Subsequent Cancellation of Supplier's GST Registration Cannot Invalidate Genuinely Documented Purchases: ITAT Delhi
In a significant judicial determination, the Income Tax Appellate Tribunal (ITAT), Delhi Bench “E”, has categorically ruled that purchases supported by robust documentary evidence cannot be treated as bogus merely because the supplier's Goods and Services Tax (GST) registration was cancelled at a later date. The ruling was delivered in the case of China Construction Sausum (I) Pvt. Ltd. Vs DCIT, where the tribunal adjudicated upon appeals concerning Assessment Years (AY) 2020-21 and 2021-22.
The tribunal's comprehensive order underscores the evidentiary value of primary documents—such as tax invoices, bank statements, sub-contracts, and e-way bills—and clarifies the boundaries of an assessee's responsibility regarding a vendor's post-transaction conduct.
Factual Matrix of the Case
The assessee, a company engaged in executing large-scale civil and industrial construction contracts, was responsible for prominent infrastructure projects. These included the OPPO Mobile Manufacturing Centre Phase-II Project, the Haier North India Industrial Park Project, the Chenfeng Technology factory EPC Project, and "The Icon" project.
The financial scale of the assessee's operations was substantial, with an operational revenue of Rs 509.40 crores reported for Financial Year (FY) 2019-20 and Rs 685.69 crores for FY 2020-21. The net profit margins stood at 0.54% and 0.57%, respectively. The assessee’s books of accounts were thoroughly audited and initially accepted by the tax authorities.
Procedural History and Search Operations
The sequence of events leading to the dispute began with a survey operation conducted on 20-11-2020 at the assessee's premises in Mumbai. This was rapidly followed by a search and seizure operation under Section 132 of the Income Tax Act, 1961, on 23-11-2020.
The assessee had filed its original return of income on 31-03-2021, declaring a total income of Rs 9,93,41,780. A revised return was subsequently filed on 31-05-2021, declaring an income of Rs 14,24,96,040. Following the search operations, the assessee's case was centralized under Section 127 of the Act via an order dated 30-3-2021. Notice under Section 153A was issued on 19-11-2021.
The centralization order was challenged by the assessee before the Hon’ble Bombay High Court. On 15-2-2022, the High Court set aside the transfer order, directing the authorities to pass a fresh order following due procedure. A fresh centralization order under Section 127 was passed on 23-3-2022, and a subsequent notice under Section 153A was issued on 24-3-2022. In response, the assessee filed its return on 26-3-2022, declaring the same revised income of Rs 14,24,96,050.
Pursuant to the High Court's directive dated 25-3-2022 to complete the assessment by 31-5-2022, the Assessing Officer (AO) issued notices under Section 143(2) on 10-5-2022 and Section 142(1) of the Act, culminating in an assessment order passed under Section 143(3) read with Section 153A on 31.05.2022.