ITAT Chennai Rejects Section 69C Addition Based on Insight Portal–GSTR-2A Import Mismatch

Background of the Dispute

The case ACIT Vs Archean Chemical Industries Ltd came before the ITAT Chennai in an appeal filed by the Revenue against the order of the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for Assessment Year 2022-23.

Archean Chemical Industries Ltd, a public limited company engaged in producing industrial salt, bromine, and other chemical products, had filed its return of income declaring nil income after adjusting brought forward losses. The assessment was completed under Section 143(3) read with Section 144B of the Income Tax Act 1961 on 25.03.2024.

During this assessment, the Assessing Officer (AO) made an addition of Rs. 51,81,81,096 under Section 69C, alleging unexplained expenditure on the basis of a difference between:

  • Import data appearing in the Insight Portal (a system maintained by the Income Tax Department), and
  • Import figures as reflected in Form GSTR-2A under the CGST framework.

The AO treated this differential amount as unaccounted imports/purchases, leading to the impugned Section 69C addition.

The CIT(A) examined the matter in detail, including reconciliation statements, Bills of Entry, and other supporting documents, and held that there was no unexplained expenditure, thereby deleting the addition. Aggrieved, the Revenue carried the matter to the ITAT.

Grounds Taken by the Revenue Before ITAT

The Revenue challenged the CIT(A)’s order essentially on the following planks:

  • The CIT(A) allegedly erred in law and facts by deleting the addition under Section 69C without, according to the Revenue, properly appreciating the material on record.
  • The Revenue argued that the assessee failed to satisfactorily reconcile import values as per the Insight Portal vis-à-vis Form GSTR-2A and the books of account.
  • It was contended that the CIT(A) wrongly accepted the assessee’s explanation that the disputed imports were only returnable empty ISO containers, without allegedly verifying:
    • whether the containers had been treated as capital assets,
    • whether expenditure had been claimed, or
    • how the cost was amortised.
  • The Revenue also took objection to the CIT(A) describing the assessment order as non-speaking and violative of natural justice, submitting that:
    • show-cause notices were issued, and
    • replies filed by the assessee were on record and considered.
  • Further, the Revenue claimed that the CIT(A) focused on procedural lapses and did not engage with the AO’s substantive allegation of unexplained purchases and non-verification of entries.

On this basis, the Department prayed that the ITAT reverse the order of the CIT(A) and restore the original assessment.

Assessee’s Defence and Case Before CIT(A) and ITAT

Nature of Data and Basis of Addition

The authorised representative (AR) of the assessee submitted that the entire addition was rooted solely in a numerical difference between two third-party, system-generated datasets, namely:

  1. Import figures in the Insight Portal, and
  2. Auto-populated import-related entries in Form GSTR-2A.

Key aspects highlighted by the assessee:

  • Neither dataset was prepared, owned, or controlled by the assessee.
  • The AO relied on this third-party data without first establishing that any actual expenditure outside the books had been incurred by the assessee.
  • On detailed scrutiny of the same data that the AO had used, the assessee identified:
    • Duplicate Bills of Entry in the Insight Portal data, and
    • Variances arising from inclusion/exclusion of statutory levies like customs duty, cess, and handling charges.

Reconciliation Exercise