AO Adds Purchases from Suppliers Issuing Fake Bills to Income, Labels Them Bogus: ITAT directs for Further Verification [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) directed further verification in the matter concerning the Assessing Officer (AO) treating entire purchases as bogus citing that the suppliers were involved in issuing fake invoices without delivering goods.

A.M. Enterprises, a partnership firm, made purchases for Rs. 8,36,27,420, from Ratan Enterprises and Royal Enterprises, which were treated as bogus by the AO based on findings from the Karnataka Commercial Tax Department.

The AO disallowed the purchases in their entirety citing that the suppliers were involved in issuing fake invoices without delivering goods or services. The assessee provided documents including purchase invoices, e-way bills, and proof of GST payments, particularly for Ratan Enterprises to prove the transactions but these submissions were disregarded by the AO.

How to Compute Income from Salary with Tax Planning, Click Here

On appeal, the Commissioner of Income Tax ( Appeals ) [CIT(A)] upheld the AO’s decision. The assessee approached ITAT arguing that the purchases were genuine and supported by payment proofs through banking channels. The assessee’s counsel further argued that disallowing the entire amount would result in double taxation since corresponding sales were accounted for.

The assessee’s counsel presented additional evidence, including proof of GST payments for Ratan Enterprises. For Royal Enterprises, the counsel sought an opportunity to provide necessary proof of GST payments.

The two-member bench comprising Waseem Ahmed (Accountant Member) and Prakash Chand Yadav (Judicial Member) considered arguments from both sides and the evidence presented. The tribunal observed that the GST payment evidence for Ratan Enterprises needed fresh verification by the AO and the assessee had to be given an opportunity to submit similar evidence for Royal Enterprises.

How to Compute Income from Salary with Tax Planning, Click Here

The tribunal explained that 100% disallowance of purchases was unjust as it would result in double taxation. The tribunal directed the AO to re-examine the evidence, verify GST payments, and adjust for any gray market purchases.

The tribunal remanded the matter to the AO for fresh adjudication and allowed the appeal for statistical purposes.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates