The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of additions made on account of alleged bogus purchases and unsecured loans linked to concerns purportedly associated with the Bhanwarlal Jain Group. A Bench comprising Judicial Member Amit Shukla and Accountant Member Arun Khodpia dismissed the Revenue’s appeals for AYs 2012-13 and 2013-14 filed against C. Atulkumar and Co.

The dispute arose after the Investigation Wing alleged that certain entities controlled by the Bhanwarlal Jain Group were engaged in providing accommodation entries in the form of bogus purchase bills and unsecured loans. Based on this information, the Assessing Officer treated purchases made by the assessee from M/s Jewel Diam, M/s Millenium Stars and other concerns as non-genuine and also questioned an unsecured loan received from M/s Millenium Stars.

For AY 2012-13, the Assessing Officer reopened the assessment and made an addition of Rs 4.35 crore under Section 69C on account of alleged bogus purchases. The assessee, however, furnished purchase invoices, supplier confirmations, ledger accounts, stock records, bank statements, export invoices, VAT records, Form H declarations and quantitative reconciliation to demonstrate that the diamonds purchased were subsequently exported and the sale proceeds were realised through banking channels.

“An investigation report may be a starting point of enquiry; it cannot be the end of enquiry.” The Tribunal also found that no evidence of cash circulation, accommodation entry mechanism or flow-back of funds had been brought on record. It noted that the Assessing Officer neither conducted independent verification nor gathered material to rebut the documentary evidence furnished by the assessee. “Suspicion, however grave, cannot substitute proof.”

For AY 2013-14, the Assessing Officer had estimated a profit element of 3% on purchases of Rs 95.38 lakh and also made an addition of Rs 2.15 crore under Section 68 in respect of an unsecured loan received from M/s Millenium Stars. The assessee demonstrated that the purchases resulted in export sales and that the gross profit earned from such transactions was higher than its normal gross profit margin.

With regard to the loan transaction, the assessee furnished confirmations, ledger accounts, bank statements and financial details of the lender. It was also shown that the loan was received and repaid through banking channels within the same financial year.

The Tribunal observed that the Assessing Officer had proceeded solely on the basis of the Investigation Wing’s report without examining the essential requirements of Section 68 relating to identity, creditworthiness and genuineness of the transaction. It further noted that no cash trail, adverse material or evidence linking the loan to the assessee’s unaccounted income was brought on record.

Holding that the additions were based on generalised allegations arising from third-party investigations rather than evidence relating to the assessee’s own transactions, the Tribunal upheld the orders of the Commissioner (Appeals), deleting the additions. Thus, both appeals filed by the Revenue were dismissed.

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