M/S. BEAUTY GEMS ,MUMBAI vs. ITO WARD 19(1)(1), MUMBAI

This appeal is filed by the assessee against the order dated 09.01.2025 passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi for A.Y. 2013-14 arising out of assessment order passed u/s 147 r.w.s. 144B of the Income Tax Act, 1961.

The assessee has raised the following grounds of appeal:

Brief facts of the case are that information was received from Investigation Wing that the assessee had allegedly availed accommodation entries from Gautam Jain Group through M/s Rajan Gems amounting to Rs.84,90,736/-. Based on such information, assessment was reopened u/s 147 of the Act. During reassessment proceedings, the Assessing Officer observed that the assessee had shown purchases of Rs.64,62,938/- from M/s Rajan Gems and sales of Rs.79,02,407/- to the said concern. The Assessing Officer held that M/s Rajan Gems was merely a paper concern controlled by Gautam Jain 2

During appellate proceedings, the assessee submitted before the Ld. CIT(A) that it is engaged in business of trading in cut and polished diamonds through brokers and acts as adatiya/middleman earning nominal brokerage/commission income. The assessee submitted that regular books of account including stock register, purchase register, sales register and quantitative tally were maintained and audited u/s 44AB of the Act. The assessee further submitted that the transactions with M/s Rajan Gems had resulted in profit to the assessee and quantitative tally demonstrating corresponding purchases and sales was also furnished before lower authorities. It was further submitted that sales of Rs.79,02,407/- were already credited in trading account and therefore same cannot again be treated as unexplained money u/s 69A of the Act. However, the Ld. CIT(A) upheld the action of the Assessing Officer by relying upon findings of Investigation Wing regarding accommodation entry operations of Gautam Jain Group concerns.

Before us, the Ld. AR reiterated the submissions made before lower authorities. The Ld. AR submitted that the Assessing Officer himself has accepted that the amount of Rs.79,02,407/- represents sales disclosed by the assessee in books of account. Therefore, once the sales are already credited in trading account and offered to tax, the same amount cannot again be added u/s 69A of the Act as unexplained money. The Ld. AR relied upon the decision of Hon’ble Gujarat High Court in the case of CIT vs Vishal Exports Overseas Ltd reported in 2012(7) TMI 1110. 3

The Ld. AR further submitted that the Assessing Officer has estimated GP @ 8% without rejecting books of account u/s 145(3) of the Act. It was submitted that no discrepancy has been pointed out in books of account, stock register or quantitative tally maintained by the assessee. The Ld. AR relied upon the decision of Coordinate Bench in the case of Sri Sandeep S Suri Vs DCIT Range 15(3), Mumbai in ITA No.1842/Mum/2010 dated 11.02.2015 and ACIT 10(1)(1), Mumbai vs Inter Carat Jewellery Pvt. Ltd. in ITA No.2110/Mum/2018 dated 13.03.2019. The Ld. AR also relied upon the decision of Hon’ble Bombay High Court in the case of Asok Kumar Rungta vs ITO reported in 167 taxmann.com 429 (Bombay) and submitted that the assessee has shown GP of 3.78% which is in line with diamond trade where adatiya/middleman generally earns margin of around 3%.

Per contra, the Ld. DR strongly relied upon the orders of lower authorities and submitted that Investigation Wing had conclusively established that Gautam Jain Group concerns were engaged in providing accommodation entries and therefore the Assessing Officer was justified in treating the transactions with M/s Rajan Gems as non- genuine.

We have heard rival submissions and perused the material available on record. The reassessment has been made on the basis of information received from Investigation Wing alleging accommodation entries obtained from Gautam Jain Group concerns. The Assessing Officer has ultimately made addition of Rs.79,02,407/- u/s 69A of the Act treating sales made to M/s Rajan Gems as unexplained money and further estimated GP @ 8% on the remaining turnover.

On careful consideration of facts, we find merit in the submissions of the assessee that the addition of Rs.79,02,407/- u/s 69A

We find that Hon’ble Gujarat High Court in the case of CIT vs Vishal Exports Overseas Ltd (supra) has held that once sales are already reflected in books of account and considered in turnover, the same cannot again be separately added. Respectfully following the ratio laid down therein, we direct deletion of addition of Rs.79,02,407/- made u/s 69A of the Act.

Coming to estimation of GP @ 8%, we find that the Assessing Officer has not rejected books of account u/s 145(3) of the Act. The assessee has maintained books of account, stock register and quantitative tally. No specific discrepancy in quantitative records or books has been pointed out by the Assessing Officer. Merely because transactions with one party are doubted, estimation of profit without rejection of books cannot be sustained.

We further note that the assessee is engaged in diamond trade as adatiya/middleman and the assessee has consistently submitted that normal margin in such line of business ranges around 3% to 4%. The assessee has declared GP of 3.78% during the year under consideration. The assessee has also furnished quantitative tally demonstrating that profit has been earned in transactions with M/s Rajan Gems. The Assessing Officer has not brought any comparable case on record to justify estimation of GP @ 8%.

The Coordinate Bench in the case of Sri Sandeep S Suri Vs DCIT (supra) and ACIT vs Inter Carat Jewellery Pvt. Ltd. (supra) has held that without rejection of books of account, estimation of profit is not justified. Further, Hon’ble Bombay High Court in the case of Asok Kumar Rungta vs ITO (supra) has also considered peculiar nature of diamond trade while dealing with estimation of profit. Considering totality of facts and circumstances of the case, we are of the considered view that estimation of GP @ 8% by the Assessing Officer is arbitrary and excessive. Accordingly, the addition made on account of estimation of GP is directed to be deleted.

As regards Ground No.1 challenging reopening, since the additions made in reassessment proceedings themselves have been deleted on merits and no separate arguments were advanced before us on legal issue during hearing, the same is left open.

In the result, appeal of the assessee is allowed.