CIT(A) Cannot Ignore New Evidence on GST–Income Tax Mismatch: ITAT Bangalore in Korrun India Private Limited Vs ACIT

1. Background and Context

The decision of the ITAT Bangalore in Korrun India Private Limited Vs ACIT addresses a recurring issue in contemporary assessments: large additions arising solely from differences between figures reported in GST records and those disclosed in income-tax books and financial statements.

In this case, the assessee had disclosed total income of INR 14,52,15,050 in its return for Assessment Year 2022-23. During scrutiny, the Assessing Officer (AO) juxtaposed:

  • Purchase data from the assessee’s books with
    • GST return-based information (including TIS), and
    • Import data received from CBIC
  • Sales turnover from financial statements with
    • Outward supplies as per GSTR-1

Based on perceived mismatches and what were considered incomplete reconciliations, the AO made extensive additions, principally under Section 69C read with Section 115BBE.

The dispute eventually turned less on the substantive correctness of the reconciliations and more on procedure: whether the Commissioner of Income Tax (Appeals) [“CIT(A)”] was justified in refusing to consider additional evidence furnished during the appellate stage.

The Tribunal ultimately remanded the matter to the AO for a fresh examination, while clarifying the scope of the CIT(A)’s appellate powers.

2. Additions Made by the AO During Scrutiny

2.1 Purchases vs GST / Import Data

During assessment proceedings initiated under Section 143(2) and Section 142(1), the AO noted that:

  • Purchases disclosed in the income-tax records were lower than the invoice values of imports reflected in data obtained from CBIC.
  • As per GSTR-1 and related data, the assessee appeared to have purchases from 273 parties aggregating INR 93,60,76,113.

To verify the genuineness of purchases, the AO issued notices under Section 133(6) to 69 vendors. Responses received confirmed transactions of INR 22,66,83,729. The AO identified:

  • A difference of INR 5,53,16,830 between the amount reflected by certain vendors and the amounts recorded by the assessee in its books.
  • A further difference of INR 61,24,05,490 between purchases as per the income-tax return and the purchase-related figures as per GSTR-1 / TIS.

The assessee was asked to reconcile both sets of differences and provide detailed supporting documentation, including party-wise ledgers and PAN details. While party-wise breakups of purchases were filed, the AO recorded that no satisfactory reconciliation or supporting documentary evidence was produced for the differences of INR 61,24,05,490 and INR 5,53,16,830.

Consequently, vide order dated 21/03/2024 passed under Section 143(3) read with Section 144B, the AO:

  • Treated INR 61,24,05,490 as unexplained expenditure and added it under Section 69C.
  • Added INR 5,53,16,830 under Section 69C as unexplained / non-genuine purchase-related expenditure, being the difference between vendor confirmations and assessee’s records.

2.2 Sales Turnover vs GSTR-1

The AO further detected a mismatch of INR 29,59,40,470 between:

  • Sales reported in the income-tax return / financial statements, and
  • Outward supplies as disclosed in GSTR-1 and related GST data.

In response to a show cause notice, the assessee submitted a reconciliation, explaining that:

  • The major portion of this difference represented inter-state stock transfers between its own branches, recorded as “supplies” for GST but excluded from sales in the financial statements since such transfers do not give rise to revenue or income.
  • The stock transfer entries were neutral in the profit and loss account as they were excluded from both sales and purchases.

However, the AO recorded that no adequate contemporaneous documentary evidence (such as detailed stock transfer records, branch-wise stock movement statements, etc.) had been produced to corroborate the reconciliation. On this basis, the AO added the entire difference of INR 29,59,40,487 to the total income of the assessee as unexplained sales / income.

  1. Repairs and Maintenance
    • A difference of INR 2,877 was noticed between the repairs and maintenance expenses claimed and the corresponding ledger details.
    • This amount was added to income.