TaxTMI 
TaxTMI 
2025 (6) TMI 2004
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....the Act, whereby the AO made an addition of Rs. 1,40,03,670/- under section 69C of the Act treating the purchases from M/s. Mahadev Trading Co. as bogus, resulting in the assessed income being enhanced to Rs. 1,55,90,420/-. The CIT(A), while partly allowing the appeal of the assessee, restricted the disallowance to Rs. 7,00,184/- and deleted the balance addition of Rs. 1,33,03,486/-, giving rise to these cross appeals. Facts of the Case 2. The assessee formerly known as Ganpatrai Jaigopal Shipbreakers Pvt. Ltd., is 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 on 31.08.2018, 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., a concern run by Shri Bharat Vaghajibhai Prajapati, was engaged in issuing accommodation invoices without any actual supply of goods or services. The 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 ....
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....asized that, at the stage of reopening, what is required is the existence of "reason to believe" and not conclusive proof of escapement of income. The sufficiency or correctness of such material could not be examined at the threshold stage. Thus, the reopening was upheld as legally sustainable, and the assessee's ground challenging the reopening was dismissed. 4. Thereafter, the learned CIT(A) proceeded to examine the merits of the addition made by the Assessing Officer under section 69C of the Act. The assessee, during the appellate proceedings, placed on record detailed documentary evidence to demonstrate the genuineness of purchases, including purchase invoices, ledger extracts, confirmation from the supplier, stock records, weighment slips, transportation documents, RTGS payment details, bank statements, and copies of GSTR-2A reflecting the disputed transactions. The assessee also produced ROC records to demonstrate that the name of the company had been changed from Ganpatrai Jaigopal Shipbreakers Pvt. Ltd. to Leela Greenship Recycling Pvt. Ltd. on 14.03.2018, which explained the discrepancy in name appearing in some invoices. The learned CIT(A) observed that the assesse....
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....unt the possibility of inflation of purchases or involvement of accommodation bills to some extent and, therefore, proceeded to estimate the profit element embedded in such purchases. Following the consistent approach adopted by various High Courts and coordinate benches, the CIT(A) applied a rate of 5% profit margin on the disputed purchases. Accordingly, the addition was restricted to Rs. 7,00,184/- being 5% of Rs. 1,40,03,670/-, and the balance addition of Rs. 1,33,03,486/- was deleted. 6. Aggrieved by the order of CIT(A) both Revenue and Assessee are in cross appeal before us raising following grounds: i. In assessee's Appel ITA No. 2111/Ahd/2024 1. The Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. AO in reopening the assessment u/s. 147 of the Act which is bad in law and without jurisdiction. 2. The Ld. CIT(A) has erred in law and on facts in partly confirming the addition of alleged bogus purchases to the tune of Rs. 7,00,184/-. 3. The Ld. CIT(A) has erred in law and on facts in partly confirming the addition of alleged bogus purchases made by Ld. AO without providing material relied upon and opportunity of ....
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.... aside and that of the Assessing Officer be restored? 7. During the course of hearing, the learned Authorised Representative (AR) appearing on behalf of the assessee submitted that the reopening of assessment under section 147 was bad in law and without jurisdiction. The reopening was solely based on third-party information received from the GST Department without independent application of mind by the Assessing Officer. The material was not confronted to the assessee prior to initiation of reassessment. In fact, as per the facts and circumstances, there was no independent inquiry or tangible material on record to justify "reason to believe" that income has escaped assessment. The AR strongly submitted that reopening based on borrowed satisfaction is impermissible in law. 8. The learned AR further submitted that the assessee had submitted full details and documentary evidences of purchases made from Mahadev Trading Co., including Purchase Register, Ledger of Mahadev Trading Co., Confirmation of Mahadev Trading Co., Purchase Invoices, Transport Receipts & Weighing Slips, Bank Statements showing RTGS payments, GST Returns (GSTR-2A) and GST Profile of Mahadev Trading Co. The AR ....
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....he supplier appearing in books and such accommodation bills merely provide documentary support for otherwise genuine purchase transactions where the physical movement of goods is undisputed. In such circumstances, AR argued, that the entire purchases cannot be treated as bogus or non-genuine. Therefore, as an alternative proposition, the AR submitted that even assuming some element of accommodation billing, the only proper course would be to estimate reasonable profit margin attributable to such purchases, rather than disallowing entire purchase amount. The AR submitted that in similar circumstances, Hon'ble Gujarat High Court has consistently held that when documentary evidences are available and sales are not doubted, entire purchases cannot be disallowed and only profit element can be estimated. The AR placed strong reliance on following decisions of jurisdictional High Court in support of his contentions: i. PCIT v. Surya Impex (2023) 451 ITR 395 (Guj) ii. PCIT v. Pankaj K. Choudhary (2022) Tax Appeal 617 (Guj) iii. PCIT v. Jigisha Satish Mehta (2023) 155 taxmann.com 279 (Guj) iv. PCIT v. Keshri Exports (2024) 168 taxmann.com 528 (Guj) ....
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....epresentative, the learned Authorised Representative (AR) reiterated that the assessee had already discharged its primary onus by producing complete documentary evidences in support of the impugned purchases. The AR submitted that merely because the transactions were not repeated with the said supplier in the earlier or subsequent years cannot by itself render the current year's purchases as non-genuine. The AR further submitted that if any suspicion remains in the mind of the department, the AO may further investigate or summon any other evidence, but in absence of any contradictory material, the entire purchase cannot be disallowed on mere conjectures. The assessee cannot be penalized for the failure or inaction of the department to verify or disprove the evidence filed. We have carefully considered the rival submissions of both the parties, the detailed arguments advanced during hearing, the documentary evidences placed on record, the orders of the lower authorities, as well as the legal precedents cited by the assessee. 13. The Revenue's grievance rests on the broad premise that since M/s Mahadev Trading Co. was found to be a non-existent entity during GST inquiry, th....
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....ments. The Assessing Officer independently verified the suppliers' bank accounts and recorded a categorical factual finding that there were no cash withdrawals from the bank accounts after receipt of cheques from the assessee. Only two suppliers - Neptune Trading Co. and Hari Om Traders - did not furnish their bank statements despite opportunity. Thus, for these two suppliers, the crucial cash trail verification could not be carried out. In contrast, in the present case, no such independent verification of bank accounts was conducted by the Assessing Officer. The assessee herein has produced comprehensive documentary evidence such as purchase invoices, stock records, RTGS payments, GST returns, supplier confirmations, and segment-wise accounts. The Assessing Officer has not brought any independent material on record to disprove these documents or trace any cash withdrawals after payments. b. In Shree Ganesh Developers, the assessee had accepted an addition of 12.5% on the purchases from Neptune Trading Co. and Hari Om Traders. The Hon'ble Bombay High Court held that by accepting partial addition, the assessee impliedly accepted that such purchases were not fully verifiable....
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....ques belonging to several supplier concerns. These suppliers were shown as parties from whom the assessee allegedly procured purchases. On the strength of the seized materials, the Assessing Officer held that these concerns were merely name-lenders providing accommodation entries. Thus, the factual basis for treating purchases as entirely bogus in N.K. Industries was direct material unearthed during search which exposed falsity of the purchases recorded in the books of account. In contrast, in the present case, no search was conducted on the assessee. No incriminating material has been found either in assessee's possession or through third-party searches. The present assessment is a reassessment based solely on external information received from GST authorities. The assessee has furnished complete books of accounts, bank payments, stock records, purchase invoices, GST returns, supplier confirmations, and segment wise financials to establish the purchases. No direct falsification of books has been discovered here. b. In case of N.K. Industries, both the Assessing Officer and the Tribunal recorded categorical concurrent findings that the purchases recorded by the assessee we....
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....d the assessee - i.e., whether the amounts paid by the assessee through banking channels have been withdrawn in cash by the supplier - then the assessee has no objection to such limited verification being carried out. 19. Having carefully considered the rival contentions and in view of the factual and legal position discussed above, we are of the view that limited verification on this aspect would serve the ends of justice. 20. Accordingly, while upholding the fundamental legal proposition that when sales are not doubted, entire purchases cannot be disallowed merely on the ground that suppliers were non-genuine, we deem it appropriate to restore the matter back to the file of the Assessing Officer for carrying out limited verification as under: i. The Assessing Officer shall 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 exists any cash trail i.e., whether the payments made by the assessee through banking channels were withdrawn in cash by the supplier or its associates after deposit of cheques received from the assessee. ii. If such cash withdrawals are ....