ITAT Mumbai Deletes 0.5% Income Estimation in Superways Enterprises Search Case

The “G” Bench of the Income Tax Appellate Tribunal, Mumbai, decided cross-appeals in the case of Superways Enterprises Pvt. Ltd. for AYs 2013–14 to 2019–20. The core issue concerned estimation of additional income on alleged circular trading using bank Letter of Credit (LC) facilities.

Alleged Circular Trading and 7% Estimation

Following a search in the Jatia Group, the Assessing Officer held that the assessee engaged in back-to-back purchase and sale transactions with entities of the Lloyds, Topworth and Uttam Galva groups to inflate turnover and avail LC facilities. The AO rejected books under Section 145(3) and estimated additional income at 7% of sales turnover, treating transactions as accommodation entries. He also disallowed depreciation and indirect expenses and made additions under Section 68 for unsecured loans. The CIT(A) held that transactions were recorded, routed through banks, and profits were disclosed. While rejecting the 7% rate as excessive, he estimated additional income at 0.5% of sales.

Tribunal: No Basis for Any Further Estimation

The ITAT noted that:

1. Purchases and sales were invoiced and reflected in books.
2. Payments were through LC and banking channels.
3. No evidence of cash introduction or extra consideration was found in search.
4. Similar additions in group cases were deleted by coordinate benches.

Holding that even 0.5% estimation lacked legal and factual basis, the Tribunal deleted the addition entirely. It also upheld deletion of disallowance of depreciation and indirect expenses, observing that business income was already disclosed and expenses were genuinely incurred. Further, additions under Section 68 for unsecured loans were deleted as identity, creditworthiness, and genuineness were established and loans were largely repaid through banking channels.

Accordingly, Revenue appeals were dismissed and assessee appeals were partly allowed.