KANGAN JEWELS PRIVATE LIMITED,SURAT vs. ITO 1(1)(3), SURAT, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT (HYBRID HEARING) Before: Shri T.R. Senthil Kumar, Judicial Member And Shri Narendra Prasad Sinha, Accountant Member ITA Nos: 998 to 1003/SRT/2025 Asst. Years 2009-10 to 2014-15

Kangan Jewels Pvt. Ltd. Income Tax Officer C/o. CA, Himanshu Ward-1(1)(3), Gandhi, 16th Floor, Vs Surat D Wing, Trade World Building Kamala Mills Compund, Lower Parel Mumbai-400013 Maharashtra PAN: AADCK2552R (Appellant) (Respondent) Assessee Represented: Shri Himanshu Gandhi, CA Revenue Represented: Shri Ajay Uke, Sr. D.R. Date of hearing : 29-04-2026 Date of pronouncement : 06-05-2026 आदेश/ORDER PER BENCH :-

These six appeals are filed by the Assessee as against separate appellate orders dated 21.11.2025 and 15.07.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the confirmation of penalty levied under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2009-10 to 2014-15. Since common issue

I.T.A Nos. 998 to 1003//SRT/2026 A.Ys. 2009-10 to 2014-15 2 Kangan Jewels Pvt. Ltd. vs. ITO

is involved in all these appeals for the sake of convenience the same disposed of by this common order.

I.T.A Nos. 998 to 1003//SRT/2026 A.Ys. 2009-10 to 2014-15 3 Kangan Jewels Pvt. Ltd. vs. ITO

2.1. Following the assessment proceedings, the Ld AO initiated penalty proceedings u/s.271(1)(c) of the Act for “furnishing inaccurate particulars of income”. In the meanwhile the assessee preferred appeals against the quantum assessment orders passed u/s 144 r.w.s. 153C of the Act. However, Ld. CIT(A) dismissed the quantum appeals and held that the purchase and sales transactions as bogus and reopening of the assessment proceedings based on incriminating evidence as valid in law. Ld CIT[A] also upheld rejection of books of accounts. Therefore, in the penalty proceedings, the AO imposed penalty u/s.271(1)(c) of the Act of Rs.4,76,002/- for “furnishing inaccurate particulars of income”.

“…2. I have gone through the facts of the case, the statements of Shri Dharmichand Jain, Director of the company recorded during search u/s.132(4), his subsequent statement u/s.131 on 13.01.2014, the assessment orders, the contentions of the appellant and the case law on the issue including that relied upon by the assessee. The basic objection of the appellant is that the reopening of the case, is not based on incriminating documents/evidence unearthed during search. As discussed subsequently in detail in this order. Shri Dharmichand Jain through the businesses in the style of firms and companies where he is partner/directors a group (i) businesses were found with no physical stock of diamond at all, (ii) correspondence order, were found not placed by the assessee and his group to the foreign concern from which imports shown in the books. All this prove that his admission was given when corroborative evidence was during the course of search. The above observations/ evidences are being discussed in detail in the order. In the light of above, where such evidences pertaining to the appellant was

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recovered during the course of search at the premises of Shri Dharmichand Jain and other group cases and there was admission (even confirmed after 3 months) that the nature of business of Shri Dharmichand Jain, through various concerns including companies and firms was not as shown in the books, but was being one to provide accommodation entries and accommodation to actual importers of diamonds. The rates of commission, etc. were also disclosed. II these clinching and corroborative evidences along with the statements given during the search constitute incriminating evidence against the appellant. The director of the appellant company had accepted the entire modus operandi during the course of search in statements recorded u/s. 132(4). this case, therefore, there are ample incriminating evidences/documents recovered during the course of reserch. Even otherwise, the Hon'ble Delhi High Court in the case of Mis. Nau Nidh Overseas Pvt. Ltd. ITA No. 58 of 2017 and other cases in its order dated 03.02.2017: 2017-TIOL-389, has held that statement of a third party recorded during course of search proceedings u/s. 132(4), constitutes material on record for purposes of section 153C. In this case, the statements. u/s. 132(4) admitting the entire operandi. corroborated with evidences, is of the Director himself. Therefore, following the judgment this would definitely in itself is Incriminating evidence against the appellant at least. This is without prejudice to the clinching and corroborative incriminating evidence found during the course of search discussed above. The reopening us. 153C is held to be on totally valid grounds. The ground no of the appeals for A. Yrs. 2009-10 to 2013-14 are therefore, dismissed. All the remaining grounds of appeal for all the years question the additions and changes made to the income on merits saying that the additions have been made without any Incriminating document or material, the statement u/s. 132(4) did not indicate admission of undisclosed Income, retraction of statement as been wrongly ignored, claiming that there was no evidence against the appellant, alternatively challenging the quantum of addition made and challenging the passing of order u/s. 144, invocation of section 145(3) and asserting that the orders are bad in law on lack of natural justice etc. 1 I have already discussed the issue of evidences collected/recovered during the course of search in ara 7.2 above. The following evidences (including details of incriminating evidences found/recovered during the search as discussed above) and pertinent observations are culled out from the facts and circumstances of the case. Not a single piece of diamond was found from the different premises of the appellant and group concerns although there was sübstantial stock as per books of account. The evidence was

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confronted to Shri Dharmichand Jain (director of the appellant company); and only after two days of search starting and on the 2nd day of statement being recorded did he admit (Q. No. 30) that they were only doing paper transactions in various companies and firms where he was partner/director. Shri Dharmichand Jain himself, as discussed above, has admitted the entire modus operandi of how he runs the businesses in various concerns controlled by him to show bogus transactions of imports of rough diamonds and sales and actually through these entities helps actual importers to remain benami, provide bogus bills and bogus credits etc. without actually not at all trading in the diamonds as shown in regular account books and income tax returns. Shri Dharmichand Jain has admitted it not only during search on 5th Oct., 2013 but has reiterated it again in the statement recorded on 13.01.2014 le, after 3 months of the first statement. The delivery of diamonds was being taken even by the real beneficiaries/real importers. The fact that the statement cannot be forced is evidenced by the appellant giving the name of actual importers (hidden from record), who according to the appellant using the appellant to make imports outside books of account. Not only Dharmichand Jain suo-moto gave the names of two such parties in reply to Q. No. 33 of statement dated 05.10.2013 (reproduced in the assessment order) although department was not knowing them, as this is not part of regular books of account. Although different concerns of the group are claimed real importers, but no e-mail/purchase order, ordering for purchase was found the appellant's claim that natural justice has not been provided to it is rejected because all the major evidences relied have been collected from them only and they were working collectively together. The appeal against passing of orders u/s. 144 is also not acceptable because the appellant should have at least after being detection of real business, disclosed the actual accounts in every detail which it obviously has failed to do. Sum up, in view of (i) not a carat of diamond being found during search proceedings (ii) mission by Shri Dharmichand Jain, Director in his statement during search statement dung search (iii) reiteration of mission by Shri Dhamichand Jain after even 3 months (iv) the detailed statement of Shri Dharmichand Jain on the modus operandi (v) identification of actual beneficiaries of import by Shri Dharmichand Jain himself

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(vi) no order or correspondence for purchase being found from any of the remises though the concerns were shown as importer of diamonds. I uphold the decision of the O that the appellant was engaged in providing accommodation entries and importing diamonds on behalf of other parties who wanted to do business outside books of account. hence, the business as per books is proved fictitious and bogus, and the AO holds it as such, automatically is decision to reject the books of account is obvious. The second set of the ground of appeal, disputing the addition contests the working of profit and allowance of 25% for expenses. I find that the rates of providing bogus purchases, bogus loans and imports as admitted during the course of statements by Shri Dharmichand Jain and as applied by the AO are already very low. In the case of Bhanwarlal Jain where so searches were undertaken and similar modus operandi was found the rates accepted by him are substantially higher. In light of this where for similar businesses including that of providing of accommodation entries, the rates of commission should generally be similar due to market forces Even there wise, the rates applied are already too low, looking to the risk of the appellant where credit purchases imports) are in its name and the banks would first catch him in case of default The appellant who is engaged in helping others suppress taxable income etc. does not merit any further relief, looking to the entirety of facts and circumstances discussed above. hence, the gross profits are estimated on the basis of commission rates, the net profit has to be determined he expenses shown in the books are obviously bogus. For instance, the appellant has been claiming expenses and incomes like exchange rates difference and expenses/commission on sales etc. When the actual business is importing for others and in books credits in the name of exporters stand for months gather, naturally the exchange rate difference is not payable by the appellant in fact, the cash payments nm the actual beneficiary of imports are received much earlier. The cash flow generated would definitely used to guarantee/pay the exporter immediately. In light of the total fictitious natural of transaction shown books, where actual expenses of paper business can only be very low, allowance of 25% of gross come estimated as expenses as done by the AO is quite lenient and the appellant deserves no further belief. In fact, the total net profit estimated in all the years is such that it leaves no reasonable cause of relevance looking to the huge turnover of accommodation business. As far as, the last ground of appeal in re appeals regarding protective addition of the same income being made in the case of Dharmichand Jain concerned, the grievance can only be of Shri Dharmichand Jain and not of the appellant. The ground is Dismissed The remaining grounds for all years on merits of addition

I.T.A Nos. 998 to 1003//SRT/2026 A.Ys. 2009-10 to 2014-15 7 Kangan Jewels Pvt. Ltd. vs. ITO

are therefore, dismissed. The profit and income as assessed by the AO is therefore, confirmed for A.Ys. 2009-10 to 2014-15. In the result, the appeals of the Assessee for all the years are dismissed. 9. Decision - 9.1 I have examined facts of the case and gone through the aforesaid order No. ITBA/APL/S/250/2017-18/1004109024(1) of Ld. CIT(A) learned Commissioner of Income-tax (Appeals), Surat in Appeal No. CIT(A), Surat-4/10274/2016-17 dated 28.04.2017. I have also considered reply of the appellant. The appellant has taken three grounds of appeal. 9.2 In first ground of appeal, the appellant has challenged validity of notice issued u/s 274 r.w.s. 271(1)(c) of the Act. No specific shortcomings in this regard has been pointed out by the appellant but it is presumed from Sof that the appellant insists on keeping the penalty proceedings in abeyance till the disposal of appeal by Ld. ITAT. I have gone through the provisions of section 275 of the Act and find that the provisions of this section do not bar imposition of penalty during the pendency of appellate proceedings. This ground is, therefore, dismissed. 9.3 Second ground of appeal is against the imposition of penalty on merits. In this case, the addition made by the AO has been confirmed in first appeal and reopening of the assessment as well as rejection of books of account has been upheld. Considering the facts of the case, it is a case where inaccurate particulars of income were furnished by the appellant. The appellant has referred to the decision of Ld. CIT(A) in the case of its sister concern viz. M/S Mani Prabha Impex Pvt Ltd which is not binding in the present case. Further the appellant has not provided copy of assessment order, penalty order and order of Ld. CIT(A). Since the addition, with respect to which penalty proceedings u/s 271(1)(c) were initiated, has been confirmed in first appeal and this is a case where inaccurate particulars of income were furnished, the penalty imposed by the AO is confirmed. This ground of appeal is dismissed. 9.4 GoA no. 3 is dismissed as the appellant has not added any grounds of appeal.”

I.T.A Nos. 998 to 1003//SRT/2026 A.Ys. 2009-10 to 2014-15 8 Kangan Jewels Pvt. Ltd. vs. ITO

I.T.A Nos. 998 to 1003//SRT/2026 A.Ys. 2009-10 to 2014-15 9 Kangan Jewels Pvt. Ltd. vs. ITO

7.1 The assessee has challenged the validity of the penalty notice on the ground that the specific limb of section 271(1)(c), i.e., “concealment of income” or “furnishing inaccurate particulars of income”, was not properly specified.

7.2 On perusal of the assessment order, it is evident that the Assessing Officer has recorded a clear satisfaction that the assessee had furnished inaccurate particulars of income. The penalty order also elaborately deals with the said charge. The assessee has participated in the penalty proceedings and has addressed the issue on merits, thereby demonstrating that it was fully aware of the nature of the charge against it.

7.3 It is a settled position of law that a mere technical defect in the notice would not invalidate penalty proceedings unless prejudice is shown to have been caused to the assessee. In the present case, no such prejudice has been demonstrated. Accordingly, this ground of the assessee is rejected.

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8.1 We are unable to accept the said contention in the facts of the present case. This is not a case where income has been estimated in the normal course due to deficiencies in books or lack of proper vouchers. Rather, the material on record clearly establishes that:

No physical stock of diamonds was found during the course of  search despite substantial stock being reflected in the books; No supporting documents such as purchase orders or  correspondence with foreign suppliers were found; The Director of the assessee company, in his statement  recorded under section 132(4), categorically admitted that the assessee was engaged in providing accommodation entries; The said admission was reiterated subsequently under  section 131; The modus operandi of routing bogus import and sales  transactions for the benefit of third parties was clearly brought on record. 8.2 Thus, the very foundation of the assessee’s business, as recorded in the books of account, stands disproved. The books of account were found to be fictitious and the transactions non- genuine. In such circumstances, the determination of income by applying a commission rate is merely a method of quantification of income arising from undisclosed and unrecorded activities.

8.3 The Hon’ble Supreme Court in Mak Data Pvt. Ltd. vs. CIT has held that voluntary disclosures or explanations which are not bona fide do not absolve the assessee from penalty. Similarly, in N.K. Proteins Ltd. vs. DCIT, it has been held that where transactions are found to be bogus, both addition and penalty are justified.

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8.4 Therefore, the present case is not one of “pure estimation” but one where inaccurate particulars have been furnished by way of recording fictitious transactions in the books, and the estimation is only with respect to quantification of real income embedded therein. Accordingly, the contention of the assessee is rejected.

8.5. Further the addition is confirmed by the Tribunal and assessee filed Tax Appeal under section 260A before the Hon’ble Gujarat High Court in TA Nos. 577 to 580/2024 and 608 & 609/2024 but not obtained any Stay of operation of the Tribunal order. Therefore, pendency of Tax case appeal is not binding on the Tribunal to follow its own assessee’s case in the penalty proceedings. Further, the estimation of income is only a method of quantification, whereas the foundation of addition is concrete evidence. Various Judicial precedents have consistently held that where the underlying transactions are found to be bogus, penalty u/s 271(1)(c) is clearly attracted, even if income is determined by estimation. Courts have consistently held that entities engaged in accommodation entries cannot escape penalty in the case of PCIT vs. NRA Iron & Steel Pvt. Ltd. (412 ITR 161) (SC) and CIT vs. Nova Promoters & Finlease Pvt. Ltd. (342 ITR 169) (Del). These decisions establish that where transactions are not genuine, penalty is justified. Thus, this ground of the assessee is rejected.

I.T.A Nos. 998 to 1003//SRT/2026 A.Ys. 2009-10 to 2014-15 12 Kangan Jewels Pvt. Ltd. vs. ITO

9.1 In view of the above, the case squarely falls within the ambit of Explanation 1 to section 271(1)(c), as the assessee has failed to discharge the burden cast upon it to prove that the explanation offered is bona fide and that all material facts have been disclosed.

10.1 We find no merit in the said contention. The assessee company is a separate legal entity and the material on record clearly establishes that the accommodation entry operations were carried out through the assessee company. The additions in the hands of the assessee are substantive in nature and have been confirmed in quantum proceedings.

10.2 No evidence has been brought on record to show that the additions in the hands of the assessee have been deleted or that the same income has been finally assessed in the hands of any other person. In such circumstances, the plea of protective addition is untenable.

Incriminating material found during search;  Categorical admission of the Director;  Falsity of books of account and recorded transactions;  Failure of the assessee to disclose the true nature of its  business activities.

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11.1 Thus, the penalty is not merely consequential to the quantum addition but is based on clear findings that the assessee has furnished inaccurate particulars of income.

12.1. Accordingly, the penalty levied by the Assessing Officer and confirmed by the Ld. CIT(A) are hereby upheld.

Orders pronounced under provision of Rule 34 of ITAT Rules, 1963 on 06-05-2026 Sd/- Sd/- (NARENDRA PRASAD SINHA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat: Dated 06/05/2026 // TRUE COPY // आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, सूरत