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Facts
During a search and seizure operation, it was revealed that the assessee and associates were involved in providing accommodation entries through bogus transactions. The assessee had made purchases aggregating to Rs. 82,68,292/- from entities controlled by Shri Bhanwarlal Jain. The Assessing Officer treated these purchases as unexplained investment under Section 69 of the Act and made a 100% addition. The CIT(A) restricted the disallowance to 6% of the impugned purchases.
Held
The Tribunal noted that the CIT(A) followed an earlier decision where a 6% disallowance was upheld for bogus purchases, assuming procurement from the grey market. However, the Tribunal considered the recent judgment of the Bombay High Court in Kanak Impex (India) Ltd. v. ACIT, which emphasized the need to examine the source of funds for such purchases. The Tribunal found that the assessee failed to provide a credible explanation for the source of funds for the alleged grey market purchases.
Key Issues
Whether the CIT(A) erred in restricting the addition for bogus purchases to 6% instead of the entire amount, and whether the assessee had discharged the onus to prove the genuineness and source of purchases.
Sections Cited
132, 148, 148A, 69, 68, 69C
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Income Tax Appellate Tribunal, SURAT BENCH “DB” SURAT
Before: SHRI SANDEEP GOSAIN & SHRI OM PRAKASH KANT
ORDER PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 20.02.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2014-15, raising following grounds: a) On the facts and circumstances of the case and law, the ld.CIT(A) has erred in deleting the addition of Rs.82,70,092/- made on account of bogus purchases ignoring the fact that these purchases are sham transactions fabricated through bogus paper concerns of Shri Bhanwarlal Jain Group entities which were engaged in Shri Bhanwarlal Jain Group entities which were engaged in Shri Bhanwarlal Jain Group entities which were engaged in providing accommodation entries. providing accommodation entries. b) On the facts and circu b) On the facts and circumstances of the case and law, the ld. mstances of the case and law, the ld. CIT(A) is correct in not considering that the amount claimed as CIT(A) is correct in not considering that the amount claimed as CIT(A) is correct in not considering that the amount claimed as payment to hawala dealers was in effect suppression of profits by payment to hawala dealers was in effect suppression of profits by payment to hawala dealers was in effect suppression of profits by obtaining bogus purchase bills which was liable to be added to the obtaining bogus purchase bills which was liable to be added to the obtaining bogus purchase bills which was liable to be added to the income of the Assesse income of the Assessee. c) On the facts and circumstances of the case and in law, the Ld. c) On the facts and circumstances of the case and in law, the Ld. c) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the judgment of Gujarat High CIT(A) has erred in not considering the judgment of Gujarat High CIT(A) has erred in not considering the judgment of Gujarat High Court in the case of N.K. Industries Ltd. vs. DCIT in TA No. 240 to Court in the case of N.K. Industries Ltd. vs. DCIT in TA No. 240 to Court in the case of N.K. Industries Ltd. vs. DCIT in TA No. 240 to 242 of 2003 which has been upheld by the Hon'ble Apex 242 of 2003 which has been upheld by the Hon'ble Apex 242 of 2003 which has been upheld by the Hon'ble Apex Court in Special Leave to Appeal No. 769 of 2017 dated 16.01.2017, Special Leave to Appeal No. 769 of 2017 dated 16.01.2017, Special Leave to Appeal No. 769 of 2017 dated 16.01.2017, wherein the Hon'ble High Court decided that 100% of purchases wherein the Hon'ble High Court decided that 100% of purchases wherein the Hon'ble High Court decided that 100% of purchases from bogus parties was liable to be added in the hands of the from bogus parties was liable to be added in the hands of the from bogus parties was liable to be added in the hands of the Assessee, reversing the order passed by the Hon'ble ITAT that Assessee, reversing the order passed by the Hon'ble ITAT that Assessee, reversing the order passed by the Hon'ble ITAT that restricted addition to 25%, holding that such restriction goes against tricted addition to 25%, holding that such restriction goes against tricted addition to 25%, holding that such restriction goes against the principles of Sections 68 and 69C of Income tax Act. the principles of Sections 68 and 69C of Income tax Act. the principles of Sections 68 and 69C of Income tax Act. d) On the facts and circumstances of the case and law, the ld. d) On the facts and circumstances of the case and law, the ld. d) On the facts and circumstances of the case and law, the ld. CIT(A) has erred in not appreciating that the judgment of Calcutta CIT(A) has erred in not appreciating that the judgment of Calcutta CIT(A) has erred in not appreciating that the judgment of Calcutta High Court of in the case of PCIT vs. Premlata Tekriwal (143 High Court of in the case of PCIT vs. Premlata Tekriwal (143 High Court of in the case of PCIT vs. Premlata Tekriwal (143 taxmann.com 173) involving similar issue of purchase of bogus taxmann.com 173) involving similar issue of purchase of bogus taxmann.com 173) involving similar issue of purchase of bogus concern to suppress profits wherein the court held that "since it was concern to suppress profits wherein the court held that "since it was concern to suppress profits wherein the court held that "since it was established that expenditure was unexplained/bogus, entire established that expenditure was unexplained/bogus, entire established that expenditure was unexplained/bogus, entire amount of bogus expenditure was to be added to income of nt of bogus expenditure was to be added to income of nt of bogus expenditure was to be added to income of Assessee". e) On the facts and circumstances of the case and law, the ld. CIT(A) e) On the facts and circumstances of the case and law, the ld. CIT(A) e) On the facts and circumstances of the case and law, the ld. CIT(A) has erred in not appreciating that he is having co has erred in not appreciating that he is having co-terminus power to terminus power to conduct enquiries and without conducting any enquiry conduct enquiries and without conducting any enquiry conduct enquiries and without conducting any enquiry with the investigation wing with regard to veracity of the claim of the investigation wing with regard to veracity of the claim of the investigation wing with regard to veracity of the claim of the assessee he has accepted the version of the assessee. assessee he has accepted the version of the assessee. f) On the basis of the facts and circumstances of the case and in f) On the basis of the facts and circumstances of the case and in f) On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assess law, the Ld. CIT(A) ought to have upheld the order of the Assess law, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. g) It is therefore prayed that the order of the Ld. CIT(A) may kindly g) It is therefore prayed that the order of the Ld. CIT(A) may kindly g) It is therefore prayed that the order of the Ld. CIT(A) may kindly be set aside and that of the Assessing Officer be set aside and that of the Assessing Officer be restored. restored.
2. Briefly stated, facts of the case are that Briefly stated, facts of the case are that a search and seizure a search and seizure action under section 132 of the Income action under section 132 of the Income-tax Act, 1961 (hereinafter , 1961 (hereinafter referred to as “the Act” “the Act”) was carried out in the case of ) was carried out in the case of Shri Bhanwarlal Jain and others Bhanwarlal Jain and others. The investigation revealed that the said . The investigation revealed that the said individual and his associates were engaged in the pernicious individual and his associates were engaged in the pernicious individual and his associates were engaged in the pernicious practice of providing accommodation entries practice of providing accommodation entries in the guise of bogus in the guise of bogus sales and purchase transactions through various concerns sales and purchase transactions through various concerns sales and purchase transactions through various concerns controlled and managed by them. controlled and managed by them. It was unearthed during the It was unearthed during the course of the said proceedings that the assessee had, during the course of the said proceedings that the assessee had, during the course of the said proceedings that the assessee had, during the relevant relevant relevant previous previous previous year, year, year, made made made purchases purchases purchases aggregating aggregating aggregating to t t from two such concerns under the control of Shri ₹82,68,292/– from two such concerns under the control of Shri from two such concerns under the control of Shri Bhanwarlal Jain, namely Bhanwarlal Jain, namely M/s Amit Diamond and and M/s Laxmi Diamond. In view of information, the Assessing Officer recorded In view of information, the Assessing Officer recorded In view of information, the Assessing Officer recorded reasons to believe that income escaped assessment and issued reasons to believe that income escaped assessment and issued reasons to believe that income escaped assessment and issued notice u/s 148 of the Act on 22.04.2021 148 of the Act on 22.04.2021, 2.1 Consequent to the judgment of the Hon’ble Supreme Court in Consequent to the judgment of the Hon’ble Supreme Court in Consequent to the judgment of the Hon’ble Supreme Court in Union of India & Ors. v. Ashish Agarwal [Civil Appeal No. 3005 of [Civil Appeal No. 3005 of Union of India & Ors. v. Ashish Agarwal 2022, dated 04.05.2022], the said notice stood transmuted into one 2022, dated 04.05.2022], the said notice stood transmuted into one 2022, dated 04.05.2022], the said notice stood transmuted into one deemed to have been issued un deemed to have been issued under section 148A(b) of the Act. der section 148A(b) of the Act. Pursuant thereto, an order under section 148A(d) was passed on Pursuant thereto, an order under section 148A(d) was passed on Pursuant thereto, an order under section 148A(d) was passed on 29.07.2022, followed by the issuance of notice under section 148 on 29.07.2022, followed by the issuance of notice under section 148 on 29.07.2022, followed by the issuance of notice under section 148 on the same date.
2.2 During the reassessment proceedings, the assessee furnished During the reassessment proceedings, the assessee furnished During the reassessment proceedings, the assessee furnished audit reports, bank statements, export invoices, purchase bills, bank statements, export invoices, purchase bills, bank statements, export invoices, purchase bills, sales registers, and ledger accounts, asserting that all payments sales registers, and ledger accounts, asserting that all payments sales registers, and ledger accounts, asserting that all payments had been effected through recognised banking channels. The had been effected through recognised banking channels. The had been effected through recognised banking channels. The Assessing Officer, however, discerned that the documents so Assessing Officer, however, discerned that the documents so Assessing Officer, however, discerned that the documents so produced constituted produced constituted no more than a paper façade, unsupported by , unsupported by any evidence of actual trading activity. The findings of the any evidence of actual trading activity. The findings of the any evidence of actual trading activity. The findings of the investigation into the Bhanwarlal Jain group, inter alia, revealed investigation into the Bhanwarlal Jain group, inter alia, revealed investigation into the Bhanwarlal Jain group, inter alia, revealed that no stock or genuine business operations were traceable in the that no stock or genuine business operations were traceable in the that no stock or genuine business operations were traceable in the alleged supplier entities. The assessee also did not rebut or seek to entities. The assessee also did not rebut or seek to entities. The assessee also did not rebut or seek to controvert the statements recorded from Shri Bhanwarlal Jain and controvert the statements recorded from Shri Bhanwarlal Jain and controvert the statements recorded from Shri Bhanwarlal Jain and his associates.
2.3 The Assessing Officer, being thus unconvinced of the The Assessing Officer, being thus unconvinced of the The Assessing Officer, being thus unconvinced of the genuineness of the transactions, treated the entire sum of genuineness of the transactions, treated the entire sum of genuineness of the transactions, treated the entire sum of ₹82,68,292/– as unexplained investment under section 69 of the as unexplained investment under section 69 of the as unexplained investment under section 69 of the Act and made an addition of 100% of the purchases so found to be Act and made an addition of 100% of the purchases so found to be Act and made an addition of 100% of the purchases so found to be fictitious..
On appeal, the Ld. CIT(A), following the coordinate Bench On appeal, the Ld. CIT(A), following the coordinate Bench On appeal, the Ld. CIT(A), following the coordinate Bench decision of this Tribunal in the assessee’s own case for Assessment decision of this Tribunal in the assessee’s own case for Assessment decision of this Tribunal in the assessee’s own case for Assessment Year 2012–13, restricted the disallowance to 6% of the impugned 13, restricted the disallowance to 6% of the impugned 13, restricted the disallowance to 6% of the impugned purchases, which worked out to ₹4,96,205/–, holding that the purchases, which worked out to , holding that the purchases, though not genuine, represented only inflation of ases, though not genuine, represented only inflation of ases, though not genuine, represented only inflation of purchase cost rather than the entirety of the transaction being purchase cost rather than the entirety of the transaction being purchase cost rather than the entirety of the transaction being fictitious.
Aggrieved thereby, the Revenue has come up in appeal before Aggrieved thereby, the Revenue has come up in appeal before Aggrieved thereby, the Revenue has come up in appeal before us, contending that the Ld. CIT(A) erred in restricting the addition us, contending that the Ld. CIT(A) erred in restricting the a us, contending that the Ld. CIT(A) erred in restricting the a and that the entire sum ought to have been disallowed, having and that the entire sum ought to have been disallowed, having and that the entire sum ought to have been disallowed, having regard to the nature of the evidence and the findings recorded in regard to the nature of the evidence and the findings recorded in regard to the nature of the evidence and the findings recorded in the search proceedings. the search proceedings.
We have heard the rival submissions of the Ld. Departmental We have heard the rival submissions of the Ld. Departmental We have heard the rival submissions of the Ld. Departmental Representative and the Ld. Couns Representative and the Ld. Counsel for the assessee, and have el for the assessee, and have carefully perused the record. The issue that falls for our carefully perused the record. The issue that falls for our carefully perused the record. The issue that falls for our consideration is whether, in the facts and circumstances of the consideration is whether, in the facts and circumstances of the consideration is whether, in the facts and circumstances of the present case, the addition on account of bogus purchases ought to present case, the addition on account of bogus purchases ought to present case, the addition on account of bogus purchases ought to be restricted to a percentage of such be restricted to a percentage of such purchases, or whether the purchases, or whether the entire amount is liable to be brought to tax. entire amount is liable to be brought to tax.
5.1 It is not in dispute that the Ld. CIT(A) has followed the It is not in dispute that the Ld. CIT(A) has followed the It is not in dispute that the Ld. CIT(A) has followed the decision of the Tribunal in the assessee’s own case for Assessment decision of the Tribunal in the assessee’s own case for Assessment decision of the Tribunal in the assessee’s own case for Assessment Year 2012–13, wherein the Tribunal, placing reliance u 13, wherein the Tribunal, placing reliance upon its 13, wherein the Tribunal, placing reliance u earlier decision in earlier decision in Pankaj K. Chaudhary v. ITO Pankaj K. Chaudhary v. ITO [ITA No. 1152/Ahd/2017, 1152/Ahd/2017, 1152/Ahd/2017, dated dated dated 27.09.2021], 27.09.2021], 27.09.2021], had had had restricted restricted restricted such such such disallowance to 6% of the impugned purchases, on the premise that disallowance to 6% of the impugned purchases, on the premise that disallowance to 6% of the impugned purchases, on the premise that the assessee might have procured the goods from the grey market the assessee might have procured the goods from the grey market the assessee might have procured the goods from the grey market at a lower rate, thereby earning a margin of approximately 6%. er rate, thereby earning a margin of approximately 6%.The er rate, thereby earning a margin of approximately 6%. The relevant finding of the Tribunal is reproduced as under: The relevant finding of the Tribunal is reproduced as under: The relevant finding of the Tribunal is reproduced as under:
16. We note that assessing officer made addition at the rate of 16. We note that assessing officer made addition at the rate of 16. We note that assessing officer made addition at the rate of 100% of bogus purchases. On appeal, by assessee, the Id. 100% of bogus purchases. On appeal, by assessee, the Id. 100% of bogus purchases. On appeal, by assessee, the Id. CIT(A) has restr CIT(A) has restricted the addition to 25% of bogus purchases. icted the addition to 25% of bogus purchases. Now, the assessee is in appeal before us and argued that Now, the assessee is in appeal before us and argued that Now, the assessee is in appeal before us and argued that addition sustained by the Id. CIT(A) at the rate of 25% of bogus addition sustained by the Id. CIT(A) at the rate of 25% of bogus addition sustained by the Id. CIT(A) at the rate of 25% of bogus purchases should be deleted as the assessee had submitted purchases should be deleted as the assessee had submitted purchases should be deleted as the assessee had submitted purchase bills and vouchers an purchase bills and vouchers and all transactions were through d all transactions were through banking channels. However, the main grievance of the Revenue banking channels. However, the main grievance of the Revenue banking channels. However, the main grievance of the Revenue is that the addition made by the Assessing Officer at the rate of is that the addition made by the Assessing Officer at the rate of is that the addition made by the Assessing Officer at the rate of 100% of bogus purchases, should be upheld. 100% of bogus purchases, should be upheld. 17. However, we note that the issue under considerat However, we note that the issue under consideration is However, we note that the issue under considerat squarely covered by the judgment of the Coordinate Bench of squarely covered by the judgment of the Coordinate Bench of squarely covered by the judgment of the Coordinate Bench of this Tribunal in the case of Pankaj K. Chaudhary (supra), this Tribunal in the case of Pankaj K. Chaudhary (supra), this Tribunal in the case of Pankaj K. Chaudhary (supra), wherein the Tribunal held that addition should be sustained at wherein the Tribunal held that addition should be sustained at wherein the Tribunal held that addition should be sustained at the rate of 6% of bogus purchases. Therefore, we direct the the rate of 6% of bogus purchases. Therefore, we direct the the rate of 6% of bogus purchases. Therefore, we direct the Assessing Officer to make the addition at the rate of 6% of g Officer to make the addition at the rate of 6% of g Officer to make the addition at the rate of 6% of bogus purchases. bogus purchases.
17. In the result, appeal filed by the assessee (in ITA No.
17. In the result, appeal filed by the assessee (in ITA No.
In the result, appeal filed by the assessee (in is partly allowed, whereas the appeal filed by 21/SRT/2022) is partly allowed, whereas the appeal filed by 21/SRT/2022) is partly allowed, whereas the appeal filed by the Revenue (in the Revenue (in ITA No. 38/SRT/2022), is dismissed. dismissed. 5.2 We are of opinion that o pinion that once, the Tribunal has restricted the nce, the Tribunal has restricted the addition to the extent of 6% of the bogus purchases, it makes clear addition to the extent of 6% of the bogus purchases addition to the extent of 6% of the bogus purchases that the purchases in dispute were not genuine and addition for the that the purchases in dispute were not genuine and addition for the that the purchases in dispute were not genuine and addition for the 6% has been restricted 6% has been restricted to compensate assuming that that the assessee had purchased such goods from the grey market at lower rate such goods from the grey market at lower rate such goods from the grey market at lower rate which benefited to the assessee @ 6% following the contemporary benefited to the assessee @ 6% following the contemporary benefited to the assessee @ 6% following the contemporary precedents on the issue, t precedents on the issue, though this entire 6% is based on the hough this entire 6% is based on the estimate only. However, we are constrained to observe that the said However, we are constrained to observe that the said However, we are constrained to observe that the said rationale, though widely adopted in similar matters, has now been nale, though widely adopted in similar matters, has now been nale, though widely adopted in similar matters, has now been subjected to authoritative reconsideration by the Hon’ble Bombay subjected to authoritative reconsideration by the Hon’ble Bombay subjected to authoritative reconsideration by the Hon’ble Bombay High Court in Kanak Impex (India) Ltd. v. ACIT Kanak Impex (India) Ltd. v. ACIT Kanak Impex (India) Ltd. v. ACIT [(2025) 172 Taxmann.com 283 (Bom), dated 03.03.2025]. The Hon’ble Court, in Taxmann.com 283 (Bom), dated 03.03.2025]. The Hon’ble Court, in Taxmann.com 283 (Bom), dated 03.03.2025]. The Hon’ble Court, in its luminous inous inous exposition, exposition, exposition, has has has examined examined examined the the the mechanics mechanics mechanics of of of accommodation entries and observed that the genuineness of the accommodation entries and observed that the genuineness of the accommodation entries and observed that the genuineness of the purchases cannot be confined to the mere existence of sales or purchases cannot be confined to the mere existence of sales or purchases cannot be confined to the mere existence of sales or export invoices, but must necessarily encompass the source from export invoices, but must necessarily encompass the export invoices, but must necessarily encompass the which the alleged purchases purchases have been financed. The Hon’ble High The Hon’ble High Court has eloquently elucidated that when an assessee procures Court has eloquently elucidated that when an assessee procures Court has eloquently elucidated that when an assessee procures goods ostensibly from paper entities while effecting corresponding goods ostensibly from paper entities while effecting corresponding goods ostensibly from paper entities while effecting corresponding export sales, the inference is irresistible that the goods must have export sales, the inference is irresistible that the goods must have export sales, the inference is irresistible that the goods must have been procured from the grey market, and such procurement would, red from the grey market, and such procurement would, red from the grey market, and such procurement would, in all likelihood, have been financed through unaccounted means. in all likelihood, have been financed through unaccounted means. in all likelihood, have been financed through unaccounted means. The Hon’ble Court further observed that unless the assessee The Hon’ble Court further observed that unless the assessee The Hon’ble Court further observed that unless the assessee discharges the initial onus cast by law by demonstrating the source discharges the initial onus cast by law by demonstrating the source discharges the initial onus cast by law by demonstrating the source of such grey-market purchases and the mode of their financing, the market purchases and the mode of their financing, the market purchases and the mode of their financing, the entirety of the purchase amount may, in appropriate cases, be entirety of the purchase amount may, in appropriate cases, be entirety of the purchase amount may, in appropriate cases, be treated as unexplained. The relevant passage of the Hon’ble Court’s treated as unexplained. The relevant passage of the Hon’ble Court’s treated as unexplained. The relevant passage of the Hon’ble Court’s reasoning, which we respectfully reproduce, underscores the reasoning, which we respectfully reproduce, underscores the reasoning, which we respectfully reproduce, underscores the principle:
The short issue which requires adjudication in this appeal is 13. The short issue which requires adjudication in this appeal is whether 13. The short issue which requires adjudication in this appeal is additions of Rs.20,06,80,150/- made by the AO on account of the failure additions of Rs.20,06,80,150/ account of the failure of the respondent-assessee to prove the assessee to prove the genuineness of the purchases genuineness of the purchases can be said to be valid. can be said to be valid.
Before we adjudicate the issue, it is relevant to understand e adjudicate the issue, it is relevant to understand the e adjudicate the issue, it is relevant to understand concept of accommodation entry by an example. Mr. A has concept of accommodation entry by an example. Mr. A has unaccounted concept of accommodation entry by an example. Mr. A has cash, which he uses to buy goods for selling. However, the sales are cash, which he uses to buy goods for selling. However, the sales are made by cheque. Since the goods are purchased with unaccounted made by cheque. Since the goods are purchased with unaccounted money, they cannot be recorded in the books of account. Therefore, the money, they cannot be recorded in the books of account. Therefore, the modus operandi to bring such purchases into the books of account is that modus operandi to bring such purchases into the books of account is that Mr A will contact Mr B, an accommodation entry provider. Mr B would Mr A will contact Mr B, an accommodation entry provider. Mr B would issue a paper invoice in the name of Mr A, invoice in the name of Mr A, and Mr A would issue a and Mr A would issue a cheque to Mr B to show that the purchases have been made by cheque B to show that the purchases have been made by cheque B to show that the purchases have been made by cheque from Mr B. After deducting certain commission, Mr B would then B. After deducting certain commission, Mr B would then B. After deducting certain commission, Mr B would then
withdraw the money from his bank account and return the cash so the money from his bank account and return the cash so the money from his bank account and return the cash so withdrawn to Mr A. By this process, the purchases made by Mr. A withdrawn to Mr A. By this process, the purchases made by Mr. A by unaccounted cash enter the books of account as if the purchases unaccounted cash enter the books of account as if the purchases are unaccounted cash enter the books of account as if the purchases made from Mr. B. However, what has actually happened is that made from Mr. B. However, what has actually happened is that the made from Mr. B. However, what has actually happened is that unaccounted money of Mr. A is shown to have entered the unaccounted money of Mr. A is shown to have entered the books of unaccounted money of Mr. A is shown to have entered the account by such a modus operandi and Mr. A gets back his account by such a modus operan di and Mr. A gets back his unaccounted cash from Mr. B.
The source of such unaccounted cash, which was utilised by 15. The source of such unaccounted cash, which was utilised by Mr. A to 15. The source of such unaccounted cash, which was utilised by buy goods originally, must be examined. Mr. B is only a buy goods originally, must be examined. Mr. B is only a paper entry buy goods originally, must be examined. Mr. B is only a provider. Therefore, the purchases are made from someone provider. Therefore, the purchases are made from someone else, but through Mr. B they get formalised in the books of account so that sales through Mr. B they get formalised in the books of account so that sales can be made and recorded in the books of account. However, what needs can be made and recorded in the books of account. However, what needs to be examined is how he financed the original purchases. If such to be examined is how he the original purchases. If such financing is out of unaccounted income, then the same has to be brought financing is out of unaccounted me, then the same has to be brought to tax, and if it is out of accounted income, it cannot be brought to tax. The to tax, and if it is out of accounted income, it cannot be brought to tax. The onus is on Mr A to show the source of financing for the original purchase to show the source of financing for the original purchase to show the source of financing for the original purchase and to give the correct details from whom he has purchased the good give the correct details from whom he has purchased the good give the correct details from whom he has purchased the goods originally. This is the simplest model of accommodation entry. originally. This is the simplest model of accommodation entry. However, originally. This is the simplest model of accommodation entry. various complex models are adopted to avoid tracing the various complex models are adopted to avoid tracing the flow of money. various complex models are adopted to avoid tracing the This menace is harmful to the country's economy, and it amounts to This menace is harmful to the country's economy, and it amounts to routing unaccounted cash into the formal economy without the original routing unaccounted cash into the formal nomy without the original unaccounted income being taxed. unaccounted income being taxed.
The genuineness of the purchases would inter alia also 16. The genuineness of the purchases would inter alia also include 16. The genuineness of the purchases would inter alia also explanation with regard to the source for paying for such with regard to the source for paying for such purchases. with regard to the source for paying for such Explaining the source of purchases would be one of the Explaining the source of purchases would be one of the prime Explaining the source of purchases would be one of the considerations for concluding whether the purchases have considerations for concluding whether the purchases have been made considerations for concluding whether the purchases have from accounted or unaccounted sources and to test the from accounted or unaccounted sources and to test the veracity of from accounted or unaccounted sources and to test the transaction being only accommodation entry. It is well transaction being only accommodation entry. It is well settled and transaction being only accommodation entry. It is well undisputed that the onus of proving any genuineness of undisputed that the onus of proving any genuineness of the expenditure undisputed that the onus of proving any genuineness of claimed as deduction is on the assessee. The primary onus is on the claimed as deduction is on the assessee. The primary onus is on the assessee to discharge his burden to proven the purchases, which an assessee to discharge his burden to prove the purchases, which an assessee has claimed as a deduction under the Income Tax Act for assessee has claimed as a deduction under the Income Tax Act for arriving at the taxable income. arriving at the taxable income.
5.3 The Hon’ble Bombay High Court has considered existing on’ble Bombay High Court has considered existing on’ble Bombay High Court has considered existing decisions where a part of the profit was where a part of the profit was upheld in respect of bogus in respect of bogus purchases.
5.4 In the present case, it is apparent that the assessee has not In the present case, it is apparent that the assessee has not In the present case, it is apparent that the assessee has not furnished any credible explanation as to the source of the funds furnished any credible explanation as to the source of the fu furnished any credible explanation as to the source of the fu used for procuring the goods allegedly sourced from the grey used for procuring the goods allegedly sourced from the grey used for procuring the goods allegedly sourced from the grey though neatly arranged and market. The documents filed market. The documents filed—though neatly arranged and ostensibly complete— —are of no probative value when juxtaposed are of no probative value when juxtaposed against the concrete findings of the investigation wing. The onus against the concrete findings of the investigation wing. The onus against the concrete findings of the investigation wing. The onus that lay upon the assessee to establish the genuineness and source upon the assessee to establish the genuineness and source upon the assessee to establish the genuineness and source of the purchases remains wholly undischarged. of the purchases remains wholly undischarged.
5.5 It is thus manifest that the approach of the Ld. CIT(A) in It is thus manifest that the approach of the Ld. CIT(A) in It is thus manifest that the approach of the Ld. CIT(A) in mechanically following the earlier Tribunal decision without mechanically following the earlier Tribunal decision without mechanically following the earlier Tribunal decision without adverting to the ratio laid down by the Hon’ble High Court in Kanak adverting to the ratio laid down by the Hon’ble High Court in adverting to the ratio laid down by the Hon’ble High Court in Impex (supra) cannot be sustained in law. The principle now stands cannot be sustained in law. The principle now stands cannot be sustained in law. The principle now stands clarified that the explanation of the larified that the explanation of the source of bogus purchases is of bogus purchases is integral to determining their genuineness, and that mere estimation integral to determining their genuineness, and that mere estimation integral to determining their genuineness, and that mere estimation of profit without examining the source of purchase funding would of profit without examining the source of purchase funding would of profit without examining the source of purchase funding would defeat the very object of the statute. defeat the very object of the statute.
5.6 In the light of the foregoing discussion, and respectfully f the foregoing discussion, and respectfully f the foregoing discussion, and respectfully following the binding ratio of the Hon’ble Bombay High Court in following the binding ratio of the Hon’ble Bombay High Court in following the binding ratio of the Hon’ble Bombay High Court in Kanak Impex (India) Ltd. (supra), we are of the considered view that , we are of the considered view that Kanak Impex (India) Ltd. (supra) the impugned order of the Ld. CIT(A) warrants reconsideration. the impugned order of the Ld. CIT(A) warrants reconsideration. the impugned order of the Ld. CIT(A) warrants reconsideration. Accordingly, we set aside the order of the Ld. CIT(A) and restore the set aside the order of the Ld. CIT(A) and restore the set aside the order of the Ld. CIT(A) and restore the matter to her file for fresh adjudication, with a direction to decide matter to her file for fresh adjudication, with a direction to decide matter to her file for fresh adjudication, with a direction to decide the same in accordance with law and in the light of the principles the same in accordance with law and in the light of the principles the same in accordance with law and in the light of the principles enunciated by the Hon’ble High Court. enunciated by the Hon’ble High Court.
5.7 The grounds of appeal of appeal of the Revenue are accordingly allowed of the Revenue are accordingly allowed for statistical purposes. for statistical purposes.
In the result, the appeal of the Revenue is allowed for In the result, the appeal of the Revenue is allowed for In the result, the appeal of the Revenue is allowed for statistical purposes.
Order pronounced by way display o Order pronounced by way display of result on notice board f result on notice board on 30/10/2025 under Rule 34(4) of ITAT Rules, 19 /10/2025 under Rule 34(4) of ITAT Rules, 19 /10/2025 under Rule 34(4) of ITAT Rules, 1963.