UPRIGHT ENTERPRISES PVT. LTD,FARIDABAD V. DCIT CC-2 , FARIDABAD

ITA 1773/DEL/2019

AI Insights

The case involves Upright Enterprises Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals)-3, Gurgaon, sustaining the disallowance of Rs. 65,60,817 claimed as freight expenses for the assessment year 2014-15. The Assessing Officer had disallowed these expenses under section 37(1) of the IT Act, 1961, citing the absence of bills and vouchers and questioning the genuineness of the business activities. The CIT(A) upheld this decision, noting the company's suspicious transactions within a group under investigation. However, the Tribunal reversed this decision, emphasizing the need for concrete evidence beyond mere suspicion to disallow legitimate business expenses.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 26975 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: RAKESH GUPTA; SHREY JAIN
• Keywords: Bogus
• Section: 142(1); 143(2); 143(1); 64; 271(1)(c); 37(1)

Judgement Text

" ITA No. 1773/Del/2019 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘G’ NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No. 1773/Del/2019 Assessment Year: 2014-15 Upright Enterprises Pvt. Ltd., D-28, South Ext/ Part-1, New Delhi PIN: 1100 49 Vs. DCIT, CC-2, Faridabad (Hr.) PAN :AAACU9321R (Appellant) (Respondent) ORDER PER ANUBHAV SHARMA: JUDICIAL MEMBRE This appeal by the assessee is directed against the order dated 28.03.2024 of the Commissioner of Income Tax (Appeals)-3, Gurgaon [hereinafter referred to as “CIT(A)”] Assessee by Dr. Rakesh Gupta & Shri Shrey Jain, Advs. Respondent by Shri Sahil Kumar Bansal, Sr. DR Date of hearing 12.02.2025 Date of pronouncement 21.02.2025 2 ITA No. 1773/Del/2019 pertaining to assessment year 2014-15 and arises out of the assessment order dated 28.09.2016 under section 143(1) of the IT Act, 1961 [hereinafter referred as ‘the Act’]. 2. The Assessing Officer in his assessment order has discussed the addition made as follows: “The assessee company has filed the return of income on 17.09.2014 declaring loss of Rs. 4,05,19,529/-. The return was processed u/s 143(1). Case was selected for scrutiny through CASS. Accordingly, statutory notice u/s 143(2) dated 18.09.2015 was issued by DCIT, Central Circle-27(1), New Delhi and duly served on the assessee. Subsequently statutory notice u/s 143(2) and 142(1) dated 30.08.2016 was issued by DCIT, Central Circle-II, Faridabad upon change of jurisdiction and duly served on the assessee. In compliance to the said notices, Shri K.C. Garg, AR on behalf of the assessee attended the assessment proceedings from time to time and the case was heard and discussed with him. 2. During the year the assessee company was engaged in the business of trading of building material items, shares and securities. On examination of details and documents filed during the course of assessment proceedings following issues arise for determination. 3 Perusal of the profit and loss account reveals that the assessee has claimed freight charges at Rs. 65,60,817/- and financial cost of Rs. 1,48,27,836/- during the year. The assessee was asked to produce the bills and vouchers of the expenses but the assessee failed to produce the same. Since the assessee could not produce requisite bills and vouchers, therefore, in the absence of actual business activities these expenses cannot be justified and are not allowable. The same are disallowed as per explanation to 3 ITA No. 1773/Del/2019 section 37(1) of the IT Act, 1961. I am satisfied that the assessee has failed to disclose income and specify the manner in which such income has been derived and thereby liable to be initiated the penalty u/s 271(1)(c) of the Act.” “ 2.1 This is sustained by the ld. CIT(A) by following relevant findings; “5.2 Ground No. 5 & 6 relate to the disallowance of Rs. 65,60,817/- being the freight expenses. I have gone through the assessment order and the submissions of the appellant pertaining to the disallowance of Rs. 65,60,817/- claimed as Freight expenses claimed by the appellant company. The assessing officer has contended that the appellant company belongs to SRS Group, where the investigation after search shows that the companies of the group are floated to show bogus, purchase and sale within the group without any actual transaction. The expenditure on freight and cartage is also thus shown only to inflate expenses without there being actual business. The observations of the AO appear to be correct. It is noticed from the documents submitted before me that the appellant is operating from a residential address at Faridabad. There are no godowns owned or taken on rent by the appellant. This means that there is no place where appellant can store or keep the voluminous buildings material and grocery items. It is also significant to note that the appellant is selling material on rate-to-rate basis within the group companies without making any profit, and in the process thereby incurring huge losses. These transactions are intentionally not undertaken at arm's length and hence genuineness of expenditure incurred on freight charges is highly questionable. The inflated expenditure is also reflected in poor Gross Profit rate admitted by the appellant and negative net profit which only goes to prove the point that such freight expenses are bogus. Further, a perusal of the details of 4 ITA No. 1773/Del/2019 entire freight expenses claimed by appellant for which, the copies of the Ledger account were furnished, the following facts are noticed. 1. No discussion of the items being sold is mentioned anywhere. 2. All payments are made in cash. 3. No description of the vehicle which was used to carry the goods is given. 4. No names of the outside parties for whom the goods were being transported is mentioned. 5. No description or name of place/godown/site, where they were being carted to is mentioned. The above observations clearly proves that the freight expenses claimed are bogus. In light of the above, I confirm the disallowances of Rs. 65,60,817/- as made by the Assessing Officer. The ground is therefore dismissed.” 3. Ld. AR has reasserted the case of assessee as casted below while ld. DR has relied the impugned orders. We have given thoughtful consideration to the impugned orders of learned Tax Authorities Below and on the basis of financials, we find in the relevant financial year, the assessee has reported losses from operations of Rs.213 crores and in which the Revenue from sale of shares is around Rs. 13,11,00,000 while Revenue from sale of building material is over Rs.200 crores. The nature of the business of the assessee certainly 5 ITA No. 1773/Del/2019 required to too much transport of the goods of the nature of building material. Learned counsel has relied on a letter made available on page nos. 64 and 65 of the paper books to submit that complete books of account/bills/vouchers along with bank statements were produced before the Assessing Officer for verification. We find that the learned Tax Authorities Below have not examined any of the financials and other evidences and merely on the basis of the fact that the assessee belongs to SRS Group which was under investigation drawn adverse inferences. 4. We are of the considered view that the financials of an assessee and the duly audited accounts based on bills and vouchers verified in the audit and expenditure being of the nature of freight cannot be doubted without finding the revenue from business of building construction material supply itself to be bogus. If it was a case of inflation of expenses that also required due inquiry and mere suspicion for being a part of group upon which the search was conducted is not sufficient to make the disallowance. It is settled proposition of law that suspicion howsoever strong cannot take place of proof. Even in quasi judicial proceedings the gap between may be true and must be 6 ITA No. 1773/Del/2019 true should be covered by the ld. Tax authorities to discredit an expenditure on standalone i.e basis without examining the nature of business and financials, as same has not been done we are inclined to sustain the grounds. The appeal is allowed and the impugned addition is deleted. Order pronounced in the open court on21.02.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBRE JUDICIAL MEMBER Dated: 21February, 2025 Mohan Lal Copy forwarded to: 1. Applicant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "