Mumbai ITAT Caps Addition on Alleged Bogus Diamond Purchases at 2% Based on Assessee's Own Precedent

Case Reference

Star Brillian Vs ACIT (ITAT Mumbai)
Assessment Year: 2008-09
Order Pronounced: 24/06/2026
Appeal Numbers: ITA No. 1757/MUM/2026 (Assessee) & ITA No. 2392/MUM/2026 (Revenue)

Background and Context

The Mumbai Bench of the Income Tax Appellate Tribunal recently delivered a significant ruling in the matter of a partnership firm engaged in manufacturing and trading of diamonds and jewellery. The firm had originally filed its return of income declaring total income of Rs. 86,58,770/-. The case attracted scrutiny following a Search and Survey operation conducted on 03.10.2013 by the DGIT (Inv.), Mumbai, which targeted the Rajendra Jain Group, the Sanjay Choudhary Group, and the Darmi Chand Group, among others.

The search revealed that multiple entities were being operated through dummy directors, name-lending partners, and fictitious proprietors — all allegedly under the de facto control of Shri Rajendra Jain and his associates. Statements recorded during the search proceedings indicated that these entities were systematically engaged in providing bogus purchase bills and accommodation entries within the diamond trade ecosystem.

How the Assessment Unfolded

Information Received and Reassessment Initiated

Acting on intelligence passed on by the DGIT (Inv.), Mumbai, the Assessing Officer initiated reassessment proceedings against the assessee under Section 147 of the Income Tax Act, 1961. The information indicated that the assessee had allegedly availed accommodation entries for purchases from the following parties:

AO's Reasoning and Addition Made

The Assessing Officer elaborated on the prevalent modus operandi in the diamond trade — where dealers purportedly procure bills from entry operators to account for goods already sold through grey channels. Based on this understanding, the AO concluded that the embedded profit margin in such grey market transactions would not exceed 5%, which was consistent with the margin typically applied in cases involving bogus bills from grey market dealers. Accordingly, 5% of Rs. 2,39,62,057/- — amounting to Rs. 11,98,103/- — was added to the assessee's total income for Assessment Year 2008-09.

Evidence Placed Before Authorities by the Assessee

The assessee vigorously contested the addition at every appellate stage, backing its position with an extensive documentary record. The following evidence was submitted: