DILIPKUMAR CHIMANLAL AND COMPANY ,MUMBAI vs. DCIT, 19(1), MUMBAI

These present appeals under consideration are having involved almost identical facts, issues and additions; therefore, for the sake of brevity, the same were heard together and are being disposed of by this composite order.

Coming to ITA No. 8462/M/2025, it is observed that the case of the Assessee was reopened under Section 147 of the Act by recording the reasons for reopening and issuing the notice under Section 148 of the Act dated 26.02.2015, on the basis of the following information: -

The Assessee, in response to the notice issued under Section 148 of the Act, filed a letter dated 27.07.2015, inter alia, claiming that the return filed on 26.09.2010, declaring total income at Rs. 9,35,858/-, may be treated as the return filed in response to such notice. Thereafter, the Assessing Officer (hereinafter referred to as the “AO”) issued various notices to the Assessee, who from time to time attended the proceedings and furnished the details called for. 2

On the basis of the information and details submitted by the Assessee, the AO examined the case of the Assessee with regard to the alleged bogus accommodation entries amounting to Rs. 4,02,59,909/- and ultimately held as under: -

The AO, from the analysis of above facts, has held that it is crystal clear that the purchases made by the Assessee from the above parties and claimed as expenses in its profit and loss account are not genuine. Since the purchases to that extent remained unverifiable and cannot be accepted, the books of accounts are rejected as mandated under Section 145(3) of 3 the Act. From the above discussion, one can simply conclude that the Assessee had obtained only the bills from Bhanwarlal Jain and his group concerns, without actually receiving the material. Thus, the bills issued by Bhanwarlal Jain and his group concerns are nothing but accommodation entries.

The AO, after holding the purchases made by the Assessee as alleged bogus accommodation entries, proceeded with the case to determine the profit margin/GP rate and ultimately, by considering the Budget Speech dated 28.02.2007 of the then Hon’ble Finance Minister of India introducing a Benign Assessment Procedure (BAP) for Assessees engaged in the manufacturing and/or trading of diamonds and showing a profit margin of 8% of their turnover, made an addition of Rs. 32,20,793/-, being 8% of the alleged non-genuine purchases of Rs. 4,02,59,909/-.

The Assessee, being aggrieved, challenged the said addition by filing a first appeal before the ld. Commissioner and, more or less, claimed that it had duly filed the following documents and submissions: -

The Assessee also contended that the purchases were genuine, supported by invoices, banking documents and export documentation. The Assessee also filed affidavits of the purchase parties confirming the transactions and bank statements of the Assessee and the purchase parties reflecting the payments made. Further, the Assessee claimed that the AO failed to provide an opportunity for cross-examination of third-party statements. Further, the AO also ignored the quantitative tally and one-to- one mapping with export invoices.

Though the ld. Commissioner did not controvert the documents filed by the Assessee before the AO and during the first appellate proceedings, 4 he observed that when beneficiaries engage in bogus purchases and transactions from an accommodation entry provider, they do so with the assurance that the entire paperwork on the part of the entry provider would be perfectly arranged. Additionally, the beneficiaries also know that they have to carry out their part of the documentation. Therefore, purchase invoices, bank statements, export documents and quantitative tally of goods purchased and sold/exported are maintained to perfection, and it is no surprise that the Assessee was readily able to produce them before the AO. These documents are already prepared in anticipation of scrutiny by the Income-tax Department. The real test is the production of evidence establishing the actual transport and delivery of goods. The onus is on the appellant to prove the genuineness of the purchases to the satisfaction of the AO. As evident from the assessment order, the appellant failed to satisfy the AO regarding the actual delivery of the goods. The Assessee is among those identified by the Investigation Wing as beneficiaries of the Bhanwarlal Jain Group. Statements of Shri Bhanwarlal Jain and his sons were recorded under Section 132(4) of the Act and, therefore, the absence of stock and the lack of genuine infrastructure to carry on business support the AO’s conclusion that these entities were not engaged in genuine trade.

With regard to the non-providing of an opportunity for cross- examination to the Assessee, the ld. Commissioner observed that this procedural lapse cannot be said to vitiate the assessment in its entirety when the AO’s conclusion is based upon specific information received from the Investigation Wing about the Assessee being a beneficiary of accommodation entries provided by Bhanwarlal Jain. The AO had specific information about the entries of the Bhanwarlal Jain Group, with whom the Assessee carried out the impugned transactions and how they were recorded in the books of the bogus entities. The specific and accurate nature of the information lends justification to the AO’s action of not granting an opportunity for cross-examination.

The ld. Commissioner also adjudicated the contention raised by the Assessee that it had provided export documentation and quantitative tally of stock and that the purchases matched the exports, by holding that this only indicates that the sales were genuine and that the purchases, though routed through accommodation entries, were not fictitious in their entirety. It leads to the conclusion that actual purchases were made from some other parties but bills were procured from the Bhanwarlal Group, which is a common practice among beneficiaries of accommodation entries. This modus operandi has been consistently recognized by the Courts, and it is because of this modus operandi that the question of the appropriate rate arises, as mentioned in the cases described above.

We further observe that, with regard to the estimate of the profit margin at 8% by the AO, the ld. Commissioner, by considering the different rates adopted by various judicial forums and after factoring in the sector in which the beneficiary-appellant was operating, considered the rate of 10% of the bogus purchases as appropriate and consequently directed the AO to recompute the profits at the enhanced rate of 10%.

The Assessee, being aggrieved, has preferred the instant appeal and controverted the findings arrived at by the ld. Commissioner in sustaining the addition @10% of the alleged bogus purchases.

On the contrary, the ld. DR supported the impugned order and also relied on the judgment of the jurisdictional High Court in the case of Kanak Impacts (India) Ltd. (2025) 172 taxmann.com 283 (Bom.).

Heard the parties and perused the material available on record. The Assessee, during the AY under consideration, was engaged in the business of trading and export of diamonds. The case of the Assessee was reopened on the basis of information received from the Investigation Wing, gathered during the search operation conducted in the case of Shri Bhanwar Lal Jain and Associates, wherein it was found that various beneficiaries, including the Assessee, had taken accommodation entries in the form of bogus purchases from the alleged Bhanwar Lal Jain Group concerns.

The Assessee, in order to substantiate its claim, filed the relevant documents mentioned above and, therefore, initially discharged the prima facie onus cast upon it under section 68 of the Act, as alleged. Further, the Assessee has also filed affidavits of the purchase parties, specifically confirming the transactions with the Assessee. It is also a fact that the authorities below have not pointed out any deficiency in the documents submitted by the Assessee, nor have they brought on record any material to controvert such documents. Further, it is also a fact that no material or statements, as relied upon by the authorities below, were provided to the Assessee, and no corroborative evidence has either been placed on record or referred to by the AO while making the addition. Further, it is also a fact that no notice under section 133(6) of the Act or summons under section 131 of the Act was issued to the purchase parties or Shri Bhanwar Lal Jain.

We observe that admittedly, the ld. Commissioner duly accepted the sales transactions undertaken by the Assessee as genuine, but only doubted the purchase documents by alleging that, though the purchases may have been made from certain parties, the Assessee had obtained the alleged documents, which is a common practice among beneficiaries of accommodation entries. Further, the ld. Commissioner has specifically observed that the Assessee has furnished export documents and a quantitative tally of stock, and has matched the purchases with the exports, observing that this only indicates that the sales were genuine and that the purchases, though routed through accommodation entries, were not entirely fictitious. This leads to the conclusion that the actual purchases were made from some other parties, but the bills were procured from the Bhanwar Lal Group.

We further observe that admittedly, both the authorities below failed to provide investigation report and an opportunity for cross-examination of Shri Bhanwarlal Jain and his associates, whose statements have also been relied upon by the authorities below for making and sustaining the addition on a substantive basis. Thus, they violated the principles of natural justice, which would entail the quashing of the notice issued under section 148 of the Act and the assessment order passed pursuant thereto, in view of the dictum laid down by the Hon’ble Apex Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise, reported in (2015) 281 CTR 241 (SC) / 127 DTR 241 (SC), by holding as under:

On the contrary, the ld. D.R. refuted the claim of the Assessee, inter alia, contending that all the documents filed by the Assessee before the authorities below were based on bogus purchases. Further, the order passed by the ld. Commissioner is liable to be affirmed in view of the judgment passed by the Hon’ble Bombay High Court in the case of PCIT vs. Kanak Impex (India) Ltd. (2025) 172 taxmann.com 283 (Bombay).

We observe that in Kanak Impex case (supra), the Assessee therein not only failed to participate during the assessment proceedings but, in fact, 8 never submitted the relevant documents to prove the genuineness and source of the alleged purchases, resulting in a failure to discharge the prima facie onus cast under section 69C of the Act. Further, in the instant case, as observed above, the Assessee has duly submitted the relevant documents/evidence, such as ITR acknowledgements of the purchase parties, confirmations from the parties, purchase invoices, bank statements, details of the purchase parties, and mapping/correlation of the alleged purchases with the subsequent sales, in order to prove the genuineness of the transactions under consideration and has, therefore, prima facie discharged the onus cast under the applicable provisions of law.

We further observe that the Hon’ble Coordinate Bench of the Tribunal, while considering identical facts, circumstances, and issues involved, except for variation in the names of the parties and the quantum involved, in the case of M. Shashikant and Company vs. Income Tax Officer, {ITA No. 6599/M/2025 decided on 08.01.2026}, ultimately deleted the identical addition by observing and holding as under: -

Thus, on the aforesaid analysis, we reiterate that the Assessee, by filing the relevant documents, has duly discharged its prima facie onus cast 11 under the relevant provisions of law applicable thereto. Further, the Assessee has established the reconciliation between the alleged purchases and the corresponding sales, which has also been accepted by the ld. Commissioner in the impugned order. Further, the ld. Commissioner has also accepted the sales as genuine. The AO simply relied upon the search and seizure action carried out in the case of Bhanwar Lal Jain and his concerns on 03.10.2013 and the statements made by Shri Bhanwar Lal Jain and his associates, without providing any opportunity for cross- examination, despite a specific request made by the Assessee, thereby violating the principles of natural justice, which would entail the quashing of the notice issued under section 148 of the Act as well as the assessment order under consideration. Further, it is also a fact that the Hon’ble Coordinate Bench of the Tribunal in the case of M. Shashikant and Company (supra) has also dealt with identical facts and issues, such as the production of relevant documents by the Assessee therein and demonstration of the mapping/reconciliation of purchases and sales, and did not find any incriminating material, etc. and thus, ultimately deleted the identical addition.

Thus, on the aforesaid analysis, we are unable to sustain the addition made by the AO @ 8% of the alleged bogus purchases, as enhanced to 10% of the alleged bogus purchases by the ld. Commissioner, that too without providing any opportunity and/or issuing any notice for enhancement.

Thus, JAO is accordingly directed to delete the addition sustained and enhanced to @ 10% of the bogus purchases by the ld. Commissioner; however, as a measure of abundant caution, subject to verification of the alleged purchases with the corresponding sales and offering of the profit @ 4.87% earned thereon, to income tax.

Thus, in view of the above analysis and findings, the Assessee’s appeal, i.e., ITA No. 8462/M/2025, stands allowed, however, subject to the limited purpose of verification, as directed above.

Coming to Assessee’s appeal i.e. ITA No. 8461/M/2025 {AY 2012- 13}, which relates to the affirmation of the addition to the extent of 10% {Rs. 1,17,25,863/-} of the alleged bogus purchases by the ld. Commissioner vide the impugned order dated 16.10.2025, as against the addition of Rs. 11,72,58,627/- being 100% of the alleged bogus purchases, made by the AO, vide assessment order dated 15.12.2019 under section 143(3) r.w.s. 147 of the Act. As observed above, the instant appeal is based on identical facts, circumstances, and issues involved, except for variation in the parties and the amount involved, as dealt with by us in ITA No. 8462/M/2025. Thus, in view of our judgment in ITA No. 8462/M/2025, the addition of Rs. 1,17,25,863/- as sustained by the ld. Commissioner, vide the impugned order, is directed to be deleted by the JAO; however, subject to the same verification, as directed in the order passed in ITA No. 8462/M/2025.

Coming to Revenue’s appeal i.e. ITA No. 8559/M/2025 {AY 2012- 13}, it is observed that the AO, vide assessment order dated 15.12.2019 passed under section 143(3) r.w.s. 147 of the Act, made an addition of Rs. 11,72,58,627/-, which was subsequently sustained only to the extent of 10% of the alleged bogus purchases, i.e., Rs. 1,17,25,863/-. The Revenue, thus being aggrieved, preferred the instant appeal, inter alia, seeking enhancement of the addition sustained by the ld. Commissioner @ 10% of the alleged bogus purchases, to 100% of such alleged purchases, as originally made by the AO. As observed above, we have considered the identical facts and issues involved in ITA No. 8462/M/2025 and have ultimately deleted the addition in its entirety, subject to certain verification, as specifically directed. Thus, in view of our judgment in ITA No. 8462/M/2025, the instant appeal filed by the Revenue Department is liable to be dismissed and is accordingly dismissed.

In the result, ITA Nos. 8461 & 8462/M/2025 filed by the Assessee stands allowed, subject to verification as directed above, whereas ITA No. 8559/M/2025 stands dismissed.