Vora Brothers Vs ACIT (ITAT Mumbai)
Bogus Diamond Bill, Real Diamonds and Accepted Sales: ITAT Rejects 100% Purchase Addition, Sends Profit Calculation Back
The Disputed Diamond Purchases
Vora Brothers, a partnership firm trading in diamonds, recorded purchases of 466.74 carats worth ₹66,74,382 from Nazar Impex Pvt. Ltd. Information received from the Investigation Wing concerning the Rajendra Jain/Sanjay Choudhary group led the Assessing Officer to treat the supplier’s bill as an accommodation entry.
The officer found the purchase from Nazar Impex unverifiable and rejected the firm’s books under section 145(3). But he also recorded an important fact: the diamonds appeared in the stock register, corresponding sales had been shown, and the sales were accepted. In his view, the firm had obtained the diamonds from the grey market and used Nazar Impex’s bill to account for them.
On that basis, the Assessing Officer did not add the full purchase price. He estimated the profit or cost benefit embedded in the disputed purchase at 12.5%, making an addition of ₹8,34,298.
The Commissioner (Appeals) took a much stricter view. After issuing an enhancement notice, he increased the addition to ₹66,74,382, the entire amount of the purchase bill. Relying on the Bombay High Court’s decision in PCIT v. Kanak Impex (India) Ltd., he reasoned that the firm had failed to prove physical delivery of diamonds from Nazar Impex. In particular, he found no delivery challans, transport or angadia records, stock inward evidence or independent acknowledgment linking the goods to that supplier.
