TaxTMI 
TaxTMI 
2025 (11) TMI 1755
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....eji Ornaments. The return of income for A.Y. 2021-22 was filed by the assessee on 22.02.2022 declaring total income of Rs. 29,29,810/-. The case was selected for complete scrutiny through Computer Aided Scrutiny Selection (CASS) on the grounds that the assessee has made substantial purchases from suppliers who are either non-filers or have filed non-business ITR or reflected a substantially lower turnover in ITR. Notices u/s 142(1) along with questionnaire were issued from time to time. The assessment was completed by the AO under section 143(3) r.w.s. 144B of the Act vide order dated 22.12.2022, determining total income at Rs. 1,46,25,25,370/- after making a disallowance of Rs. 1,45,77,00,806/- u/s 40A(3) of the Act in respect of purchases claimed from three parties. 2.2 During the assessment, the AO observed that the assessee had claimed to have made purchases aggregating to Rs. 1,45,77,00,806/- from the following three parties: Sr. No. Party Name GSTIN Purchase Amount (Rs. ) 1 Shree Laxmi Gold (Prop: Amit Soni, HUF) 24AATHA9372A1ZA 20,28,63,268/- 2 Parvati Gold (Prop: Rajkumar D. Soni) 24BSXPS5754H1ZX 1,02,99,71,264/- 3 Dhanadeepa Gol....
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....amely Shree Laxmi Gold and Dhanadeepa Gold, while in the case of Parvati Gold, the proprietor Shri Rajkumar Dilipbhai Soni denied having entered into any transactions with the assessee, thereby disowning the billing attributed to his entity. 2.6 The Ld. CIT(A) also recorded that the ledger confirmations filed by the assessee in support of these purchases reflected transactions carried out even after the date of cancellation of GST registration, which further eroded their credibility. Additionally, the absence of delivery challans, transportation bills, e-way bills, or any evidence of physical movement of goods led to the conclusion that the alleged transactions lacked commercial substance and were in the nature of fictitious billing. On the issue of payment method, although the assessee had made payments through banking channels, the Ld. CIT(A) held that the assessee failed to establish the identity and genuineness of the suppliers, and consequently, it could be reasonably inferred that actual cash payments were made to unidentified parties, thereby attracting the rigor of section 40A(3). In light of these findings, the Ld. CIT(A) upheld the disallowance of the entire purchase a....
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.... add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 2.8 During the course of hearing, the learned Authorised Representative (AR) appearing on behalf of the assessee reiterated the facts and contentions raised in the grounds of appeal. It was submitted that the disallowance of Rs. 1,45,77,00,806/- under section 40A(3) of the Act is wholly unjustified and liable to be deleted in its entirety. The AR submitted that the assessee had not made any purchases in cash, nor was any payment made in cash for such purchases. All payments were routed through regular banking channels, and there is no allegation or evidence of any cash payment on any particular day or to any specific person exceeding the threshold under section 40A(3). 2.9 It was argued that the disallowance was made purely on suspicion without the Assessing Officer bringing on record any cogent material to prove either the factum or quantum of cash payment. It was further pointed out that the AO did not identify (i) the party to whom cash was paid, (ii) the date on which such cash payment was made, or (iii) the amount paid in cash on any ....
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....7 ITD 607 (Mumbai); iv. Free India Assurance Services Ltd. v. DCIT (2011) 132 ITD 60 (Mumbai). Where it was decided that the provisions of section 40A(3) can be applied only in cases where an assessee in fact incurs an expenditure but violates the mandate of section 40A(3). However, the genuineness of the expenditure had never been in doubt. The AR accordingly prayed that the entire disallowance be deleted in the interest of justice. 3. The learned Departmental Representative (DR) relied upon the findings recorded by the Assessing Officer and submitted that the parties from whom the assessee had claimed to have made purchases were not having valid GST registrations. The DR referred to para 3.3 of the assessment order to contend that in the case of all the three parties- namely, Shree Laxmi Gold, Shri Parvati Gold, and Dhanadeepa Gold-the GST registration was granted and cancelled on the very same date. This, according to the DR, rendered the transactions entered into by the assessee inherently suspect, as the purchases were made from entities lacking legal recognition under the GST framework. It was further contended that the notices issued under section 133(6) to....
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....Gold-has been allowed or disallowed by the GST authorities. In response, the AR submitted that no notice or communication has been received by the assessee from the GST Department disputing the claim of input tax credit in respect of the said transactions. It was thus submitted that in the absence of any adverse action or disallowance under the GST framework, the presumption of fictitious or bogus transactions is misplaced and cannot form the sole basis for invoking disallowance under section 40A(3) of the Act. 3.4 Having heard the rival contentions and upon a careful examination of the assessment order and the appellate order passed by the learned CIT(A), it emerges that the core issue in controversy pertains to the assessee's failure to substantiate the genuineness of purchases aggregating to Rs. 1,45,77,00,806/-, and not the mode of payment. The disallowance has been made in light of serious concerns regarding the identity of the suppliers, the credibility of supporting documentation, and the absence of evidence establishing actual delivery of goods or the commercial substance of the transactions. 3.5 At this juncture, we find it necessary to record certain key observation....
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....ecord any conclusive finding or assessment of the said parties, nor correlated their returns or filings. In the absence of such efforts, the basis for invoking section 40A(3) becomes questionable. As observed in decisions relied upon by the assessee, section 40A(3) is a rule of evidence and applies only where actual cash payments exceed Rs. 10,000/- are demonstrably made to a person on a day. In those cases the controversy was limited to mode of payment along, in the present case the controversy extends to the core genuineness of the transaction. The impugned order is silent on this core requirement. 3.5.4 Given the power of inquiry vested in the CIT(A) under section 250(4), and the electronic access to GST data through ITBA and departmental interface, the failure to requisition the GST verification report or call for status of these vendors from the GST Department reflects a mechanical confirmation of the AO's findings, rather than an independent judicial scrutiny. 3.5.5 The AR has placed on record ledger extracts (PB Page 285) showing that the assessee has also made sales to Dhanadeepa Gold, the very party from whom purchases are alleged to be fictitious. This aspect merits....
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.... the prescribed limit, remains unsubstantiated. It is well settled that section 40A(3) is triggered by actual cash movement, and not by assumption or presumption. Without tracing cash withdrawals from the recipients or showing diversion of funds in cash, the presumption drawn by the AO is premature and factually incomplete. This, in our view, constitutes a critical omission in the enquiry process. 3.6 In view of the foregoing discussion and the material infirmities noted in the assessment as well as the appellate proceedings, we are of the considered view that the impugned disallowance of Rs. 1,45,77,00,806/- under section 40A(3) of the Act has been made without conducting adequate investigation, without establishing the foundational facts necessary to invoke the said provision, and in disregard of the principles of natural justice. In our opinion the absence of enquiry into the banking trail and financial transactions of the alleged suppliers make the enquiry incomplete. In such circumstances, the matter cannot be allowed to rest on incomplete inquiry, and it is therefore considered appropriate to restore the issue to the file of the Assessing Officer for a fresh, comprehensive....