SPARK GEMS,MUMBAI vs. ITO, WARD 19(3)(1), MUMBAI, PIRAMAL CHAMBER, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “C”, MUMBAI Before Shri Narender Kumar Choudhry (JM) & Shri Arun Khodpia (AM) ITA No. 3617/Mum/2024 (A.Y. 2012-13) ITA No. 3616/Mum/2024 (A.Y. 2012-13) ITO-19(3)(1) Vs. Spark Gems 405, 4th Floor 81, Kamal, 69 Walkeshwar Piramal Chambers Road, Mumbai-400 006. Lalbaugh, Parel Mumbai-400 012. PAN: AAAFS5688J (Appellant) (Respondent) ITA No. 3649/Mum/2025 (A.Y. 2012-13) ITA No. 3650/Mum/2024 (A.Y. 2012-13) Spark Gems Vs. ITO-19(3)(1) 405, 4th Floor 81, Kamal, 69 Walkeshwar Road, Mumbai-400 006. Piramal Chambers Lalbaugh, Parel Mumbai-400 012. PAN : AAAFS5688J (Appellant) (Respondent) Assessee by Shri Suresh Patni Respondent by Shri Ajay Soneji Date of Hearing 02.07.2026 Date of 04.08.2026 Pronouncement

2 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . ORDER Per bench: The captioned cross appeals are filed by the Revenue and assessee against the separate orders of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘CIT(A)’] for A.Y. 2012-13 dated 16.5.2024, arises out of the assessment orders under section 147 read with section 144 of the Income Tax Act, 1961 (in short ‘Act’) dated 14.12.2019 and penalty order under section 271(1)(c) of the Act dated 29.3.2022. 2. Since, these appeals pertain to the same assessee, having interconnected grounds of appeal, under identical facts and circumstances, thus are heard together and disposed of by this common order.

3 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 7,83,88,794/-made by the Assessing office on account of bogus purchases from 8 bogus entities?" 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in reducing the addition to Rs. 24,72,470/-as against the 100% addition of Rs. 7,83,88,794/- made by the Assessing office on account of bogus purchases from 8 bogus entities, by ignoring the fact that the DGIT (Inv.), had proved beyond doubt that Mr. Bhawarlal Jain & his Group concerns were involved in providing accommodation entries of sales & purchases without actual delivery of goods and the assessee was one of the beneficiary who accepting accommodation entries for the purchases of goods?" 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) has erred in reducing the addition to Rs. 24,72,470/- as against the 100% addition of Rs. 7,83,88,794/- made by the Assessing office on account of bogus purchases from 8 bogus entities without appreciating the fact that during the search operation a statement recorded u/s 132(4) of the Act,

4 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . of Mr. Bhanwarlal Jain, in which he has categorically stated that those 8 entities, to whom the assessee claimed to have made purchases are managed and controlled by him for providing the accommodation entries only with no real business?" 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) has er reducing the addition to Rs. 24,72,470/- as against the 100% addition of Rs. 7,83,88,794/- made by the Assessing office on account of bogus purchases from 8 bogus entities, without appreciating the fact that during the search operation no stock of diamond was found in the premises of the group entities of Shri Bhanwarlal Jain & Group Concerns to whom the assessee has claimed to have made purchases?" 5. "Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) has erred in reducing the addition to Rs.24,72,470/- as against the 100% addition of Rs.7,83,88,794/- made by the Assessing office on account of bogus purchases by ignoring the fact that the action of the

5 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . Assessing officer was based on credible information received from the DGIT(Inv.), Mumbai and that the assessee during the course of assessment proceedings failed to prove the genuineness & creditworthiness of the alleged purchase transactions made from eight parties?" 6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in reducing the addition to Rs. 24,72,470/- as against the 100% addition of Rs 7,83,88,794/- made by the Assessing office on account of bogus purchases without appreciating the ratio of the decision of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd Vs Dy. CIT (2016) 292 CTR (Guj) 354, wherein the Court has held that when the purchases are from bogus suppliers, the entire purchases are liable to be disallowed?". 7. Whether on the facts and in the circumstances of the case and in law, the order of the Ld CIT(A) is perverse in not considering the order of Hon'ble Supreme Court in the case of N K Protein Ltd. Vs Dy. CIT (2016) 292 CTR (Guj) 354 dated. 16-1-2017,

6 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . which is on the similar issue of bogus purchases and when the Hon'ble Apex Court order was already the law of the land when the Ld CIT(A) has pronounced its order on 16.05.2024" 8. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in reducing the addition to Rs. 24,72,470/- as against the 100% addition of Rs. 7,83,88,794/- made by the Assessing office on account of bogus purchases, without appreciating the fact that in the case of Swetamber Steels Ltd.(supra), the Hon'ble ITAT, Ahmadabad had confirmed the disallowance of the bogus purchase in entirety stating that the purchases shown from respective parties were found non-genuine and the decision of the ITAT was upheld by Hon'ble Gujarat High Court and also Hon'ble Supreme Court?" 9. The Appellant craves leave to add, amend, alter or withdraw all or any of the above appeal.

7 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 1. "Whether on the facts and circumstances of the case and in law, Ld. CITIA) has erred in reducing the penalty u/s 271(1)(c) to the extent of quantum addition of Rs. 24.72.470/-, confirmed by the Ld. CIT(A) in his own order Dated. 16.05.2024, whereas the order of the Ld. CIT (A) is not accepted by the department and appeal against it is in process before the Hon'ble ITAT?" 2. "Whether on the facts and circumstances of the case and in law, Let. CITIA) has erred in reducing the penalty u/s 271(1)(c) to the extent of quantum addition of Rs. 24.72.470/ confirmed by the Ld. CIT(A) in his own order Dated. 16.05.2024, ignoring the fact that there was a conscious concealment of particulars of income and a deliberate failure to furnish accurate particulars of the income by the assessee which attracts the provision of section 271(1)(c) and explanation thereto, as held in the case of CIT (Addl.) Vs. Jeewan Lal Shah 205 TTR 244(SC)?" 3. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in reducing the penalty u/s

8 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 271(1)(c) to the extent of quantum addition Rs. 24.72.470/-, confirmed by the Ld. CIT(A), ignoring the fact that during the course of Penalty proceedings, the assessee was given sufficient opportunities for being heard or to submit explanation but the assessee has failed, to avail the opportunity and did not offer any explanation, the observation of Hon'ble High Court in the case of CIT Vs. Chanchal Kutiyal 173 Taxman 71(all), is very relevant in the Jades and circumstances of this case where in the Hon'ble Allahabad High Court has observed that if the assessee did not furnish any explanation Penalty is justified 4. “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is right in reducing the penalties u/s. 271(1)(c) to the extent of quantum addition Rs. 24,72,470/- confirmed by the CIT(A) ignoring the fact that upon invoking provisions of section 271(1)(c) there is no further onus on the AO to establish mens rea and it is for the assessee to satisfactorily discharge the onus of proving the bonafides with regard to claim of expenses, as is held by the Hon'ble Apex

9 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . Court in the case of K.P. Madhusudhan Vs. CIT reported in 251 ITR 99 (SC)?" 5. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary? 5. Grounds of appeal in ITA No. 3649/Mum/2026 assailed by the assessee are as under:- 1. The order passed by the learned Commissioner of Income Tax, Appeals - NFAC is erroneous unjustified, unwarranted, bad in law and against the principles of natural justice

10 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 3. The learned Commissioner of Income Tax, Appeals NFAC, failed to understand that and Polished Diamonds have been exported out of India and as such it would not ha possible without the said purchase from M/s Impex Gems of Rs. 24,72,470/-. 4. Without prejudice to ground no.3 hereinabove, the learned Commissioner of Inco Appeals NFAC failed to appreciate that without purchase, there can not be sale instant case exports). It is prayed that order of the learned Commissioner of Income Tax, Appeals M quashed and penalty levied u/s 271(1)(c) on the quantum of addition sustained by the CIT (Appeals) of Rs. 24,72,470/- be deleted so as to meet the ends of justice. The Appellant craves leave to add, amend, alter or withdraw all or any of the above appeal. 6. Grounds of appeal in ITA No. 3650/Mum/2026 assailed by the assessee are as under: -

11 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 1. The order passed by the learned Commissioner of Income Tax, Appeals - NFAC is erroneous. unjustified, unwarranted, bad in law and against the principles of natural justice. 2. The learned Commissioner of Income Tax, Appeals NFAC erred in sustaining the addition made of Rs. 24,72,470/- @ 100% on account of alleged bogus purchase of cut and polished diamonds from M/s Impex Gems. (Tax Effect Rs. 7,59,202/-) 3. The learned Commissioner of Income Tax, Appeals - NFAC, failed to understand that the Cut and Polished Diamonds have been exported out of India and as such it would not have been possible without the said purchase from M/s Impex Gems of Rs. 24,72,470/- 4. Without prejudice to ground no. 2 & 3 hereinabove, the learned Commissioner of Income Tax, Appeals - NFAC erred in confirming the disallowance @ 100% of the alleged bogus purchase from M/s Impex Gems.

12 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 5. Without prejudice to ground no.4 hereinabove, the learned Commissioner of Income Tax, Appeals NFAC failed to appreciate that without purchase, there cannot be sales (in the instant case exports). So the learned CIT-A, NFAC should have directed the AO to make addition @ per G.P. Rate and not the entire alleged bogus purchase. NFAC be it is prayed that order of the learned Commissioner of Income Tax, Appeals quashed and additions made by the learned AO and sustained by the learned CIT (Appeals) of Rs. 24,72,470/- be deleted so as to meet the ends of justice. The Appellant craves leave to add, amend, alter or withdraw all or any of the above grounds of appeal. 7. First, we shall be taking up the appeal of Revenue in ITA No. 3616/Mum/2024. 8. Facts of the case are that the assessee filed its return of income in 20.12.2012, disclosing total income of Rs. 93,062/-. Subsequently, the case was reopened under section 147 of the Act. Reason for reopening was search and seizure action was conducted in the case of Shri

13 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . Bhawarlal Jain and Group on 3.10.2013 DGIT(Investigation), Mumbai. During the course of search proceedings, it is found that the group concerns of the said group are of paper companies/firms/proprietorship concern with no real business activities, operating solely with the purpose of facilitation of fraudulent financial transactions which includes, among others, providing of accommodation entries in the form of unsecured loans to interested parties, issuing of 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. During the assessment year 2012-13 the assessee herein is also found to be the beneficiaries of accommodation entries of bogus purchases from various concerns detailed as under: Sr. Name of the hawala PAN Bill amount No. parties (in Rs.) 1 IMPEX GEMS AHNPJ4936G 2472470 2 A2 JEWELLS AAMFA7751J 2335860 3 AMIT DIAMONDS AAPFA0768G 9269047

14 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 4 JEWEL DIAM ABUPV3494J 6588848 5 RAHUL EXPORTS AANFR5945A 7467565 6 RARE DIAMONDS AADCR4200K 11107022 PVT. LTD. 7 MILLENIUM STARS AAXPJ5538K 13936603 8 AJWPC4145P 2511379 TOTAL 7,83,88,794/-

15 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 10. Being aggrieved with the aforesaid addition, the assessee

preferred an appeal before CIT(A), who had partly allowed the appeal of the assessee with following observations: - 4. Discussion, Reason & Decision: 4.1. The assessee is engaged in the business of trading of rough and polished diamonds, at Mumbai. There had been as assessment order passed in the assessee's case for AY 2012-13, on 14/12/2019. The assessee has filed appeal against such order on 08/12/2022. Therefore, there had been a condonation of delay in filing the appeal. The assessee firm has stated that the e-mail ID mentioned in the Income Tax Portal belonged to a former Accountant of the appellant and such Accountant had left the firm long ago, which is the reason for which the assessee could not respond to the notices during the assessment proceedings, neither did he receive the order on any date before 17/10/2022. Only on receipt of such order, the assessee came to know about the assessment order, along with a corresponding penalty imposed by the AO and thus, after such receipt, they took action to file the present appeal and that explains the delay. I have no reason to disbelieve the assessee's condonation and therefore, the delay is condoned.

16 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 4.2. Now coming to the facts of the case, it is seen from the assessment order that there had been a Search and Seizure action by the Income Tax Department at the premises of one, Shri Bhawarlal Jain and his Group Concerns on 03/10/2013. In such action, it was detected by the Investigation Wing of the Income Tax Department that the said Group was engaged in issue of bogus accommodation entry of diamond sales. The modus operandi were that cheques are issued by the beneficiary parties against bogus sale bills issued by Benami Concerns of the Jain Group. Subsequently, cash is returned back to these beneficiary parties through Angadias, after deducting commission on the same. By recording statements of Shri Bhawarlal Jain, Shri Rajesh Bhawarlal Jain and the employees of the Jain Group, it was found that the said Group operated the business of giving accommodation sale entries through 70 Benami Concerns, under their control, from AY 2007-08 onwards. From such retrieved data from the premises of the Jains, the Investigation Wing reported that the assessee firm has purchased bogus accommodation bills for a total sum of Rs. 7,83,88,794/- from 8 bogus entities under control of Jains. Therefore, on receipt of this information, the AO reopened the case u/s. 148 as he had reasons to believe that the assessee's income has escaped assessment. Since there had been no response from the assessee, the AO had no other alternative than to

17 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . assess the case under Best Judgment Method u/s. 144 of the Act and disallow the entire amount of purchase, as mentioned in the report of the Investigation Wing, as bogus purchase for Rs. 7,83,88,794/-. 4.3. In the present appeal, the first Ground taken by the assessee is general in nature and therefore, is not disposed separately. 4.4. In the second Ground of appeal, the assessee raised that the initiation of reassessment proceedings was bad in law, as there was no independent inquiry made before the issuance of the notice by the AO and the case was reopened on borrowed satisfaction. (a) Now in the landmark decision of the Hon'ble Supreme Court of India, reported in 291 ITR 500 in the case of ACIT - Vs. - Rajesh Javeri Stock Brokers Pvt. Ltd., the Court held that Sec. 147 authorizes and permits the AO to assess or reassess income chargeable to tax, if he has reason to believe that, income for any AYs had escaped assessment. The word "reason" of the phrase "reason to believe", would mean cause or justification. If the AO has cause or justification to know or suppose, that income has escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that, the AO should have finally ascertained the fact by legal evidence or conclusion. At the stage of reopening the final outcome of the proceeding is not relevant. In other words, at the initiation stage,

18 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material would conclusively prove the escapement is not the concern at this stage. This is so, because the formation of belief by the AO is within the realm of subject of satisfaction. (b) Under such guiding principle, it is my considered opinion that the information contained in the report of the Investigation Wing was sufficient material to ignite the doubt in the mind of the AO on the veracity of the income returned by the assessee through its Income Tax Return. Therefore, he had sufficient reason to believe that income has escaped assessment and thus, he was well within his right to reopen the case by issue of notice u/s. 148. Therefore, the proceedings to reopening is held to be correct and the Ground taken by the assessee, in this regard, is dismissed, 4.5. In the third Ground, the assessee objected against the addition of Rs. 7,83,88,794/-, being 100 per cent of the purchase, by treating them as non-genuine purchase. (a) During the appellate stage, the assessee submitted its copies of final account for FY 2011-12, from where it is seen that total turnover shown

19 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . by the assessee was only for Rs. 34,43,269/-. In the purchase side, it disclosed import of rough diamonds for Rs. 46,23,327/- and local purchase of polished diamonds for Rs. 24,72,470/- only. Therefore, the amount which was subjected as bogus purchase of Rs. 7,83,88,794/- was denied by the assessee to be ever purchased by it. (b) However, in the disclosed accounts, it agreed that the local purchase of polished diamonds for Rs. 24,72,470/- was purchased from one, M/s. Impex Gems, whose proprietor was one, Mr. Mahavir Jain. The address of such proprietorship concern was at, 11, Shakti Chambers, Raghunathpura Main Road, Surat-395003. The said supplier had another address at 9, Navyug Sagar, Teen Batti, Walkeshwar Road, Mumbai-400 006. In the report of the Investigation Wing, the name of the Proprietorship Concern of Shri Mahavir Jain, named, Impex Gems is appearing, although the address of the Concern is not appearing. However, the Investigation Wing, through the admission made during the Search of Shri Bhawarlal Jain, came to the conclusion that all the 70 entities bogus entities were controlled from two back offices of the Jains, at 16, Mohan Building, JSS Road, Girgaum, Mumbai-04 and Plot No. 233, Ground Floor, Navkar House, Vitthal Bhai Patel Road, Girgaum (Near Prarthana Samaj, VP Road), Mumbai-04. The accounts and other related papers, regarding business of M/s. Impex Gems were also

20 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . discovered from these addresses. Surprisingly, from the data retrieved from such spots, it was seen that the documents relating to sale of diamonds for a sum of Rs. 24,72,470/- by Impex Gems of the assessee firm was also there in the list prepared for the total sum of Rs. 7,83,88794/- of bogus purchase. (c) The assessee by submitting copies of the tax invoices of the purchase made by it from Impex Gems on 06/10/2011, the copy of the ledger in their accounts with Impex Gems, copy of final account of Impex Gems and copy of the Tax Audit Report of Impex Gems, tried to convince that the purchase was genuine. It is seen that the principal quantum of consideration of 86.45 Ct. of diamond for Rs. 24,72,470/- was also increased by VAT @ 1 per cent, making the total amount of purchase for Rs. 24,97,195/-. The payment against such purchase was stated to be on 21/03/2012, through RTGS and the said Impex Gems gave a confirmation of receipt of such RTGS amount. (d) By submission of these papers, the assessee tried to convince that the purchase was genuine. However, no material evidence of actual delivery of the said diamond has been produced for examination. It is the beauty of planning of arrangement of bogus entries that the transactions on paper and movement of fund through bank transfer are always maintained impeccably. Therefore, I do not find to give much credence

21 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . to the submitted documents to override the clear admission by the Jains before the Investigation Wing, backed by the seized material from the places, to conclude that, the entries were nothing but accommodation entry. (e) Under the above stated facts, it is concluded that as rightly pointed out by the AO, the purchase of Rs. 24,72,470/-, worth of diamond is nothing but a bogus accommodation entry (f) Having said so, there is no evidence of purchase of balance amount of Rs. 7,59,16,324/-, from 7 other suppliers as ever made by the assessee. Therefore, the disallowance should be restricted to the extent shown in the final accounts of the assessee firm, which is Rs. 24,72,470/- and the assessee gets relief for the balance sum of Rs. 7,59, 16,324/-. 11. At the outset, Ld. DR represents the Revenue submitted that the assessee was involved in the bogus purchase transaction. The assessee did not furnish any reply before the AO. During the appellate stage, the assessee submitted copy of financial account showing that the total turnover of the assessee was only Rs. 34,43,269/-, the purchases through import of diamonds are of Rs. 46,23,327/- and local purchases of polished diamonds for Rs. 24,72,470/-. The subjected bogus transactions of purchases were of Rs. 7,83,88,794/- as per information

22 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . found during the search, but denied by the assessee to be ever undertaken by it. It is submitted that the assessee had not proved genuineness and creditworthiness of the alleged purchase transactions made from 8 parties. Therefore, the decision of CIT(A) is suffering with errors, who had accepted denial of the assessee, without any independent enquiry or referring the information to the AO. Therefore, the order of CIT(A) while deciding the issue on merits was not in conformity with the provisions of law. Such decisions, thus, deserves to be set aside.

23 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . 13. It is further submitted that the revenues aforesaid appeal are earlier heard by the Tribunal and dismissed vide order dated 13.12.2024. However, since the appeals of revenue are decided in absence of any representation by the assessee, the assessee had filed Misc. Application (MA) for recall of the matters, the Tribunal then vide MA Nos. 284 and 285/MUM/2025 (Arising out of ITA 3616 and 3617/Mum/2024 for AY 2013-14) had recalled the appeal of assessee to adjudicate comprehensively. Accordingly, the appeal of revenue as well as the assessee have come up for hearing after consolidation of the same before this bench. 14. We have considered the rival submissions, perused the material available on record and decisions relied upon by the assessee. Regarding the appeal of revenue, we find that the Ld. CIT(A) had decided the appeal of assessee, observing that, there had been no response from the assessee, the AO had no other alternative than to assess the case under Best Judgment Method u/s. 144 of the Act and disallow the entire amount of purchase, as mentioned in the report of the Investigation Wing, as bogus purchase for Rs. 7,83,88,794/-.

24 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . However, Ld. CIT(A) further placing his entire satisfaction on the genuineness of the books of accounts of assessee furnished before him, had considered the local purchase of polished diamonds for Rs. 24,72,470/- and restrict the disallowance to that amount only, stating that there is no evidence of purchase of balance amount of Rs. 7,59,16,324/-, from 7 other suppliers as ever made by the assessee. Therefore, the disallowance should be restricted to the extent shown in the final accounts of the assessee firm, which is Rs. 24,72,470/- and the assessee gets relief for the balance sum of Rs. 7,59, 16,324/-. While the ld. Counsel of assessee has placed the contention that the issue in present case if squarely covered by the decision of ITAT in assessee’s own case of AY 2013-14, we observed that such issue of unidentified accommodation entries was never arises so as to dealt with in the AY 2013-14. Further, the Ld. CIT(A) had decided the issue considering the books of assessee to be sacrosanct, without any enquiry by him self or though the Ld. AO to conclude against the information unearthed during the search qua the 7 parties and accommodation entries of Rs. 7,59, 16,324/-, without any basis as to how such entries does not

25 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . pertains to assessee. Evidently, in absence of any whisper in the order of Ld. CIT(A), the documents or evidence furnished by the assessee before him were not confronted to AO under Rule 46A, which was mandatory to be adhered to, unless such additional evidence are not acted upon or rejected. The findings of Ld. CIT(A) are just found to be bald averments, contradicting in itself, at one place placing an extraneous reliance on the books of assessee for deleting the additions, at the same time drawing conclusion of having recorded bogus purchases in such books. The decision of CIT(A) to direct for deleting the addition of accommodation entries of Rs. 7,59, 16,324/- was therefore, found to be without any basis and so would be subject to further verification, without which it can not be conclusively held that the transactions considered to be not by the assessee, were actual undertaken by the assessee or not. We thus, with aforesaid deliberations, found it appropriate set aside the order of Ld. CIT(A) to the extent the accommodation entries of Rs. 7,59,16,324/- deleted by him and to restore this issue back to the file of Ld. AO for fresh adjudication, with the directions to examine the documents furnished

26 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . by the assessee before the Ld. CIT(A), make necessary enquiries and to provide the assessee reasonable opportunity of being heard, as well.

27 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . bring the profit offered by the assessee to the range of reasonable profit consistent with assessee’s own offer for AY 2013-14, we deem it appropriate to estimate and add the differential profit of 5.34% (8%- 2.66%) of the turnover of the assessee for Rs. 1,83,970/- (5.34% of 34,43,269/-) to be sustained as unexplained income of the assessee. The order of Ld. CIT(A) is thus modified to that extent regarding the sustained addition by him. 18. In result the appeal of assessee in ITA 3650/MUM/2025 is partly allowed. 19. The grounds of appeal of ITA 3649/M/2025 regarding penalty u/s 271(1)(c), while the additions ought to have been sustained only by estimating the profit embedded in bogus purchases, thus imposition of penalty does not arise as per the settled principle of law. Accordingly, the levy of penalty on estimated additions does not attract. 20. In result the appeal of assessee in ITA 3649/MUM/2025 is allowed. 21. The revenue’s appeal in ITA 3617/MUM/2025 qua the penalty u/s 271(1)(c) stands dismissed, following our decision in assessee’s

28 ITA No. 3649 & 3650/Mum/2025 ITA No. 3616 & 3617/Mum/2024 SPARK GEMS . appeal in ITA 3649/MUM/2025, as we hold that penalty u/s 271(1)(c) is not warranted on estimated addition of profit on bogus purchases. 22. In combined result, the appeal of revenue in ITA 3616 /MUM/2025 and the appeal of assessee are in ITA 3648/MUM/2025 are partly allowed, whereas ITA 3617/MUM/2025 of revenue is dismissed and 3649/MUM/2025 of the assessee is allowed. Order pronounced in the open court on 04.08.2026.

Sd/- Sd/- (NARENDER KUMAR CHOUDHRY) (ARUN KHODPIA) Judicial Member Accountant Member Mumbai : Dated 04.08.2026 PS Copy of the order forwarded to : 1. The appellant 2. The respondent 3. CIT-concerned 4. DR, ITAT, Mumbai 5. Guard file By order (Dy/Asstt. Registrar) ITAT, Mumbai.