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Facts
The assessee, engaged in diamond trading, challenged an addition of Rs. 1,26,874/- made by the Assessing Officer (AO) on account of purchases from M/s. AadiImpex, alleged to be an accommodation entry provider. The assessee provided evidence like invoices and bank statements to support the genuineness of purchases.
Held
The Tribunal noted that while the AO relied on an Investigation Wing report alleging AadiImpex provided accommodation entries, the assessee had prima facie discharged their onus by providing supporting documents. The AO made the addition based on an average gross profit ratio. Considering similar transactions in other cases where disallowances were restricted, and the AO's own addition was already limited, the Tribunal found no reason to further reduce the disallowance.
Key Issues
Whether the addition made by the AO on account of purchases from AadiImpex, alleged to be for accommodation entries, was justified despite the assessee providing supporting evidence, and whether the disallowance is to be restricted.
Sections Cited
143(3), 153, 147, 148, 254(1)
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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of Ld. CIT(A)/ADDL/JCIT(A)-8, Delhidated 30.06.2024 for assessment year (AY)
2014-15. The assessee has raised following grounds of appeal:
“1. (i) The Ld. AddI/JCIT (A) 8 Delhi his erred in upholding additionof Rs. 1,26,874/- being 3.52% of Rs.36,04,387/- purchase made from M/s. AadiImpex. (ii) Your appellant prays that the said addition made by the Ld. A.O. may be deleted.
2. (i) The Ld. Assessing Officer has failed to pass order u/s 143(3) within the prescribed time limit as laid out u/s 153 of the Income Tax Act. 1961/A (ii) Your appellant prays that the said assessment in question be considered as barred by limitation and hence void-ab-initio.
3. The Ld. Assessing Officer has erred both in law and facts in rejecting the appellant's submission objecting the proceedings and issuance of notice u/s 148 of the Income Tax Act, 1961 on the basis of non-existent/ incorrect reasons so recorded for re-opening for the Assessment Year 2014-15. (i) The proceedings initiated u/s 147 and then notice issued u/s 148 is wrong, bad-in-law, arbitrary, without jurisdiction and against the facts and circumstances of the case.
(ii) No valid material and ground justifying the reason recorded. The reasons are wholly, irrelevant, general, vague and wrong. (iii) Reasons recorded based on borrowed satisfaction. (iv) Your appellant prays that on the facts and circumstances of the case and in law, the notice u/s 148 by Ld. Assessing Officer may be considered as void- ab-initio.
4. The Appellant craves leave to add, amend, alter or delete the above grounds of appeal.”
Rival submissions of both the parties have been heard and record perused.
The assessee has raised grievance against the addition on account of disallowance of purchases as well as time period for passing assessment order under section 153 and validity of reopening under section 147 and issuance of notice under section 148. However, at the time of making submission, the learned authorised representative (ld AR) of the assessee has not made any submission either against the time period for passing assessment order under section 153 or against the validity of reopening under section 147 or issuance of notice under section 148. Therefore, such grounds of appeal are treated as not pressed and dismissed. Ground no. 1 relates to restricting the addition to the extent of 3.52% of purchases of Rs. 36,04,383/- shown from Aadi Impex. The ld. AR of the assessee submits that assessee is a partner in a firm Ketval Gems, who was engaged in business of trading of diamonds. The assessing officer made addition / disallowance of certain percentage of purchases shown from Aadi Impex. The assessing officer made addition on the allegation based on information from Investigation Wing that Aadi Impex is a fictitious entity managed in providing accommodation entry. As per Aadi Impex is an entity managed by Rajendra Jain and his group. Rajendra Jain was allegedly providing accommodation entry to various traders. During assessment, the assessee furnished complete evidence to substantiate purchases. The diamond is a precious item and was supplied on the basis of invoices. Payments were made through banking channel. The assessing officer made addition of gross profit ratio of average of 3 years. The assessee has already shown profit of such purchases. The sale of assessee was not disputed. The addition on the basis of gross profit ratio is unjustified when the assessee has proved purchases and sale is not disputed. The ld. AR of the assessee submits that in assessee’s own case for A.Y. 2010-11 to 2013-14 in 2001, 2003, 2132/Mum/2019 respectively, the similar addition was deleted in order dated 08.10.2020.
On the other hand, the learned Senior Departmental Representative (ld. Sr.
DR) for the revenue submits that assessment in case of assessee was completed on 30.12.2017. The assessing officer while passing the assessment order made addition on account of certain purchases shown from Rajendra Jain and others. On Rajendra Jain and others, a search action was carried out by Investigation Wing on 03.10.2013 wherein it was found that Rajendra Jain and his associate were indulging in providing accommodation entry. The assessee has shown purchases of diamonds from AadiImpex, which was managed by Rajendra Jain and his associate. Aadi Impex was used for providing accommodation entry. The assessing officer on the basis of report of Investigation Wing made addition by disallowing 100% of purchases shown from Aadi Impex. Though the assessee made his claim before assessing officer by showing sale register, purchase register and invoices and claimed that payments were made through banking channel.
However, fact remains the same that department was having sufficient material to prove that purchases shown from Aadi Impex is nothing but accommodation entry to inflate the expenses. On the reliance of decision of Tribunal in assessee’s own case for earlier years, the ld. Sr. DR for the revenue submits that each year has to be considered separate and independent and principle of res-judicate is not applicable in income tax proceedings.
I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I find that during the assessment, the assessing officer mainly relied upon the report of Investigation Wing that Aadi Impex from whom the assessee has shown purchases of Rs. 36,04,387/- is entry provider managed by Rajendra Jain and his group. The assessee in response to show cause notice submitted that their purchases are genuine. The assessee furnished delivery challan, tax invoices, stock register and ledger account with bank statement. The assessing officer despite receiving such evidence has not made further investigation and simply held that onus is live on the assessee that purchases are genuine. The onus can never be negative. Once, the assessee has prima facie discharged his onus, the onus ship on the Assessing Officer to prove otherwise or to bring adverse material. I find that assessing officer made addition on the basis of average gross profit of three years.
Considering the fact that on similar type of transaction from the entity managed by Rajendra Jain, Sohanlal Jain or Dharmi Chand Jain the disallowances were restricted to 6% on the principle that only profit element embedded in such type of transaction to avoid the possibility of revenue leakage can be brought to tax instead of taxing the entire transaction.
Majority of Surat Bench decision was similar addition/disallowance was authored by undersigned. Thus, taking a consistent view, I find that assessing officer while passing the assessment order made addition of 3.52% only of the impugned purchases 36,04,387/-, which was shown from Aadi Impex. This SMC Bench in case of Agrawal Ramesh Murlidhar HUF vs ITO in , which was also heard on 17.07.2025 and decided vide order dated 05.08.2025 restricted similar addition/disallowance to the extent of 6% and remaining disallowances was deleted. However, in the present case, the AO has merely made addition only to the extent of 3.52% of purchases, therefore, I do not find any reason to further reduce the disallowance of such disputed purchases. In the result, ground no. 1 of the appeal is also dismissed.
In the result, the appeal of the assessee is dismissed.