Jodhpur ITAT on Bogus Purchases: Section 69C Addition Deleted Despite Adverse GST Investigation
Background of the Dispute
In ITO Vs Pratap Engineering Works (ITAT Jodhpur), the Jodhpur Bench of the Income Tax Appellate Tribunal examined whether an addition under Section 69C could be sustained merely on the basis of an investigation conducted by the GST authorities, without any independent enquiry by the Assessing Officer.
The dispute arose from reassessment proceedings initiated against the assessee for the Assessment Year 2018-19, where purchases from one concern, M/s Preet Enterprises, were treated as bogus. The Revenue relied heavily on a report of the anti-evasion wing of the CGST Commissionerate, Kutch (Gandhidham), alleging M/s Preet Enterprises to be a non-genuine entity issuing accommodation bills.
The CIT(A) deleted the addition, and the Revenue carried the matter in appeal to the Tribunal. The Jodhpur ITAT ultimately affirmed the CIT(A)’s decision and dismissed the Revenue’s appeal.
Origin of the Reassessment and Allegations
Information Triggering Action
The reassessment proceedings were set in motion based on:
- Information received from the office of the
Deputy Director of Income Tax (Inv.), Gandhidham Kutch, - Inputs derived from an investigation by the anti-evasion wing of
CGST Commissionerate, Kutch (Gandhidham), and - Risk alerts raised under the category “High Risk CRIU/VRU Information” in the Income Tax Insight Portal as per the Risk Management Strategy.
As per the information available with the Department:
- The assessee was alleged to have taken only purchase bills and accommodation entries aggregating to Rs. 14,47,648/- from
M/s Preet Enterprises, Prop. Sh. Gurkamal Singh (PAN CFXPG7711N) - It was asserted that there was no actual purchase or supply of goods,
- Consequently, the assessee was alleged to have inflated purchase expenses and claimed them in the profit and loss account.
Alleged Modus Operandi of the Supplier
According to findings of the CGST anti-evasion authorities:
- One
Shri Gurukamal Singhwas stated to have floated 18 bogus entities, includingM/s Preet Enterprises, - These entities were purportedly engaged in issuing invoices without actual movement of goods or rendering of services,
- Such invoices reflected GST components to enable recipients to claim Input Tax Credit (ITC),
- Documents such as PAN and Aadhaar of various individuals were allegedly misused to obtain GST registrations for these entities,
- Bank accounts in the names of these entities were opened, but:
- The entities were not operating from the registered addresses,
- Several addresses were reportedly untraceable.
Based on this material, the Assessing Officer formed a belief that the impugned purchases from M/s Preet Enterprises were bogus and proposed to treat the sum of Rs. 14,47,648/- as unexplained expenditure under Section 69C.
Assessee’s Stand and Supporting Evidence
Response to Show Cause Notice
In reply to the show cause notice issued in the reassessment proceedings, the assessee strongly disputed the allegations and maintained that:
- The purchases from
M/s Preet Enterpriseswere genuine commercial transactions, - Goods were actually received and utilized in the regular course of business,
- Payments were made entirely through banking channels.
Documentary Trail Produced
To substantiate the genuineness of the purchases, the assessee produced a detailed documentary trail, including:
- Copies of purchase orders,
- Tax invoices issued by
M/s Preet Enterprises, - Transport bilties evidencing movement of goods,
- Bank account statements showing payment to
M/s Preet Enterprisesthrough normal banking modes, - Ledger accounts reflecting the purchases and payments in the books.
The assessee consistently asserted that there was actual supply of goods, and the transactions were duly recorded in the regularly maintained and audited books of account.