Upright Enterprises Pvt. Ltd. vs. DCIT, ITA No. 1773/Del/2019
ITAT Delhi allowed an appeal against the disallowance of ₹65,60,817 in freight expenses. The core issue revolved around whether mere association with a group under investigation, along with lack of certain infrastructure, was enough to treat genuine business expenses as bogus.
Background
The appellant company, involved in trading of building materials and shares, declared a business loss of over ₹4 crore for AY 2014–15. The AO disallowed freight and financial charges on the grounds that:
- The company operated from a residential address with no rented or owned godown;
- All transactions were allegedly within the group (under probe), raising suspicion;
- Freight ledger details lacked vehicle numbers, delivery addresses, or vendor names;
- Payments were made in cash.
Citing these factors and the ongoing investigation into the larger SRS Group, the AO disallowed the entire freight expense under Explanation to Section 37(1).
CIT(A)’s Concurrence
The CIT(A), Gurgaon, upheld the disallowance, noting:
- The company’s transactions were not at arm’s length;
- The business structure raised serious doubts about the legitimacy of transactions;
- No conclusive documentation was submitted to prove genuine movement of goods.
ITAT’s Decision: Disallowance Unsustainable Without Direct Evidence
The ITAT noted that:
- The company earned over ₹200 crore in revenue from building material sales — a business inherently requiring extensive transportation.
- The entire business wasn’t challenged; only one line-item (freight) was disallowed.
- Audited books of accounts were maintained and submitted during assessment.
- The AO and CIT(A) relied solely on suspicion stemming from the group’s investigation, without conducting any independent verification of the transactions.
The Tribunal emphasized:
“Suspicion howsoever strong cannot take the place of proof. Even in quasi-judicial proceedings, conclusions must be based on verifiable evidence, not assumptions based on group linkages.”
Accordingly, the disallowance was deleted, and the appeal was allowed.
Legal Significance
- Section 37(1) cannot be invoked to disallow expenses unless the transaction is shown to be non-genuine or personal in nature.
- Being part of a group under scrutiny does not automatically taint individual entities without concrete evidence.
- Cash payments and lack of some documentation, while relevant, do not by themselves prove falsity, especially when revenue generation and business scale justify such expenses.
Conclusion
This ruling from ITAT Delhi reinforces a critical tax principle: taxation must rest on proof, not presumption. Group association or procedural lapses cannot justify disallowances unless substantive falsity is clearly established.