Gujarat High Court
Principal Commissioner Of Income Tax 1 vs Prathana Gems on 11 November, 2025
Author: A.S. Supehia
Bench: A.S. Supehia
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C/TAXAP/1059/2024 ORDER DATED: 11/11/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1059 of 2024
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PRINCIPAL COMMISSIONER OF INCOME TAX 1
Versus
PRATHANA GEMS
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Appearance:
KARAN G SANGHANI(7945) for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 11/11/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)
1. Heard learned Senior Standing Counsel Mr. Karan Sanghani
for the appellant.
2. This Tax Appeal is filed under Section 260A of the Income Tax
Act, 1961 (For short "the Act") against the order dated 06.06.2024
passed by the Income Tax Appellate Tribunal, Surat (For Short "the
Tribunal") in ITA No. 1/SRT/2024 for the Assessment Year 2014-15
raising the following substantial questions of law :-
"(A) Whether on the facts and circumstances of the case and
in law, the Hon'ble ITAT is justified in partly allowing the
appeal of the assessee and restricting addition @ 6% of the
bogus purchases against the decision of the Ld. CIT
(Appeals) in confirming the addition made by the Assessing
Officer at the rate of 100% of bogus purchases amounting to
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Rs.1,31,21,120/-, ignoring the fact that these purchases are
sham transactions fabricated through bogus paper concerns
of Bhanwarlal Jain group, which was engaged in providing
accommodation entries ?
(b) Whether, on the facts and in the circumstances of the
case and in law, the Hon'ble ITAT was justified in partly
allowing the appeal of the assessee relying upon the
decision of the co-ordinate Bench of ITAT, Surat, in the case
of Pankaj J. Chaudhary v. ITO in ITA No. 1152/AHD/2017
dated 27.09.2021?
(c) Whether, on the facts and in the circumstances of the
case and in law, the Hon'ble ITAT is correct in not
considering that the amount claimed as payment to hawala
dealers was, in effect, suppression of profits by obtaining
bogus purchase bills, which was liable to be added to the
income of the Assessee?
(d) Whether on the facts and circumstances of the case and
in law, the Hon'ble ITAT has erred in not considering -
* the judgment of Gujarat High Court in the case of N.K.
Industries Ltd. v. DCIT in TA No. 240 to 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, wherein the Hon'ble High Court decided
that 100% purchases from bogus parties was liable to be
added in the hands of the assessee, reversing the order
passed by the Hon'ble ITAT that restricted addition to
25%, holding that such restriction goes against the
principles of Section 68 and 69C of Income Tax Act ?
* the judgment of Calcutta High Court in the case of
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PCIT v. Premlata Tekriwal (143 taxmann.com 173)
involving similar issue of purchase of bogus concern to
suppress profits wherein the court held that "since it was
established that expenditure was unexplained/bogus,
entire amount of bogus expenditure was to be added to
income of assessee?
* the ratio of judgment of Hon'ble Apex Court on the
issue of unexplained expenditure (bogus purchase) in the
case of N.K. Proteins v. Dy. CIT [2017] 84 taxmann.com
195/250 Taxman 22 (SC) wherein, the SLP filed by the
assessee has been dismissed by the Hon'ble Apex Court?
(e) Whether on the facts and circumstances of the case and
in law, the Hon'ble ITAT is justified in partly allowing the
appeal of the assessee wherein the AO has made 100%
addition of bogus purchases amounting to Rs.1,31,21,120/-
made by the assessee with the entry provider not
appreciating the non-genuineness of the expenditure
booked was established by the information received from
DIT (Inv)-II, Mumbai and the assessee was not able to
discharge its onus to establish the genuineness of
transaction before the AO as well as the learned CIT (A)?
3. Brief facts of the case are that :-
3.1. The respondent assessee filed its return of income for
Assessment Year 2014-15 on 24.09.2014, declaring the total income
of Rs.Nil/-.
3.2. On the basis of the information received from the Investigation
Wing, Mumbai in case of Shri Bhanwarlal Jain Group, it was found
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that the said group was engaged in the business of issuing non-
genuine and purchase accommodation bills, unsecured entries to
loans various parties and the assessee was found to have obtained
non-genuine purchase bills from the said group amounting to
Rs.1,31,21,120/-. The Assessment Order under Section 143(3) of the
Act was passed on 15.12.2016 assessing total income at
Rs.1,31,21,120/- after making an addition on account of bogus
purchases.
3.3. Being aggrieved, the assessee preferred an appeal before the
CIT (Appeals). The CIT (Appeals) vide order dated 24.11.2023
dismissed the appeal and confirmed the addition made by the
Assessing Officer of 100% of the bogus purchases.
3.4. Being aggrieved, the assessee preferred an appeal before the
Tribunal. The Tribunal by impugned order dated 06.06.2024
dismissed the appeal of the assessee and restricted the addition of
6% of the bogus purchases against the addition made by the
Assessing Officer of 100% of the bogus purchases. The Tribunal has
relied on its decision rendered in the case of Pankaj K. Chaudhary in
ITA 1379/Ahd/2017.
4. This Court finds that in several matters arising out of
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transactions with the said Bhanwarlal Jain Group, the Tax Appeals of
the Department have been dismissed where the learned ITAT has
assessed the disallowance at 6%, as has been done in the present
case. This Court in the case of PCIT v. Keshri Exports [2024] 168
Taxmann.com 528 (Gujarat) after considering the decision inf the
case of Pr. CIT v. Pankaj J. Chaudhary [R/Tax Appeal No. 617 of 2022
dated 07.03.2023] has upheld the disallowance of 6% of bogus
purchases.
5. The relevant extracts from the judgment in the case of Keshri
Exports (supra) is as under :-
"5. The Assessing Officer noticed the contentions of the assessee
that confirmation, purchase bills, bank statement, stock register,
copy of ITR were already filed. The Assessing Officer was,
however, of the view that transactions were bogus and merely
that it routed through the banking channel, was not sufficient to
conclude that they were the genuine transactions. The
contention of the assessee that he had not dealt with the
Bhanvarlal Jain group was also negatived. The appellate
Commissioner took the view that disallowance was required to
be sustained at 12.5% of the purchase. The Assessing Officer was
directed accordingly to workout disallowance. In para 10.6, the
Commissioner of Income Tax (Appeals), recorded thus,
"As held above, it is clear that the appellants have made
purchases from elsewhere, but have obtained bills from the
impugned suppliers. From the Trading & P & L account and
Audit report it can be seen that the GP rate shown by
appellant is 1.85% oil sales. In such circumstances the
disallowance of 100% of purchases cannot be justified. Also
as held above, the appellant would nave indulged in above
practice in order to get some benefit. And it is this benefit
derived by the appellant that need to be taxed. What would
be the magnitude of benefit derived by the appellant is the
mute question. In the appellant's case, it is seen that GP
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rate shown is 0.78%".
5.1 The final view was expressed in para 10.10,
"Following the above judicial pronouncements and views
taken by Ld. CIT(A) & AOS in a few identical cases. In a
couple of identical cases, where the GP shown by the
appellants is more than 5%, I have confirmed the
disallowance of the impugned purchases to the extent of 5%
of the impugned purchases. However in the instant case the
appellant is showing measly G.P. of only 0.78% on turnover.
In view of this I am of the considered opinion that
disallowance of 12.5% of the impugned purchases would be
reasonable and would meet the ends of justice. Hence, the
disallowance is restricted to 12.5% of the impugned
purchases for the assessment year in appeal.
5.2 The disallowance at 100% was made in the assessment order
for the year under consideration to the tune of Rs. 4,34,00,343/-,
which was reduced to 12.5% at Rs. 54,25,040/-. Thereafter, the
issue was dealt with by the appellate Tribunal. The appellate
Tribunal endorsed to the view taken by the appellate
Commissioner. It was observed that Assessing Officer failed to
consider the evidence furnished by the assessee.
5.3 Considering the facts and relevant aspect, the Income Tax
Appellate Tribunal partially allowed the appeal of the assessee to
further reduce the disallowance at 6%. In so concluding, the
Tribunal observed in paragraph No.21 as under,
".......during the financial year under consideration the
assessee has shown total turnover of Rs. 66,09,62,458/-. The
assessee has shown Gross Profit @ 78% and net Profit @
0.02% (page 11 of paper Book). The assessee while filing the
return of income has declared taxable income of Rs.
1,81,840/- only. We are conscious of the facts that dispute
before us is only with regard of the disputed purchases of Rs.
4.34 Crore, which was shown to have purchased from the
entity managed by Bhanwarlal Jain Group. During the search
action on Bhanwarlal Jain no stock of goods/material was
found to the investigation party. Bhanwarlal Jain while filing
return of income has offered commission income (entry
provider). Before us, the Ld. CIT-DR for the revenue
vehemently submitted that the ratio of decision of Hon'ble
Gujarat High Court in Mayank Diamond Private Limited
(supra) is directly applicable on the facts of the present case.
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We find that in Mayank Diamonds the Hon'ble High Court
restricted the additions to 5% of GP. We have seen that in
Mayank Diamonds P Ltd (supra), the assessee had declared
GP @ 1.03% on turnover of Rs 1.86 Crore. The disputed
transaction in the said case was Rs. 1.68 Crore. However, in
the present case the assessee has declared the GP @ 0.78%.
It is settled law that under Income-tax, the tax authorities are
not entitled to tax the entire transaction, but only the income
component of the disputed transaction, to prevent the
possibility of revenue leakage. Therefore, considering overall
facts and circumstances of the present case, we are of the
view that disallowances @ 6% of impugned purchases /
disputed purchases would be sufficient to meet the possibility
of revenue leakage. In the result the ground No. 2 of appeal
raised by the assessee is partly allowed and the grounds of
appeal raised by revenue are dismissed."
6. In so concluding, the Tribunal observed in paragraph No.21
as under,
".......during the financial year under consideration the
assessee has shown total turnover of Rs. 66,09,62,458/-. The
assessee has shown Gross Profit @ 78% and net Profit @
0.02% (page 11 of paper Book). The assessee while filing the
return of income has declared taxable income of Rs.
1,81,840/- only. We are conscious of the facts that dispute
before us is only with regard of the disputed purchases of Rs.
4.34 Crore, which was shown to have purchased from the
entity managed by Bhanwarlal Jain Group. During the search
action on Bhanwarlal Jain no stock of goods/material was
found to the investigation party. Bhanwarlal Jain while filing
return of income has offered commission income (entry
provider). Before us, the Ld. CIT-DR for the revenue
vehemently submitted that the ratio of decision of Hon'ble
Gujarat High Court in Mayank Diamond Private Limited
(supra) is directly applicable on the facts of the present case.
We find that in Mayank Diamonds the Hon'ble High Court
restricted the additions to 5% of GP. We have seen that in
Mayank Diamonds P Ltd (supra), the assessee had declared
GP @ 1.03% on turnover of Rs 1.86 Crore. The disputed
transaction in the said case was Rs. 1.68 Crore. However, in
the present case the assessee has declared the GP @ 0.78%.
It is settled law that under Income-tax, the tax authorities
are not entitled to tax the entire transaction, but only the
income component of the disputed transaction, to prevent
the possibility of revenue leakage. Therefore, considering
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overall facts and circumstances of the present case, we are
of the view that disallowances @ 6% of impugned purchases /
disputed purchases would be sufficient to meet the
possibility of revenue leakage. In the result the ground No. 2
of appeal raised by the assessee is partly allowed and the
grounds of appeal raised by revenue are dismissed."
6. The view taken and the conclusion arrived at by the appellant
Tribunal are based on material before it and after analysing the
facts and figure available before it. When the Tribunal has
thought it fit to reduce the disallowance at 6% from 12.5%, the
Tribunal had before it the facts which were duly analysed by it.
No interference is called for in the said conclusion and findings
of the Tribunal in the present appeal by this court.
6.1 The another weighing aspect is that the Tax Appeal No. 674
of 2022 in Principal Commissioner of Income Tax 1, Surat vs.
M/s.Surya Impex which came to be decided by the co-ordinate
Bench on 16.1.2023 dealt with the very issue of accommodation
entries provided by Bhanwarlal Jain Group. The group involved in
the said case is the same group who is saddled with allegations
of providing accommodation entry to the assesse. In M/s. Surya
Impex (supra) the court held in favour of the assessee. The
questions of law involved in the said case were of the same
nature and were in the context of similar facts involving the same
group.
7. For all the above reasons, substantial questions of law
proposed by the appellant in this appeal stands already
answered. No question of law much less any substantial
questions of law arise in the facts of the present case. No other
substantial question of law arises. The appeal is meritless. It is
summarily dismissed."
6. In view of the above, the substantial questions of law proposed
by the appellant in the appeal stands already answered and
therefore, no question of law much less any substantial questions of
law, can be said to have arisen in the facts of the present case.
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7. The Tax Appeal is accordingly dismissed. No order as to costs.
(A. S. SUPEHIA, J)
(PRANAV TRIVEDI,J)
phalguni/supl.6
