M. Shashikant & Co Vs ITO (ITAT Mumbai)
Paper Trail, Stock Tally and Exports Trump Suspicion: ITAT Deletes Bogus Purchase Addition in Diamond Trade
The Mumbai Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal and deleted the addition of ₹59.11 lakh made on account of alleged bogus purchases, holding that mere third-party information cannot override cogent documentary evidence and quantitative reconciliation.
The assessee, engaged in trading and export of cut and polished diamonds, had reopened assessment based on Investigation Wing inputs relating to alleged accommodation entry providers. Despite this, the assessee produced comprehensive evidence including purchase invoices, PAN and ITR acknowledgements of suppliers, bank statements evidencing account-payee payments, sworn affidavits, and a detailed purchase–sale–stock reconciliation mapping purchases to corresponding exports (as tabulated in the order).
The Tribunal noted that neither the Assessing Officer nor the CIT(A) disputed the quantitative tally, stock movement, export sales, or realisation of export proceeds. No independent enquiry was conducted; suppliers were not summoned, affidavits were not tested by cross-examination, and there was no evidence of cash-back. The gross profit rate was consistent (6.26%), with only a marginal variation vis-à-vis the impugned purchases—insufficient to infer non-genuineness.
Distinguishing Revenue-relied precedents on facts, the Tribunal reiterated that suspicion cannot replace proof. Where purchases are backed by a complete paper trail, reconciled stock, and accepted sales/exports, even estimation of profit is unwarranted. Accordingly, the entire addition was directed to be deleted, and the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
