Leela Greenship Recycling Pvt. Ltd Vs DCIT (ITAT Ahmedabad)
Conclusion: When sales were not doubted, entire purchases could not be disallowed merely on the ground that suppliers were non-genuine, it was deemed appropriate to restore the matter back to the file of AO for carrying out limited verification and addition should be restricted to profit estimation.
Held: Assessee was engaged in the business of ship breaking and trading of iron and steel items. It filed its original return of income for A.Y. 2018–19 declaring a total income of Rs. 15,86,750/-. The case was reopened under section 147 based on information received from the Anti-Evasion Wing of CGST, Kutch Commissionerate, which had unearthed that M/s. Mahadev Trading Co., was engaged in issuing accommodation invoices without any actual supply of goods or services. Assessee was alleged to have made purchases of Rs. 1,40,03,670/- from the said party in F.Y. 2017–18. Pursuant to issuance of notice under section 148, assessee filed return declaring the same income as in the original return. Notices under sections 143(2) and 142(1) were issued and complied with, albeit partially, culminating in the assessment order passed under section 147 r.w.s. 144B. n the course of reassessment, assessee produced purchase register entries, ledger and confirmation from M/s. Mahadev Trading Co., invoices and transport documents, RTGS evidence of payments, matching entries in GSTR-2A; and handwritten weighment slips. AO rejected the explanation, observing that the invoices mentioned the buyer as “Ganpatrai Jaigopal Shipbreakers Pvt. Ltd.”, not “Leela Greenship Recycling Pvt. Ltd.” and the supplier was found non-existent during field verification and the transport documents and weighment slips were allegedly not verifiable. Despite payment through banking channels, it was suspected that funds were routed back in cash. Accordingly, AO invoked section 69C, treating the entire sum of Rs. 1,40,03,670/- as unexplained expenditure, and added it to the returned income. The assessed income was thus computed at Rs. 1,55,90,420/-, and penalty proceedings under section 271AAC were initiated separately. It was held that while upholding the fundamental legal proposition that when sales were not doubted, entire purchases could not be disallowed merely on the ground that suppliers were non-genuine, it was deemed appropriate to restore the matter back to the file of AO for carrying out limited verification as under: AO should obtain the bank account details of M/s. Mahadev Trading Co. (or any other relevant bank account connected to the transaction), and verify whether there existed any cash trail; if no such cash-back trail is established upon verification, and payments were found to have remained within the banking system, then in that event, the addition should be restricted only to the embedded profit element, for which the profit estimation of 5% as adopted by CIT(A) may be applied as reasonable and fair estimation. AO should specifically verify whether the said balance payment had been subsequently made by assessee. If the assessee established that the entire unpaid amount has been fully discharged, no adverse inference should be drawn.
