DEVDARSHAN DIAMONDS PRIVATE LIMITED ,SURAT, GUJARAT vs. INCOME TAX OFFICER WAR 1(1)(2), SURAT, SURAT, GUJARAT

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ITA 1434/SRT/2025Status: DisposedITAT Surat22 October 2026AY 2012-137 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided on the issues as follows: Ground No. 2 was dismissed as it was not pressed. For Grounds 1, 3, and 4, the Tribunal noted that the addition was based on the statement of Shri Deepak Babel, director of M/s. Delight Diam Pvt. Ltd., which was later retracted. The Tribunal referred to the decision in Krishnaavtar J. Kabra HUF, which dealt with identical facts where the director's retraction was considered. The Tribunal held that if the assessee shows corresponding sales for purchases, and these sales are accepted by the revenue, the revenue cannot contradict the purchases. The Tribunal found that the AO and CIT(A) ignored these aspects. The decisions relied upon by the Revenue were deemed not applicable to the present facts. Therefore, the addition was not sustained. The Tribunal declined to interfere with the order of the CIT(A) in the case of Grishma Hemanshu Mody and Siddheshwar Impex Pvt. Ltd., which involved similar issues with M/s. Delight Diam Pvt. Ltd. and Shri Deepak Babel. The appeal of the assessee was partly allowed.

What were the facts?

The assessee, Devdarshan Diamonds Private Limited, is in appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2012-13. The original assessment finalized under Section 143(3) disallowed expenses of Rs. 75,000. The case was reopened under Section 148 based on an investigation report and the statement of Shri Deepak Babel, director of M/s. Delight Diam Private Limited, who allegedly admitted to providing accommodation entries. The assessee availed accommodation entries from M/s. Delight Diam Private Limited. The Assessing Officer made an addition of Rs. 4,00,000 for bogus/sham transactions and Rs. 2,000 under Section 69C for commission paid to obtain these entries. The CIT(A) dismissed the assessee's appeal.

What were the issues?

1. Whether, on the facts and circumstances, the CIT(A) was justified in affirming the addition made by the AO based solely on the retracted statement of Shri Deepak Babel, considering judicial precedents. 2. Whether the assessment order dated 29.11.2019 is valid in law, given it was passed without mentioning and generating a DIN, in contravention of CBDT circular dated 14.08.2019. 3. Whether, on the facts and circumstances, the CIT(A) was justified in affirming the addition of Rs. 4,00,000 for bogus purchases from M/s Delight Diam Private Limited. 4. Whether, on the facts and circumstances, the CIT(A) was justified in affirming the addition of Rs. 2,000 under Section 69C for commission paid for accommodation entries. Assessee's contentions: The addition is based on a retracted statement and no incriminating documents were found. The assessee provided details of its purchase and sale transactions, which were ignored. The sale made by M/s. Delight Diam Pvt. Ltd. was genuine, as held in the case of Krishnaavtar J. Kabra HUF. Ground No. 2 was not pressed. Revenue's contentions: The AO and CIT(A) orders are relied upon. The assessee made bogus purchases and benefited from accommodation entries provided by M/s Delight Diam Pvt. Ltd. Decisions in CIT vs Kanak Impex and PCIT vs. M/s Surya Impex were relied upon.

Which sections of the Income-tax Act were involved?

Section 69C,Section 143(3),Section 148

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI

For Respondent: Shri Ashish Kumar, Sr. DR
Pronounced: 22.10.2026

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER

ITA No.1434/SRT/2025 (निर्धारण वर्ा/Assessment Year: 2012-13) DEVDARSHAN DIAMONDS PRIVATE LIMITED, INCOME TAX OFFICER, 5/1089, OFFICE NO. 417, WARD 1(1)(2), NEW DTC CORPORATION, AAYAKAR BHAWAN, GHEE KANTA ROAD, HARIPURA, NEAR MAJURA GATE, Vs. SURAT - 395003, GUJARAT, OPP NEW CIVIL HOSPITAL, SURAT-395001, GUJARAT अपीलधर्थी Appellant प्रत्यर्थी Respondent

Permanent Account Number of Assessee: AADCD8917F

अपीलधर्थी द्वारा/Appellant represented by: Shri Shubham Jain, AR प्रत्यर्थी द्वारा/Respondent represented by: Shri Ashish Kumar, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 30.07.2026 घोषणा की तारीख / Date of pronouncement: 22.10.2026

O R D E R PER : SUCHITRA KAMBLE, J M: The appeal filed by the assessee is against the order passed by the Commissioner of Income Tax (Appeals), ADDL/JCIT, Mumbai [in short “CIT(A)”] dated 22.11.2025 for the Assessment Year (in short “AY”) 2012- 13.

2.

The assessee has raised the following grounds of appeal: “1. Whether on the facts and circumstances of the case, the Learned Commissioner of Income Tax - (Appeals) was justified in affirming the addition made by Learned Assessing Officer, solely based on the statement of Shri Deepak Babel which was later retracted, specifically in the light of the judicial precedents laid down by Hon'ble jurisdictional Surat ITAТ.

ITA No.1434/SRT/2025 – (A.Y 2012-13) DEVDARSHAN DIAMONDS PRIVATE LIMITED 2. Whether on the facts and circumstances of the case, the assessment order passed by the learned Assessing Officer dated 29.11.2019 in instant case, in contravention of the CBDT circular dated 14.08.2019, i.e. without mentioning and generating DIN in the assessment order, is valid in law. 3. Whether on the facts and circumstances of the case, the Learned Commissioner of Income Tax - (Appeals) was justified in affirming the addition of Rs. 4,00,000 made by the Learned Assessing Officer, to the income of the appellant, on account of bogus purchases made from M/s Delight Diam Private Limited. 4. Whether on the facts and circumstances of the case, the Learned Commissioner of Income Tax - (Appeals) was justified in affirming the addition of Rs. 2,000 made by the Learned Assessing Officer to the income of the appellant under section 69C of the Act on account of commission paid for obtaining the aforesaid accommodation entry.” 3. During the year under consideration, assessee was engaged in trading of diamonds. The assessee company filed original return of income for A.Y. 2012-13 on 29.09.2012 declaring total income at Rs.50,580/-. Assessment proceedings u/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”) were finalized on 21.10.2014 at Rs. 1,25,580/- by disallowing various expenses to the tune of Rs.75,000/-. As per information, investigation report based on documentary evidences and statement of director i.e. Shri Deepak Babel, concluded that the company, M/s. Delight Diam P. Ltd. was having several bank accounts in different banks and all the credit & debit transaction in the said bank accounts are not in the nature of real transactions of purchase & sale or loans. Further, the director stated that his company was indulged in providing accommodation entry. The assessee was one of the beneficiaries which availed accommodation entry from M/s. Delight Diam P. Ltd. Accordingly, after recording reasons for reopening for AY 2012-13 and obtaining approval from the Competent Authority, the case of the company was reopened for A.Y. 2012-13 by issuing notice u/s. 148 of the Act dated 29.03.2019. In response to notice u/s. 148 of the Act, the assessee filed return of income on 25.04.2019 declaring total income at Rs. 50,580/-. The reasons for reopening of the assessment were provided to the assessee. The objections filed by the assessee against the reopening of the assessment were disposed

ITA No.1434/SRT/2025 – (A.Y 2012-13) DEVDARSHAN DIAMONDS PRIVATE LIMITED of by passing speaking order on 23.08.2019. The assessee filed reply to show cause notice dated 21.11.2019. During the reopening proceedings, notice u/s. 133(6) of the Act was issued to M/s. Delight Diam P. Ltd. to examine the facts of the case, but no reply was received. The Assessing Officer made addition of Rs.4,00,000/- as bogus/sham transactions. Further, the Assessing Officer held that to obtain this accommodation entry of share capital & share premium, the assessee incurred expenses in the nature of commission @ 0.5% on total accommodation entry received. The said commission @ 0.5% i.e. Rs.2,000/- was treated as unexplained expenditure u/s. 69C of the Act.

4.

Being aggrieved by the assessment order, the assessee filed appeal before CIT(A). The CIT(A) dismissed the appeal.

5.

The Ld. Authoritised Representative (in short “the Ld. AR”) submitted that the addition is solely based on the statement of Shri Deepak Babel which was later retracted, specifically in the light of the various judicial precedents. The Ld. AR relied upon following decisions: i) ACIT vs. Krishnaavtar J. Kabra (HUF) (2015) 170 taxmann.com 502 (Ahd.-Tri.) ii) Raj Enterprises vs. DCIT (ITA No. 1166/Ahd/2016 A.Y. 2009-10 order dt. 31.03.2022) iii) Grishma Hemanshu Mody vs. CIT(A) (ITA 895/Mum/2023 order dt. 25.10.2023) iv) Smt. Pooja Jain L/H of Late Shri Gautam Bhanwarlal Jain vs. DCIT (ITA Nos. 885 to 891/Mum/2019 order dt. 31.03.2023)

The Ld. AR submitted that no incriminating documents were found against the assessee. In fact, retracted statement does not have evidentiary value as the assessee provided the details of its transactions of purchase and sale which were totally ignored by the Assessing Officer and the CIT(A). In fact, the sale made by M/s. Delight Diam Pvt. Ltd. was found genuine as held by

ITA No.1434/SRT/2025 – (A.Y 2012-13) DEVDARSHAN DIAMONDS PRIVATE LIMITED the Tribunal in case of Krishnaavtar J. Kabra HUF (supra). The Ld. AR did not press ground no. 2.

6.

The Ld. Departmental Representative (in short “Ld. DR”) relied upon the Assessment Order and order of the CIT(A). The Ld. DR also emphasized that the bogus purchase by the assessee and the assessee is a beneficial of accommodation entry in respect of the business conducted by M/s Delight Diam Pvt. Ltd. The Ld. DR relied upon the decision of Hon'ble Bombay High Court in case of CIT vs Kanak Impex (ITA No. 791 of 2021 order dt. 3.3.2025) & decision of Hon'ble Gujarat High Court in case of PCIT vs. M/s Surya Impex (2023) 451 ITR 395.

7.

We have heard both the parties and perused all the relevant material available on record. Gr. No. 2 is not pressed hence dismissed. As regards Ground No. 1, 3 & 4, the Ld. AR submitted that the addition is based on statement which was retracted. From the perusal of record, it is clearly mentioned in para 5.4 of the assessment order that "Since, from the statement recorded on oath of Shri Deepak Kailash Kabra Babel, director of assessee company, it was established that M/s. Delight Diam Pvt. Ltd. was involved in accommodation entry." But the said statement was later on retracted, this fact was not mentioned by the Assessing Officer. Besides that, the decision submitted by the Ld. AR that of Ahmedabad Tribunal in case of Krishnaavtar Kabra (supra) the Tribunal held as under:

“10. We have heard the arguments of both the parties and perused the records. The undisputable facts emanate from the records before us are that Shri Deepak Babel has given a statement on 05.08.2018 about the nature of accommodation entries provided and retracted the same on 28.03.2018 before the Revenue Authorities. This fact has not been considered by the Assessing Officer or mentioned anywhere in the proceedings taken up by the Revenue Authorities. Further, it is an undisputable fact that the assessee has received amounts from two entities, namely M/s. Isabelle Tours N Travels and M/s. Shreeji Overseas (I) Pvt. Ltd., against the diamonds sold. It cannot be expected that these two entities have paid amounts to the assessee without receiving any goods - whether it be diamonds or otherwise. Hence, such diamonds have been duly purchased from M/s. Delight Diam Pvt. Ltd. Even if the argument is considered, there were certain goods which were purchased by the

ITA No.1434/SRT/2025 – (A.Y 2012-13) DEVDARSHAN DIAMONDS PRIVATE LIMITED assessee for Rs.3.53 crores which in turn have been sold to two entities at Rs.3.56 crores, then this leads to a situation where the Revenue has accepted the sales and, as a natural corollary, there have been purchases - whether from M/s. Delight Diam Pvt. Ltd. or any other parties. If there were no purchases, then there would be no corresponding sales; then the income of the assessee will be reduced as there is some margin towards the sales and purchase difference and the same has to be taken as profit. But, in a situation where the corresponding sales have been accepted, it cannot be said that there were no purchases.

11.

In the instant case, the issue of cross-examination does not arise as the assessee has also not attended the office of the Revenue Authorities, though Shri Deepak Babel has also not attended on the said date. In case both the purchase and sales have been treated as bogus, then the difference amount of Rs.2,81,914/- is to be treated as the amount earned by the assessee after receiving the money from two parties namely M/s. Isabelle Tours N Travels and M/s. Shreeji Overseas (I) Pvt. Ltd., and sending it to a third party namely M/s. Delight Diam Pvt. Ltd. In that way, the assessee is acted as a conduit for transferring money through his account. The Revenue has failed to undertake any inquiry to prove that the assessee is operating as a conduit for transfer of money to various persons. The Revenue has also not disputed that the sales parties were bogus to buttress the arguments that the assessee is acting as a conduit for transfer of money. The Assessing Officer has held that the assessee has inflated the purchases by taking accommodation entries to reduce the legitimate tax liability (para 4.5 of the AO). If that is the case, the contention of the Assessing Officer cannot be accepted that, in order to sell goods worth Rs.3.56 crores the assessee has inflated the purchases by Rs. 3.51 crores. Further, we find that there was a total of 10 transactions entered by the assessee with regard to the sale and purchase of goods. All the 10 transactions involved selling of goods/diamonds which has been purchased and the details are as under:-

ITA No.1434/SRT/2025 – (A.Y 2012-13) DEVDARSHAN DIAMONDS PRIVATE LIMITED

12.

Hence, keeping in view the facts before us and the order of the Co-

ordinate Bench of the Tribunal in the case of Grishma Hemanshu Mody Vs. CIT(A) in ITA No. 895/Mum/2023 (supra), and in the case of Siddheshwar Impex Pvt. Ltd. in ITA No. 153/Mum/2024 wherein the issue of bogus purchases pertaining to M/s. Delight Diam Pvt. Ltd. involving Shri Deepak Babel have been adjudicated, we decline to interfere with the order of the Ld. CIT(A).

13.

In the result, the appeal of the Revenue is dismissed.”

ITA No.1434/SRT/2025 – (A.Y 2012-13) DEVDARSHAN DIAMONDS PRIVATE LIMITED Thus, it is clearly the identical facts as the director of assessee’s company retraction was taken on record and finding to that extent was given. Therefore in present case, the assessee company has shown corresponding sale to the purchases and once sales accepted the revenue cannot contradict purchase which was established by assessee. These aspects were totally ignored by the AO & CIT(A). The decision relied by Ld. DR of the Hon'ble High Court will not be applicable in present facts of the case. Thus, the addition does not sustain.

8.

In result appeal of the assessee is partly allowed.

Order pronounced in the open court on 22.10.2026

Sd/- Sd/- (B.M. BIYANI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat; Dated: 22.10.2026 * Kishore, Sr. P.S. Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Surat 5. Guard File By order,

Assistant Registrar/Sr.PS/PS ITAT, Surat Bench

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