M. SHASHIKANT AND CO,MUMBAI vs. WARD 23(2)(1), MUMBAI

Notwithstanding the aforesaid explanation and evidences, the Assessing Officer proceeded to treat the purchases from the said two parties as non-genuine and made an addition of ₹59,11,774/-. Before the first appellate authority, the assessee reiterated that no enquiry had been conducted by the Assessing Officer and that all primary and secondary evidences stood filed on record. However, the learned CIT(A) confirmed the addition by largely reiterating the findings of the Assessing Officer.

We have heard the rival submissions at length and have carefully perused the material available on record. It is an admitted and undisputed position that the assessee has furnished comprehensive documentary evidence in support of the purchases made from both M/s. Aadi Impex and M/s. Kailash Enterprises. The evidences placed before the Assessing Officer, in respect of both the parties, include income tax return acknowledgements, copies of purchase invoices, account confirmations, bank statements evidencing payments through account payee cheques, and sworn affidavits affirming the genuineness of the transactions. These documents, taken cumulatively, establish the identity of the M Shashikant And Co suppliers, the genuineness of the purchase transactions, and the fact that such purchases were duly recorded in the regular books of account maintained by the assessee in the normal course of business.

Apart from the aforesaid primary evidences, the assessee has also furnished a detailed quantitative statement mapping the purchases with corresponding sales and exports, along with particulars of stock movement. The statement showing the purchase-sale-stock reconciliation, which is a crucial document evidencing the flow of goods, is reproduced herein below :

Significantly, neither the Assessing Officer nor the first appellate authority has disputed the quantitative tally of stock, the corresponding sales arising therefrom, or the M Shashikant And Co factum of export of diamonds effected by the assessee. There is no finding on record to even remotely suggest that the diamonds allegedly purchased were not available for sale, or that the export turnover declared by the assessee was fictitious or inflated. In the absence of any discrepancy in quantity, stock movement, or sales realisation, the very substratum of the allegation that the purchases were bogus stands substantially diluted.

It is a well-settled proposition, consistently reiterated by this Tribunal in a long line of decisions, that where an assessee demonstrates a complete and coherent trail of purchase transactions supported by contemporaneous documentary evidence, coupled with quantitative reconciliation and accepted sales, the evidentiary burden shifts squarely upon the Revenue to rebut such material by way of independent enquiry or by bringing on record cogent and tangible evidence to the contrary. Mere reliance on third- party information or general investigation reports, without confronting the assessee with any specific incriminating material and without undertaking any meaningful verification, cannot sustain an addition of this magnitude.

In the present case, despite the assessee having placed on record all primary and secondary evidences, no independent enquiry whatsoever has been conducted by the Assessing Officer. The suppliers were not summoned, the affidavits filed were neither controverted nor tested by way of cross-examination, and no adverse material has been brought on record to demonstrate that the payments routed through M Shashikant And Co banking channels had flown back to the assessee in cash or otherwise. Such omissions assume particular significance in the context of diamond trading, where the business operates on thin margins, rapid inventory turnover, and export-linked transactions.

Another material aspect emerging from the record is the gross profit declared by the assessee. As per the tax audit report, the assessee has disclosed a gross profit rate of 6.26%. It has been specifically clarified that the gross profit rate relatable to the impugned purchases works out to 5.56%, resulting in a marginal variation of merely 0.71%. Such a negligible deviation, viewed in the backdrop of accepted turnover, undisputed exports, and reconciled stock movement, does not justify the extreme inference that the entire purchases are non-genuine.

The reliance placed by the Revenue on the judgments of the Hon’ble Bombay High Court in PCIT v. Kanak Impex (India) Ltd. and PCIT v. Drisha Impex Pvt. Ltd. is clearly distinguishable on facts. Those decisions were rendered on materially different factual foundations where the assessees had failed to substantiate the genuineness of the transactions and where adverse material remained unrebutted. In the present case, the assessee has not only furnished complete documentary evidence but has also demonstrated corresponding sales and export realisation, none of which has been disputed by the Revenue.

1. M Shashikant And Co 14. It is a cardinal principle of income-tax jurisprudence that suspicion, howsoever strong, cannot take the place of proof. Once the purchases are supported by invoices, confirmations, bank statements, affidavits, and quantitative reconciliation, and once the corresponding sales and exports have been accepted, the disallowance of the entire purchase amount becomes legally unsustainable. Even an estimation of any profit element would be unwarranted in a case where the declared gross profit is reasonable, consistent, and commensurate with the nature of the business carried on by the assessee.

Viewed in the totality of the facts and circumstances, we are unable to sustain the addition of ₹59,11,774/- made by the Assessing Officer and confirmed by the first appellate authority. The impugned addition is accordingly directed to be deleted.

In the result, the appeal filed by the assessee stands allowed. Order pronounced on 8th January 2026.