KARISHMA DIAMONDS PVT. LTD,MUMBAI vs. DCIT CENTRAL CIRCLE-8(3), MUMBAI

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ITA 858/MUM/2019Status: DisposedITAT Mumbai29 July 2026AY 2013-1411 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that the AO's estimation of income was ad hoc and lacked specific evidence, similar to a previous assessment year. The Tribunal restored the issue to the AO for fresh adjudication, directing him to examine evidence and determine if the assessee was an accommodation entry provider.

What were the facts?

During a search operation, the Assessing Officer (AO) found that the assessee entities were not conducting genuine diamond trading business and were instead providing accommodation entries. The AO rejected the books of accounts and estimated commission income from alleged bogus sales and loans.

What were the issues?

Whether the additions made by the AO were based on incriminating material and whether the rejection of books of accounts and estimation of commission income were justified.

Which sections of the Income-tax Act were involved?

Section 132,Section 153A,Section 145(3),Section 131(1A),Section 132(4),Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI ‘C’ BENCHES,

Before: SHRI SAKTIJIT DEY & SHRI GIRISH AGRAWAL

Pronounced: 29.07.2026

Heard together (5 matters)

ITA 858/MUM/2019
ITA 865/MUM/2019
ITA 883/MUM/2019
ITA 871/MUM/2019
ITA 890/MUM/2019

Read from the judgment's own cause title. This page is filed under one of them.

आदेश / ORDER

PER BENCH:

These are appeals by five different assessees arising out of separate orders of learned Commissioner of Income Tax (Appeals) [in short ‘CIT(A)’], Mumbai, pertaining to Assessment Year 2013-14. Since the facts and issues involved in all these appeals are more or less identical, they have been clubbed together and disposed of in a consolidated order for the sake of convenience.

2.

The grounds raised in all these appeals are identical, except for variation in figures. Thus, for ease of reference, we deem it appropriate to take up ITA No. 890/Mum/2019, relating to Shrimati Pooja Jain, legal heir of Late Sri Gautam Bhawarlal Jain, as the lead appeal.

3.

As could be seen from the grounds raised, the dispute is primarily with regard to addition of commission income of alleged accommodation entries provided through non-genuine business in diamond and non-genuine unsecured loan.

4.

Briefly the facts are, the search and seizure operation under Section 132 of the Act was carried out in case of the assessee and other members in the family and group entities. As a result of such search and seizure operation, proceedings under section 153A of the Act was initiated in respect of the assessee. As alleged by the Assessing Officer, in course of search and seizure operation, it was found that no business activities were carried out by the assessee and other individual and entities. The premises were mostly found to be locked, and when broken open, they were found to be empty single room without having any infrastructure relating to diamond trading. The Assessing Officer further alleged that even addresses of the Directors of various concerns were found to be locked. Thus, from the material found during the search and seizure operation, the Assessing Officer concluded that the turnover of trading in diamond shown by the assessee is nothing but non-genuine sales, as neither the assessee nor the other entities have carried out any genuine business activity. In this context, the Assessing Officer referred to the statements of various persons recorded under Section 131(1)(A) and 132(4) of the Act. The Assessing Officer alleged that in course of post-search inquiry, assessee failed to furnish any documentary evidences to establish transportation and delivery of diamond. Thus, ultimately, based on materials available on record, the Assessing Officer concluded that the assessee had not carried out any genuine business activity. Thereafter, rejecting the books of account invoking the provisions of Section 145(3) of the Act, the Assessing Officer held that in the garb of diamond trading, the assessee is actually involved in providing accommodation entries and earning commission. Hence, he estimated commission at 1% of the total sales shown in the profit and loss account.

5.

Insofar as loans and advances are concerned, the Assessing Officer treated them as non-genuine and in the nature of accommodation entries, estimated commission income at the rate of 2.4% of the balance appearing in the balance sheet. Accordingly, he completed the assessment.

6.

Contesting the additions, the assessee preferred an appeal before learned First Appellate Authority. However, assessee was unsuccessful in getting any relief.

7.

Against the order passed by learned First Appellate Authority, assessee has preferred an appeal before the Income Tax Appellate Tribunal (ITAT). Though, initially the appeal was disposed of by the Coordinate Bench, on legal ground by treating the assessment as unabated, subsequently having noticed that it is an abated assessment, the order was recalled.

8.

Before us, learned counsel appearing for the assessee submitted that the additions made in the assessment order are not based on any incriminating material found as a result of search and seizure operation. Without prejudice, he submitted, in course of assessment proceedings, assessee furnished all supporting evidences to establish the purchase and sale of diamonds. He submitted, the Departmental Authorities have not brought any material to show that the documentary evidences furnished by the assessee are non-genuine. Thus, he submitted, the addition of commission income made by the Assessing Officer is not based on any cogent evidence. Therefore, he submitted, the rejection of books of account should be declared as invalid and the return of income should be accepted. Proceeding further, learned counsel submitted that under identical facts and circumstances, the ITAT had set aside identical additions made in assessee's case in Assessment Year 2014-15 and while giving effect to the directions of the ITAT, the Assessing Officer has passed a fresh assessment order making purely ad hoc addition just for the sake of making addition. In this context, he placed on record the assessment order dated 23.03.2025 passed under section 143(3) read with section 254 of the Act for A.Y. 2014-15 in case of the assessee.

9.

Learned Departmental Representative (DR) strongly relied upon the observations of the Assessing officer and learned First Appellate Authority.

10.

We have considered rival submissions and perused the materials on record. Undisputedly, based on material found in course of search and seizure operation conducted in case of the assessee and other related parties as also the statement recorded from the deceased assessee and other persons, the Assessing Officer has concluded that the claim of assessee that it is carrying on business in diamond is a facade and in the garb of diamond business, the assessee and other related parties in the group have actually indulged in providing accommodation entries through sale and purchase of diamond and loans and advances. Accordingly, he has estimated commission income at 1% of sales and 2.4% of loans and advances. Admittedly, learned First Appellate Authority has confirmed the additions. However, it is observed, assessment in case of the assessee and other related parties were completed in identical manner in Assessment Years 2008-09 to 2014- 15. While deciding the appeals, the Tribunal has restored the issues relating to addition of commission income to the Assessing Officer for de novo adjudication with the following observations:

“30. We have carefully considered the rival contention and perused the orders of the lower authorities. In this case, when the search took place, there was no material found at the premises where the business of the assessee was stated to be carried on supporting the books of accounts of the assessee. No evidences, except the books of accounts, purchase and sales invoices and bank statement was produced before the learned that lower authorities. Merely producing documentary evidences without actually supporting that in fact such transactions have taken place in ordinary course of business, the books of accounts of the assessee cannot be stated to be showing the correct picture. It is the duty of the assessee to substantiate the transactions of purchases and sales of diamond with proving the chain of the business transaction with proper evidences. The learned AO has also rejected the books of accounts merely on the basis of the statement as well as absence of evidence of carrying on of the business actually by the assessee at the time of search. In view of this facts, we set-aside the issue of determination of the fact of actually carrying on of business by the assessee of purchase and sale of diamonds to the file of the learned assessing officer with direction to the assessee to substantiate that in fact assessee is carrying on the business and not merely an accommodation entry provider. The learned assessing officer is directed to examine the purchase and sales invoices as well as other evidences of each part of the chain of the trading and then decide whether the assessee is engaged in the business or is merely an accommodation entry provider. If the learned assessing officer reaches at the conclusion that assessee is an accommodation entry provider, then necessary action may also be intimated in case of the beneficiaries of the transaction and determined the commission income in the hands of the assessee. Such action may also be explored in the hence of the beneficiaries even in case of a concluded assessment in case of this assessee. Therefore, the appeal of the assessee is for assessment year 2014 – 15 is set-aside to the file of the learned assessing officer to determine the income of the assessee afresh.”

11.

Pertinently, while giving effect to the aforesaid directions of the Coordinate Bench, the Assessing Officer, in case of the present assessee, in assessment order dated 20.03.2025 has held as under:

“ Conclusion:

Assessee has filed his return of income declaring total income at Rs. 7,92,310/-as a profit earned from the business transactions made for the year under consideration. During the assessment proceedings, books of accounts bills and vouchers have been called for from the Assessee, but he could not furnish the same. Similarly, no relevant seized material has been handed over by the concerned JAO to the undersigned till the date of order. Accordingly, in absence of complete books of accounts and seized material, real estimation of income of the assessee from the accommodation entry business cannot be assessed. Since considerable time has elapsed from the date of search (around 12 years), it is not possible to corroborate the evidence with supporting documents or confirmation of each and every entry. On the basis of search findings and above mentioned facts, it has been established that the assessee is a shell entities with no real income from the business activities of the diamonds vis-à-vis its turnover it is clear that the same do not represent income from genuine activities from the diamonds. Therefore, the profit shown by the Assessee in his return of income cannot be considered from real business activities of the Diamond business. However, no such unaccounted income in the form of asset of Directors or group companies were found. Further, Directors have also not given any statement u/s 132(4) and u/s 131(1) of the Act in regard to any fixed percentage of commission earned by them for carrying on the said bogus activities. Therefore, the income of the assessee is being estimated at Rs. 10,00,000/- to plug any leakage of revenue and to cover any cash related expenses which has incurred by the assessee for the said bogus activities. The total income of the assessee is computed as under: Issue Amount (in Rs.) Total Income as estimated 10,00,000/- Penalty proceeding is initiated u/s. 271(1)(c) of the Income for furnishing inaccurate particulars of income.”

12.

From the aforesaid observations of the Assessing Officer, it appears that though he has reiterated that no genuine business activities were carried on, however, he has given a factual finding that no unaccounted income in the form of assets of Directors of group companies were found. He has further observed that none of the Directors had given any statement either under section 132(4) and under Section 131(1) of the Act admitting earning of any fixed percentage of commission income. Observing thus, the Assessing Officer has added an amount of Rs.10,00,000/- purely on ad hoc basis. Facts and issues in the present appeals are pari materia with Assessment Year 2014-15. Therefore, following the observations of the Coordinate Bench in assessee's case in Assessment Year 2014- 15, we deem it appropriate to restore the issues relating to addition of commission income, both on sales and loans and advances to the file of the Assessing Officer for fresh adjudication keeping in view the directions of the ITAT in Assessment Year 2014-15. While doing so, the Assessing Officer must also take note of the assessment order passed in assessee's case in Assessment Year 2014-15 in pursuance to directions of ITAT.

13.

Since, the appeals of other assessee’s under consideration in the present order stand on similar footing, following our decision in ITA No. 890/Mum/2019 (supra), we set aside the orders of learned First Appellate Authority and remit the issues back to the file of the Assessing Officer for fresh adjudication.

14.

In the result, all the appeals are allowed for statistical purposes.

Order pronounced in the open court on 29/07/2026.

Sd/- Sd/- (Girish Agrawal) (Saktijit Dey) Accountant Member Vice President

Dated: 29/07/2026 Mumbai Aks/- Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai

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