retraction affidavits. As rightly held by lower authorities, the retraction was nothing but mere after-thought and tutored statement to thwart the process of investigation. The retraction was bereft of any evidence and therefore, the same was to be completely ignored.
The aforesaid factual matrix as well as findings would lead to that all the 70 entities under consideration were being managed and controlled by the assessee group and therefore lower authorities were quite justified in estimating commission income earned by the assessee group from all these benami concerns.
Accordingly, Ground Nos. 1,2,5,6,7 & 8 of the assessee's appeal stands dismissed. Ground No.12 stand dismissed since we do not find any violation of principle of natural justice during appellate proceedings. 4.2 From the above decision, following factual conclusions had been drawn by the ld.CIT(A):
(i) During the Search and survey proceedings at the premises of Shri Bhanwarlal M. Jain and group entities, a vital pen-drive was found, inventorised and seized. Voluminous hand written estimation sheets were found at various premises of the assessee. The sheets, admittedly in the hand writing of assessee's son as well as an employee of the assessee, contain parallel cash accounts. (ii) The pen drive contained calendar year-wise names of beneficiaries, the amount of cash, details of brokerage and commission etc. It also contained complete details of Angadiya Account since 2004 in electronic form. The parallel account maintained on the pen-drive pertained to 70 concerns, being managed and controlled by assessee group. The present Appellant is one of the 70 concerns. (iii) The data in the pen-drive was found to be Identical with the estimation sheets as well as other data gathered during the course of search action from various premises, disclosed as well as secret. Complete correlation was established between the parallel books of accounts found on the pen drive with books of 70 concerns being managed and controlled by the assessee. An identical pen drive was found from the possession of Shri Rohit Birawat at CST Terminus who was apprehended by the search team while attempting to flee from Mumbai to Rajasthan with incriminating material. These facts have been admitted by Shri Bhanwarlal M. Jain, his son as well as trusted employees in various statements as on oath u/s 132(4) at various points of time.
A.Y. 2012-13 Rikin Kirit Shah, Mumbai (iv) The Hon’ble ITAT has also ruled that the assessee was running more than 70 benami concern under name-sake directors/ partners/ proprietors. These persons were acting as per the direction of Shri Bhanwarlal M. Jain against remuneration. Most of them, in their statement u/s 132(4), made admission of those facts. They also made admission that they assisted/ abetted the assessee in the business of providing accommodation entries. Their PAN Cards, IDs, blank signed cheques books etc were found at centralized premises. The books of accounts of all these entities were being maintained at two premises in a centralized manner. The books were found in the same computer and audited by common Auditor. The auditor admitted to have signed the financial statements as per the directions of Shri Lunkaran Parasmal Kothari without verifying the books of accounts. All these persons had superficial knowledge about nature of business being conducted by their respective concerns. Further, most of these persons were residing at premises owned by the assessee group. (v) The above findings are further corroborated by survey action at BKC, Mumbai wherein more than 30 firms were found to be operating from common premises. All the 70 entities were found to have common features in their respective financial statements. Hence, it can be concluded that all these 70 concerns were run by the group in a combined manner with a view to provide accommodation entries to various beneficiaries against commission. (vi) Finally, the Tribunal has reached to the conclusion that all the 70 entities under consideration were managed and controlled by the Shri Bhanwarlal M. Jain group and therefore Revenue is quite rightly justified in estimating GP on bogus purchases earned by the assessee. 4.3 In the present case, it was noted that the AO has not rejected the sales and considering the facts of the case has made an estimation of GP rate of 8% on the total amount of Rs 8,63,07,736/-. The appellant has also relied upon the decision of Hon’ble Mumbai Tribunal in the case of M/s Ankit Diamonds in ITA 3125 & 3127/mum/2022 and Sagar International vs ITO, where in under similar facts and circumstances of the case the profit element ion account of disputed purchases were estimated at 2%. In the present case, it is noted A.Y. 2012-13 Rikin Kirit Shah, Mumbai that the GP on total turnover is calculated at 3.10%. However, it was also noted that in the present case the appellant had already shown the GP on the alleged purchases from four out of the six parties. Accordingly, following the decisions of jurisdictional ITAT in similar cases, the GP was calculated at 2%. Thus 2% of Rs 7,60,82,657/- amounting to Rs 15,21,653/- was upheld.
4.4 Further, following the Hon’ble Bombay High Court in the case of PCIT Vs M/s. Mohommad Haji Adam & Co. [2019] 103 taxmann.com 459 (Bom), wherein it held that the Tribunal had correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases, the GP in case of remaining two parties is calculated at 3.10%, as declared by the appellant. Thus, 3.10% of Rs 1,02,25,079/-, i.e. 3.10% of the amount pertaining to the remaining two parties amounting to Rs 3,16,977/-, was upheld. Therefore, the total addition on account of bogus purchases amounting to Rs 18,38,630/- (15,21,653+ 3,16,977) was upheld and the remaining amount was deleted.
Before us, the ld.AR has contented that the ld.CIT(A) was not justified in upholding the addition though partially since the impugned transactions are genuine. Besides, there is no justification for treating A.Y. 2012-13 Rikin Kirit Shah, Mumbai the alleged purchases from the two parties i.e. More Gems and A Z Jewelswhich were never made by the assessee during the year. The ld.DR has relied on the orders of lower authorities, 6. On careful consideration of all the relevant facts of the case, detailed findings and observations of the appellate authority as also the cited decisions we find that the ld.CIT(A) restricted the addition to only of 2% of Rs 7,60,82,657/- amounting to Rs 15,21,653/- was upheld. We do not find any infirmity in the exhaustive appellate order and uphold the order in so far as the ground no 2. is concerned. 6.1 However, in respect of other two parties with whom any transaction has been denied by the assessee, there is no finding by the both the lower authorities which could establish the contrary facts. We set aside the aside the appellate order and direct the AO to delete the addition. Accordingly, ground no.3 is allowed.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 06/10/2025.