DCIT CC 8(2),MUMBAI, MUMBAI vs. AADIT DIAMOND, MUMBAI

These three appeals filed by the Revenue and the three Cross Objections filed by the respective assessees are directed against separate orders passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as "the Ld. CIT(A)"], all dated 27.11.2025, arising out of reassessment orders passed under section 143(3) read with section 147 of the Income-tax Act, 1961 ("the Act") for the Assessment Years 2012-13 and 2013-14. Since common facts and identical issues are involved in all these appeals and Cross Objections, they were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity. For the purpose of narration of facts, the appeal in the case of M/s. Aadit Gems for A.Y. 2012-13 in ITA No.872/Mum/2026 is taken as the lead case, and the decision rendered therein shall apply mutatis mutandis to the remaining appeals and Cross Objections, as the issues involved are identical.

The effective grounds raised by the Revenue in all the appeals are common in substance. The grievance of the Revenue is that the Ld. CIT(A) erred in restricting the addition made by the Assessing Officer on account of alleged bogus purchases to 4% of the purchase value as against the addition of 100% made under section 69C of the Act. According to the Revenue, the Ld. CIT(A) failed to appreciate that the suppliers were established accommodation entry providers, the assessee had failed to prove the genuineness of the purchases by producing primary evidences regarding movement of goods, transportation and confirmations, and therefore the Assessing Officer was justified in treating the entire purchases as unexplained expenditure.

The assessees have filed Cross Objections in all the three cases. In the Cross Objections, the assessees have challenged the validity of the reassessment proceedings on the ground that the reopening under section 147/148 of the Act was based on borrowed satisfaction without any independent application of mind by the Assessing Officer and in the absence of any tangible material. On merits, the assessees have also challenged the sustenance of addition to the extent of 4% of the alleged purchases contending that the purchases were duly supported by documentary evidence and that no opportunity of cross-examination of the persons whose statements were relied upon by the Assessing Officer was afforded.

Briefly stated, the assessee, M/s. Aadit Gems, is a partnership firm engaged in the business of trading in diamonds and precious stones. For the Assessment Year 2012-13, it filed its return of income declaring a total income of ₹4,42,37,704/-. The return was initially processed under section 143(1) of the Act. Subsequently, on the basis of information received from the Investigation Wing regarding alleged accommodation entries obtained from concerns belonging to the Rajendra Jain/Gautam Jain group, the assessment was reopened under section 147 of the Act. During the reassessment proceedings, the Assessing Officer noticed purchases aggregating to ₹1,91,93,356/- from M/s. Maniprabha and M/s. Kings Star, which, according to the Investigation Wing, were accommodation entry providers. Holding that the assessee had failed to establish the genuineness of such purchases, the Assessing Officer treated the entire purchases as unexplained expenditure and made an addition of ₹1,91,93,356/- under section 69C of the Act. On appeal, the Ld. CIT(A), while accepting that the purchases could not be regarded as fully genuine, held that only the profit element embedded in such purchases could be subjected to tax and accordingly restricted the addition to 4% of the alleged purchases. Aggrieved by the relief granted by the Ld. CIT(A), the Revenue is in appeal before us, whereas the assessee has filed Cross Objection challenging both 4 the validity of the reassessment proceedings as well as the sustenance of the addition to the extent of 4%.

The learned Departmental Representative strongly supported the assessment orders. He submitted that the Assessing Officer had made the addition on the basis of specific information received from the Investigation Wing, Mumbai, which had unearthed a large-scale racket of accommodation entries operated through various concerns controlled by Shri Bhanwarlal Jain, Shri Rajendra Jain and Shri Gautam Jain. It was contended that the suppliers from whom the assessees had claimed to have made purchases were established accommodation entry providers and had admitted before the Investigation Wing that they were merely issuing accommodation bills without actual delivery of goods. According to the learned DR, despite being afforded sufficient opportunity, the assessees failed to establish the genuineness of the purchases by producing transportation details, delivery challans, confirmations or any independent evidence establishing actual movement of goods. It was therefore submitted that the Assessing Officer was justified in treating the entire purchases as unexplained expenditure under section 69C of the Act. He further submitted that the Ld. CIT(A) was not justified in restricting the addition to 4% merely on the basis that the sales had been accepted, without recording any finding as to how the assessee had discharged the burden cast upon it under the Act. In support of his contentions, the learned DR placed reliance on the decision of the Hon'ble Bombay High Court in Kanak Impex (India) Ltd. v. ACIT (172 taxmann.com 283) and prayed that the orders of the Assessing Officer be restored.

Per contra, the learned Authorised Representative supported the impugned orders passed by the Ld. CIT(A). He submitted that the purchases were duly recorded in the regular books of account and were supported by purchase invoices, corresponding sales bills, export documents and quantitative reconciliation. The corresponding sales arising from such purchases have been accepted by the Department and no discrepancy whatsoever has been found in the stock records or books of account. He further submitted that the books of account have not been rejected under section 145(3) of the Act and, therefore, the Assessing Officer was not justified in making addition of the entire purchases. The learned AR pointed out that the gross profit declared by the assessees during the relevant years was better than that of the earlier years and there was no commercial justification for inflating purchases, particularly when the assessees had not availed any bank finance requiring higher turnover. It was further submitted that the Assessing Officer had solely relied upon third-party statements recorded by the Investigation Wing without affording any opportunity of cross-examination to the assessees, thereby violating the principles of natural justice. He also relied upon the decision of the Co-ordinate Bench of the Tribunal in DCIT v. D. Manish & Co. (ITA Nos.5875/Mum/2025 and 5758/Mum/2025), wherein, on identical facts arising out of purchases from concerns belonging to the Bhanwarlal Jain group, the Tribunal had upheld estimation of profit instead of sustaining addition of the entire purchases. It was therefore submitted that the order of the Ld. CIT(A) restricting the addition to 4% of the alleged purchases does not call for any interference. As regards the Cross Objections, the learned AR relied upon the grounds raised therein challenging the validity of the reassessment proceedings as well as the sustenance of the addition to the extent of 4%.

We have heard the rival submissions and perused the material available on record. We have also carefully gone through the orders of the authorities below and the judicial precedents relied upon by both the parties. The undisputed facts emerging from the record are that the additions have been made solely on account of purchases alleged to have been made from concerns stated to be controlled by the Rajendra Jain/Bhanwarlal Jain/Gautam Jain group. The Assessing Officer, relying upon the information 6 received from the Investigation Wing and the statements recorded during the course of search proceedings, treated the entire purchases as non- genuine and brought the whole amount to tax under section 69C of the Act. At the same time, it is equally undisputed that the Assessing Officer has accepted the sales declared by the assessees. The quantitative details maintained by the assessees have not been found to be defective and the books of account have also not been rejected under section 145(3) of the Act.

In our considered opinion, once the sales have been accepted, the corresponding purchases cannot be held to be entirely non-existent. In a trading concern, sales cannot be effected without corresponding purchases. At the highest, where the suppliers are found to be accommodation entry providers, the inference that can reasonably be drawn is that the assessee might have procured the goods from the grey market and obtained accommodation invoices from such parties. In such circumstances, only the profit element embedded in the purchases can be brought to tax and not the entire purchase value. This proposition has consistently been accepted by various High Courts and Coordinate Benches of the Tribunal while dealing with similar issues relating to accommodation purchase bills.

The Ld. CIT(A), after considering the facts of the present cases, has estimated the profit element at 4% of the alleged purchases. We find that the Ld. CIT(A) has considered the nature of the business, the acceptance of corresponding sales, the quantitative reconciliation and the gross profit disclosed by the assessees while arriving at such estimation. The Revenue has merely reiterated the reasoning adopted by the Assessing Officer without pointing out any infirmity in the factual findings recorded by the Ld. CIT(A).

The reliance placed by the learned Departmental Representative on the decision of the Hon'ble Bombay High Court in Kanak Impex (India) Ltd.

We also find merit in the submissions of the learned Authorised Representative that the books of account have not been rejected; the corresponding sales have been accepted; and the quantitative details have not been disputed. These circumstances clearly militate against the action of the Assessing Officer in treating the entire purchases as unexplained expenditure under section 69C of the Act. In our considered view, the estimation made by the Ld. CIT(A) is fair and reasonable and does not call for any interference.

Coming to the Cross Objections filed by the assessees, we find that the assessees have challenged the validity of the reassessment proceedings and have also disputed the sustenance of addition to the extent of 4% of the alleged purchases. Since we have upheld the orders of the Ld. CIT(A) on the issue arising in the Revenue's appeals and no further relief survives for adjudication in these proceedings, we do not consider it necessary to examine the issues raised in the Cross Objections. The Cross Objections are, therefore, dismissed as infructuous.

We, therefore, uphold the orders of the Ld. CIT(A) restricting the additions to 4% of the alleged purchases in all the three assessment years under consideration. Consequently, all the grounds raised by the Revenue are dismissed.

The facts involved in ITA No.873/Mum/2026 relating to M/s. Aadit Gems for Assessment Year 2013-14 and ITA No.1007/Mum/2026 relating to M/s. Aadit Diamond for Assessment Year 2012-13 are identical except for 8 the quantum of alleged bogus purchases. In both the cases also, the Assessing Officer treated the entire purchases as non-genuine and made addition under section 69C of the Act, whereas the Ld. CIT(A) restricted the addition to 4% of the alleged purchases. Accordingly, our findings recorded hereinafter while disposing of the appeal for Assessment Year 2012-13 in the case of M/s. Aadit Gems shall apply mutatis mutandis to the remaining appeals and the Cross Objections.

In the result, all the three appeals filed by the Revenue are dismissed and all the three Cross Objections filed by the respective assessees are dismissed as infructuous.