VAT Accepted Books Cannot Be Rejected Without Defects: ITAT Deletes Bogus Purchase Addition After AO Makes No Independent Inquiry [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal, deleting the bogus purchase addition after holding that when the books of account were accepted in Value Added Tax (VAT) assessments without finding any defects, the Assessing Officer (AO) could not reject them or make additions under Section 69C without conducting any independent inquiry.

The assessee, Ahluwalia Erectors & Fabricators Pvt. Ltd., engaged in the business of fabrication and erection of structures, had filed its return declaring income.

During scrutiny, the AO relied solely on information from the DIT (Investigation), alleging that certain suppliers were “hawala dealers” providing accommodation entries, and treated the assessee’s purchases from these parties as bogus.

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Despite the the assessee had produced complete books of account, VAT returns, quantitative stock records, purchase invoices, and proof of payments made through banking channels, the AO had not pointed out any defects in the books or conducted verification of the suppliers, delivery of goods, or consumption records. Instead, based on third-party statements recorded by the Sales Tax Department, the AO made the addition under Section 69C.

The assessee argued before the CIT(A) that the purchases were genuine, that payments were made through account payee cheques, and that complete quantitative details had been maintained.

The assessee further submitted that the VAT authorities had accepted the books and assessed the turnover based on the same records, and therefore the AO could not disregard those findings without conducting his own inquiry.

The CIT(A), however, upheld the addition.

Before the Tribunal, the assessee contended that not a single defect was found in the audited books of account, nor was any evidence brought on record by the AO to show that purchases were not made or that consumption was inflated. It was also argued that the AO blindly relied on external information and never examined the suppliers, transport records, or stock details.

The Bench comprising Rathod Kamlesh Jayantbhai (Accountant Member) and Dr. S. Seethalakshmi (Judicial Member) examined the records and observed that the AO had made the addition without making any independent inquiry, and merely followed information received from the VAT Department.

The Tribunal noted that the purchases were recorded in regular books which were duly audited, the payments were made through banking channels, and the quantitative details of goods consumed in contract work were never doubted.

The Tribunal observed that when VAT authorities had accepted the assessee’s books during assessment, the AO could not reject those books without pointing out specific defects and thereby concluded that the addition under Section 69C was unsustainable.

Accordingly, the Tribunal deleted the entire addition, allowing the appeal.

The assessee was represented by Mahendra Gargieya, while the Revenue was represented by Anita Rinesh.

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