ITO 19.3.1 MUMBAI, MUMBAI vs. STAR JEWELS, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K(SMC)”, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No.7673/Mum/2025 (Assessment year: 2018-19)

M/s. Star Jewels vs ITO Ward 19(3)(1), Mumbai Shop No.14, Sukhsagar Piramal Chambers, Dr. S.S. Rao Building, N.S. Patkar Marg, Road, Parel, Mumbai-400012 Opera House, Mumbai- 400007 PAN: ABRFS9155N APPELLANT RESPONDENT ITA No.8321/Mum/2025 (Assessment year: 2018-19)

ITO Ward 19(3)(1), Mumbai vs M/s. Star Jewels Piramal Chambers, Dr. S.S. Shop No.14, Sukhsagar Building, Rao Road, Parel, Mumbai- N.S. Patkar Marg, Opera House, 400012 Mumbai-400007 PAN: ABRFS9155N APPELLANT RESPONDENT Assessee by : Shri Ketan L Vajani (CA) Revenue by : Shri Sunil Kisan Agawane (Sr.DR) Date of hearing : 23/06/2026 Date of pronouncement : 24/06/2026

2 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels O R D E R Per:Anikesh Banerjee (JM): The appeal filed by the assessee and cross-appeal by the revenue filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2018-19, date of order 11.09.2025. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity the ‘Ld. AO’) order passed under section 147 r.w.s. 144B of the Act date of order 20.03.2024.

3 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels Jewels Pvt. Ltd. during F.Y. 2017-18. Based on the report received from the Investigation Wing, the Ld. AO initiated reassessment proceedings under Section 147 of the Act. During the course of the assessment proceedings, it was noted that the assessee had made total purchases of Rs. 1,10,01,205/- during the relevant financial year. The Ld. AO formed a view that the transactions with M/s Tanman Jewels Pvt. Ltd. were merely accommodation entries arranged for tax avoidance purposes and, therefore, treated purchases amounting to Rs. 41,35,886/- as non-genuine. Accordingly, the Ld. AO estimated the profit element embedded in such alleged bogus purchases at 25%, resulting in an addition of Rs.10,33,971/- to the total income of the assessee. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). After considering the submissions and material placed on record, the Ld. CIT(A) reduced the rate of estimated gross profit from 25% to 12.5%. However, while doing so, the Ld. CIT(A) treated the entire purchase turnover of Rs. 1,10,01,205/- as pertaining to the alleged bogus transactions with M/s Tanman Jewels Pvt. Ltd. and applied the gross profit rate of 12.5% on the said amount. Consequently, the addition was recomputed at Rs. 13,75,151/-, thereby resulting in an enhancement of the assessed income. Thus, although the rate of profit was reduced from 25% to 12.5%, the quantum of addition stood enhanced due to the application of the profit rate on the entire purchase value of Rs. 1,10,01,205/-. Being aggrieved, both the assessee and the revenue have preferred cross-appeals before us challenging the impugned appellate order.

4 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels 4. The Ld. AR filed a paper book comprising pages 1 to 49 and submitted that, during both the assessment and appellate proceedings, the assessee had furnished all relevant documentary evidence in support of the impugned purchase transactions. It was further contended that the assessee maintained a regular stock register, wherein the corresponding purchases and sales were duly recorded, thereby establishing the genuineness of the transactions. The Ld. AR invited our attention to paragraphs 3.3 to 4.1 of the impugned assessment order, wherein the Ld. AO has recorded the submissions made by the assessee as well as the reasons for rejecting the same. The relevant extracts are reproduced hereunder: “3.3 Synopsis of all submissions of the assessee relating to the issue and indicating the dates of submission. During the course of assessment proceedings, notices u/s. 143(2), and 142(1) of the I.T.Act were issued to the assessee with detailed questionnaires. The assessee was also required to furnish details such as source of income/ business activities being carried on during the F.Y.2017-18, bank account details being maintained by him during the relevant period, source of cash deposit and time deposit alongwith supporting documents. In response to which, the assessee has furnished replies / submission, along with relevant supporting documentary evidences. The assessee has filed its reply on 21.06.2023, 22.06.2023, 29.06.2023, 01.07.2023 and 02.11.2023. Vide these reply, the assessee submitted explanatory reply, copy of bank a/c, profit and loss a/c, ledger of third party i.e Tanman Jewels Private Limited and other supporting documents. As per the details available on record, it is found that the assessee has furnished ledger of Tanman Jewels Private Limited for F.Y. 2017-18 claiming to made purchase of Rs. 1,10,01,205/-. 3.4 Summary of information/evidence collected which proposed to be used against it: During the course of scrutiny proceeding various notices U/s 142(1) of the Act issued to assessee with detailed questionnaires. The assessee was also required to furnish details such as source of income/business activities being carried on during the F.Y.2017-18, bank account details being maintained by him during the relevant period, source of cash deposit and time deposit

5 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels alongwith supporting documents. The Notice U/s 133(6) of the Act is also issued to the Tanman Jewels Pvt. Ltd. for the verification of the transactions. 3.5 Variation proposed on the basis of inference drawn: On perusal of STR dated 15.02.2022 accessed through Insight portal, It has already been established that transactions carried out are part of larger picture of layering through many bank accounts without any actual sale/purchase of goods. Physical verification by officials of the investigation wing of the department revealed that from registered address of Tanman Jewels Private Limited i.e. 6/2020-21-22, Office No.305, Panchratna Apartment, Bhojabhai Ni Sheri, Hat Faliya, Mahidharpura, Surat, Gujarat India 395003, no business activities has taken place since long. The ledger and bank transaction details furnished by the assessee are mere sham transactions without involving any real goods/services. Therefore In the instant case show cause notice issued on 07.03.2023, the relevant part of the same is being reproduced below:- On the basis of information/evidences available on record and collected from the departmental "Insight Portal", it is noticed that the assessee has taken accommodation entries. via bogus purchases/sales totaling Rs.41,35,886/- from Tanman Jewels Pvt. Ltd. Thus there is escapement of income to the tune of Rs.41,35,886/-. The entity Tanman Jewels Pvt. Ltd. Has shown bogus sales of huge amount and it is observed that web of shell companies were opened in different layers for routing money and for camouflaging the same as unaccounted money.

It is noticed from the information available with the department that the assessee had made bogus purchases of Rs. 41,35,886/- from Tanman Jewels Pvt. Ltd. Vide notices u/s. 142(1) of theAct, the assessee has been requested to submit relevant details/supporting evidences in respect of above transactions. However, the assessee vide reply dated 23.06.2023 stated that approx. Rs.5.12 or of loose diamond and Approx. Rs.1.34 crore of sale of jewellery is made and the purchases made from Mis. Tanman Jewels Pvt Ltd. are around 20% of total purchase which comes to Rs. 1,17,49,783/- In view of the above, the assessee is requested to show cause as to why the purchases of Rs. 1,17,49,783/- should not be disallowed and added back to the total income of the assessee." 4 Synopsis of the reply of the assessee to SCN and additional SCN (if any):

6 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels The assessee has furnished its reply of show cause notice on 12.03.2024. In the reply the assessee has simply stated that M/s Tanamn Jewels is a Pvt. Limited company and registered with ROC. The company is holding GST number and the turnover of the company is almost 850 Cr, and it is filing regular ROI etc. and raised some questions against the SCN issued to the assessee. The assessee in its reply also stated that the transaction is well reflected in books of M/s Tanman jewels Pvt. Ltd. and payment for purchase were made through bank. 4.1. Pointwise rebuttal law relied upon: including analysis of any case As mentioned above, the investigation wing of the department has already conducted inquiry in the case of Tanman Jewels Private Limited and established it to be accommodation entry provider. Vide STR report dated 15.02.2022, it has been stated that through physical verification of registered address of Tanman Jewels Private Limited, it was found that no business activity has been carried from the said place. Analysis of bank statements of Tanman Jewels Private Limited, it was found that the credit amount immediately transferred to other bank a/c, leaving meager amounts in the bank. Vide the said STR report, many beneficiaries were identified who availed the banking transactions as per their requirement or suitability from Tanman Jewels Private Limited without any exchange of goods or services. The modus operandi is very common to evade/manipulate the tax dues. Therefore, it is crystal clear that the assesse has not carried out any genuine business transaction with Tanman Jewels Private Limited. The banking transactions are mere accommodation entries to give the colour of genuiness to the bogus purchases bills submitted by the assessee.”

7 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels assessee were also not rejected by the Ld. AO. It was argued that the assessee had duly maintained and produced the stock register, purchase ledger, sales ledger, invoices, and details of payments made through banking channels, along with corresponding sales records, all of which substantiated the genuineness of the transactions in question. The Ld. AR pointed out that the Ld. AO had primarily relied upon the decisions of the Hon’ble Gujarat High Court in the case of N.K. Industries Ltd. v. DCIT reported in 72 taxmann.com 289 (Guj.) and the Hon’ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd. reported in 474 ITR 175 (Bom.) for sustaining the addition. However, it was contended that the facts of both the aforesaid decisions were materially distinguishable from those of the present case. It was emphasized that the assessee had fully cooperated during the assessment as well as appellate proceedings and had furnished all requisite documentary evidence in support of the impugned purchases. It is further argued that without giving any opportunity the Ld. CIT(A) enhanced the addition in impugned appellate order. The Ld. AR therefore submitted that, in the absence of any adverse material, rejection of books of account, or independent verification disproving the purchases, the transactions could not be treated as bogus merely on the basis of information received from the Investigation Wing. Reliance was accordingly placed on the decision of the Coordinate Bench of the ITAT, Mumbai in the case of ACIT v. Dhiraj Parbat Gothi, ITA No. 580/Mum/2025, order dated 30.05.2025. The relevant observations of the Coordinate Bench are reproduced hereunder: “12. We also take note of the additional ground raised by the revenue for which Ld.SR DR referred to the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Kanak Impex (India) Ltd. (supra). We have perused the said judgment. For the reliance placed by Ld. SR DR on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of PCIT vs Kanak

8 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels Impex (India) Ltd (supra) calling for addition of 100% of the alleged bogus purchases as against 25% made by the Ld.AO and confirmed by Ld. CIT(A), we have perused this aforesaid judgment. We observe that in para 4, Hon'ble Court noted the factual position that assessee did not appear before the Ld.AO during the course of assessment proceedings and failed to prove the genuineness of the purchase. The said assessment was completed ex-parte u/s. 144 r.w.s 147 of the Act. Hon'ble Court also observed in para 17 about the non-appearance of assessee before the Ld.AO for which there is no justification. Again, it noted in para 29 that the assessee chose not to attend the reassessment proceedings even though the notices were sent by post, email and affixture. Accordingly, in para 13, Hon'ble Court concluded that assessee having not joined the reassessment proceedings, the contention raised by the assessee are to be rejected. Observation of the Hon'ble Court while rejecting the contention of the assessee are: “30. We fail to understand that the respondent-assessee having consciously and intentionally decided not to join the investigation, cannot now contend that the appellant-revenue should have given them all the details before making the addition. In our view, such a conduct of the respondent-assessee cannot be accepted. It was incumbent upon the respondent-assessee to have joined the re-assessment proceedings, discharge the initial onus of proving the purchases and seek details, if any."

“1. The respondent assessee having been filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through account payee cheques to the suppliers, copies of invoices for purchases and stock statement i.e. stock reconciliation statement giving complete details with regard to opening stock, purchases, sales and closing stock and no fault with regard to it being found and the books of accounts not being rejected and the sales not being doubted, the purchases cannot be treated as bogus and be disallowed merely on the basis of suspicion. One cannot conclude that the purchases were

9 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels not made by the respondent assessee merely because the parties were not produced, when there are materials on record to prove otherwise." 15. Further, considering the detailed submissions and documentary evidences placed on record which have been duly considered by Ld. CIT(A) for granting relief to the assessee by reducing the addition from 12.5% to 4% based on the alternate plea raised by the assessee, we do not find any reason to interfere with the same. Accordingly, finding arrived at Ld. CIT(A) is up held. Accordingly, grounds raised by the revenue in this respect are dismissed.”

10 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels Gujarat High Court in N.K. Industries Ltd. v. DCIT (supra) and the Hon'ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd. (supra).

The appellant's reliance on invoices, ledger copies, bank payments, and even affidavits from the supplier cannot outweigh the concrete findings of the Investigation Wing. It is settled law that self-serving documents cannot prove genuineness of transactions when the counter-party is proven to be non-genuine. The Hon'ble Supreme Court in the case of Kachwala Gems v. JCIT [288 ITR 10 (SC)] has held that where accounts are not reliable, the Assessing Officer is justified in making additions on a reasonable basis. Similarly, in CIT v. La Medica [250 ITR 575 (Del)], it was held that documentary evidence loses credibility when the issuer is found to be a paper entity. 6(e). The plea of violation of natural justice on account of denial of cross-examination is also without merit. The Hon'ble Supreme Court in the case of ITO v. LakhmaniMewal Das [103 ITR 437 (SC)] has held that sufficiency of material is not required to be tested at reassessment stage. Further, the primary basis of addition here is not merely statements of third parties but independent findings of the Investigation Wing, corroborated with abnormal purchase patterns of the assessee. 6(f). In view of the above factual and legal position, the Assessing Officer was fully justified in treating the impugned purchases from M/s. Tanman Jewels Pvt. Ltd. as bogus. However, outright disallowance of 25% is excessive considering the nature of business of trading in loose diamonds where margins are relatively low.

11 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels 6(g). "Considering the facts, judicial precedents and the balance of probability, the disallowance to 12.5% of the disputed purchases would meet the ends of justice. The assesse, in its submissions, claimed that the actual purchases from M/s. Tanman Jewels Pvt. Ltd. were of Rs.1,10,01,205/ and not Rs.Rs.41,35,886/- and in proof, furnished copy of ledger account. Accordingly. 12.5% of disputed purchases would be Rs.13,75,151/- (12.5% of Rs.1,10,01,205/-) which is to be added to the total income of the assessee. The grounds raised by the appellant are partly allowed. In the result, the appeal of the assesse is hereby PARTLY ALLOWED.”

12 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels in the cases of N.K. Industries Ltd. (supra) and Kanak Impex (India) Ltd.(supra) are distinguishable on facts. In those cases, the assessees had either failed to participate in the proceedings or were unable to substantiate the purchases with supporting evidence. In the present case, the assessee has consistently participated in the proceedings and furnished all primary evidences in support of the transactions. The facts of the present case are, therefore, more akin to those considered by the Hon'ble Bombay High Court in Nikunj Eximp Enterprises Pvt. Ltd. (supra) and by the Coordinate Bench in Dhiraj Parbat Gothi (supra). We further note that the Ld. CIT(A), while reducing the estimated profit rate from 25% to 12.5%, enhanced the quantum of disputed purchases from Rs.41,35,886/- to Rs.1,10,01,205/- on the basis of the ledger furnished by the assessee. However, such enhancement was made without bringing any fresh incriminating material on record to establish that the entire purchases from the said party were non- genuine. In our considered view, once the documentary evidences furnished by the assessee remain unrebutted and the books of account as well as sales have not been rejected, the impugned purchases cannot be treated as bogus merely on the basis of general information received from the Investigation Wing. Accordingly, respectfully following the ratio laid down by the Hon'ble Bombay High Court in Nikunj Eximp Enterprises Pvt. Ltd.(supra) and the decision of the Coordinate Bench in Dhiraj Parbat Gothi (supra), we set aside the impugned appellate order and direct the deletion of the addition sustained by the Ld. CIT(A). Consequently, the grounds raised by the assessee are allowed and the grounds raised by the revenue stand dismissed.

13 ITA No.7673, 8321/Mum/2025 M/s. Star Jewels 9. In the result, the appeal of the assessee bearing ITA No.7673/Mum/2025 is allowed and the appeal of the revenue bearing ITA No.8321/Mum/2025 stands dismissed. Order pronounced in the open court on 24th day of June 2026. Sd/- Sd/- (OM PRAKASH KANT) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 24/06/2026 SAUMYASr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI