The court established that reopening of assessment requires 'reason to believe' based on tangible material, and entire purchases cannot be disallowed if genuine evidence exists, allowing for profit estimation instead.

आदेश/ ORDER

PER BENCH:

These two appeals, one by the Revenue and the cross appeal by the Assessee, are directed against the order dated 22.10.2024 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] under section 250 of the Income- tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2018–19. The said appellate order arises from the assessment order dated 09.03.2023 passed by the Assessing Officer (AO) under section 147 read with section 144B of 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 dated 26.03.2022, the assessee filed return in response on 25.04.2022, 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 on 09.03.2023 under section 147 r.w.s. 144B. n the course of reassessment, the 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. The AO rejected the explanation, observing that the invoices mentioned the buyer as “Ganpatrai Jaigopal Shipbreakers Pvt. Ltd.”, not “Leela Greenship Recycling Pvt. Ltd.” The AR also noted that 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. The Concluded that there was failure to conclusively prove the physical movement of goods. Accordingly, the 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.

3. In appeal before the CIT(A), the assessee challenged the reopening itself as without jurisdiction and also contested the addition on merits. The learned CIT(A) carefully examined the entire assessment record, written submissions of the assessee, material produced before the Assessing Officer, and the legal contentions raised. The CIT(A)) first addressed the issue relating to the validity of the reassessment initiated under section 147 of the Act. After setting out the