CIT(A) & AO Ignores status of GST Angle in ₹25.17 cr Bogus Purchase Case: ITAT orders fresh Adjudication [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) has remanded a case involving alleged bogus purchases worth ₹25.17 crore to the Assessing Officer (AO) for a fresh inquiry, after noting that both the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] failed to examine the Goods and Services Tax (GST) angle.

The income tax officer filed an income tax appeal against Ramlal Manekchand HUF, a trader in bullion and jewellery, for Assessment Year 2021-22. The assessee declared an income of ₹18.91 lakh, but the scrutiny assessment under Section 143(3) of the Income Tax Act revealed purchases from five suspicious suppliers.

Out of these, two suppliers were found to be engaged in petty occupations unrelated to bullion trading, while three others could not be traced. The AO, relying on the findings of the Designated Verification Unit (DVU), disallowed purchases aggregating to ₹25.17 crore. The additions included ₹16.13 crore as unexplained expenditure under Section 69C and ₹89.41 lakh as profit element from non-genuine purchases.

On appeal, the CIT(A) deleted the entire addition, holding that the assessee had furnished bills, invoices, bank statements, and confirmations to establish the genuineness of the purchases.

However, the ITAT found that the CIT(A) failed to deal with adverse evidence collected by the AO, particularly the fact that suppliers were either untraceable or lacked the capacity to carry out such large-scale transactions.

The Tribunal observed that mere reliance on purchase bills and banking channels was insufficient to prove genuineness when the foundational credibility of the suppliers was in doubt.

The ITAT noted that neither the AO nor the CIT(A) examined whether Input Tax Credit (ITC) had been claimed under GST on these purchases.

The Tribunal pointed out that a GST component of ₹75.51 lakh (@3%) was involved in the disputed transactions, and it was necessary to verify whether such ITC had been availed and accepted by the GST authorities.

Failure to reconcile ITC claims, the Tribunal noted, raised serious doubts about the commercial substance of the transactions, as no genuine trader would sustain such a huge financial burden if purchases were fictitious.

While remanding the matter to the AO, the bench of T.R. Senthilkumar (JM) and Narendra Prasad Sinha (AM) directed a comprehensive re-examination. The AO has been instructed to verify ITC claims from GST authorities, correlate findings with assessments of the five suppliers, and trace the flow of funds through their bank accounts.

The assessee has also been asked to fully cooperate and produce necessary documents. The Tribunal said that the AO must pass a speaking and reasoned order after granting the assessee due opportunity of hearing.

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