Income Tax Return Figures Alone Insufficient for GST Demand: Madras HC Orders Forensic Verification [Read Order]

In a recent ruling, the Madras High Court has directed a forensic examination of the records while disposing of multiple writ petitions challenging GST assessment orders. Also ordered the petitioner to make a pre-deposit of ₹30 lakh after which the attachment of its bank account would be lifted.

The writ petition was filed by K. N Raj Construction against the state tax officer, challenging the assessment order dated 8 November 2024, as rectified on 11 November 2024. Order passed under section 74 of the GST enactments for the assessment years 2017-18 to 2021-22

The petitioner, K. N Raj Construction, argued that the turnover mismatch, that is, the inflated turnover, was declared only to qualify for the technical evaluation of government tenders.₹26.89 crore reported in GST returns versus ₹166.93 crore declared in the Income Tax portal was due to inflated figures furnished only for tender qualification.

The assesse further argued that actual bank receipts were only ₹27.89 crore, and therefore, no GST liability could be fastened on the inflated numbers. The assurance was placed on earlier judicial precedents where similar allegations had been rejected.

The respondent argued that the assessee was bound by the turnover declared in the Income Tax portal, that the assessment orders were detailed and passed after remand. It was also contended that the writ petition was delayed and that asessee had an alternative appellate remedy.

Earlier, in September 2023, the company had suffered adverse assessment orders, and a sum of ₹1.42 crore was directly recovered from its bank account. Those orders were set aside by the Court in August 2024, with directions for fresh consideration. Pursuant to that, the impugned orders were passed, leading to the present litigation.

The high court, after hearing both sides, noted that a huge gap between bank receipts and declared turnover and held that the matter required a forensic audit. It directed the GST Department’s audit wing to conduct a detailed examination of the petitioner’s records, both physical and electronic, within three months. The petitioner was directed to cooperate fully and furnish all relevant data.

The bench, Justice C.Saravanan, concluded that the case could not be decided merely on the inflated Income Tax figures. The writ petition was disposed of with a direction for audit and a ₹30 lakh pre-deposit.

Accordingly, the High Court dismissed the writ petitions with these directions, closing connected miscellaneous petitions

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