Assessment under Section 69C remanded for fresh verification of alleged bogus purchases, GST credit claims, and supporting records

ITAT, Surat - AT remanded the assessment under s.69C relating to alleged bogus purchases and GST-credit transactions to the AO for fresh verification and adjudication. The tribunal found the assessee paid GST, interest and penalty but failed to produce stock registers and delivery evidence to prove actual receipt and movement of yarn; reliance on a spouse's decision was inadequate. Vardhaman Exports was held inapplicable due to doubt over genuine purchases. Appeal was partly allowed for statistical purposes.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the assessment framed under section 147 read with section 148 (reopening of assessment) was validly invoked (jurisdictional and procedural sufficiency of notices and supply of investigation material).

2. Whether purchases alleged to be bogus and disallowed as unexplained investments/income under section 69C can be treated as income where invoices, ledger entries, bank payments, delivery challans and tax-audit Form 3CD entries are on record but supplier is shown to have generated/spread GST credit without physical movement of goods and supplier's representatives admitted such activity to GST authorities.

3. Whether the addition characterized as income under section 69C should instead be taxed as business income or be subjected to special tax provision section 115BBE (i.e., correctness of invoking section 115BBE as opposed to business income treatment).

4. Ancillary evidentiary and procedural issues: adequacy of supply of statements/investigation report to the assessee for cross-examination; relevance of stock register and physical movement/quantity tally; applicability of precedents where books were not rejected or payments were proved.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of reopening under sections 147/148 and supply of investigation material

Legal framework: Reopening an assessment requires satisfaction of escapement of income and issue of statutory notice under section 148; procedural fairness under section 148A includes supply of material upon which reopening is sought and opportunity to explain; faceless reassessment procedure notified with effect from 29-03-2022 imposes administrative requirements on issuance of certain notices.

Precedent treatment: Parties referred to decisions addressing jurisdiction to issue notices and validity where notices issued by improper authority; reliance placed on tribunal and High Court decisions addressing faceless scheme and jurisdictional requirements.

Interpretation and reasoning: The assessee did not press ground challenging reopening at hearing and the Tribunal accordingly dismissed that ground. The record shows show-cause and related notices under section 148A/148 were issued and the assessee was given opportunity and filed reply/ITR in response. Although contentions were raised regarding non-supply of certain statements/investigation material during section 148A(b) proceedings and faceless scheme issuance, the Tribunal did not adjudicate those contentions on merits because the reopening challenge was not pressed.

Ratio vs. Obiter: The pronouncement that the reopening ground is dismissed is outcome-determinative given lack of pressing by appellant (ratio in the context of the appeal). Any observations regarding faceless scheme or supply of material are obiter in respect of validity since not decided on merits.

Conclusions: Ground challenging reopening is dismissed as not pressed; no substantive ruling issued on the sufficiency of supply of investigation material or on faceless scheme jurisdictional contentions in this appeal.

Issue 2 - Disallowance under section 69C for alleged bogus purchases where records (invoices, ledgers, bank payments, delivery challans, Form 3CD) exist but supplier admitted GST-credit generation without physical movement

Legal framework: Section 69C targets unexplained cash credits, investments, or expenditure by treating unexplained entries as income where source is not satisfactorily explained; taxation authorities may treat alleged bogus purchases as income where payments are not genuine or source/movement cannot be established; however, when payments are evidenced in books and by banking channel, and when books of account are not rejected, courts/tribunals have required careful scrutiny before invoking section 69C.

Precedent treatment (followed/distinguished): Reliance placed by appellant on authorities holding that section 69C does not apply where source of payment is explained (payments from bank account) and books not rejected (e.g., Vardhman Exports and related Gujarat decisions; Nikunj Exim Enterprises Bombay decision). Revenue relied on supplier's admissions to GST authorities and cancellation of supplier's GST registration. The Tribunal recognized these competing lines of authority but distinguished immediate allowance because factual matrix here includes supplier's admitted business of issuing paper invoices and absence of full verification of physical movement by the AO.

Interpretation and reasoning: The Tribunal accepted that the assessee produced invoices, ledger, bank statements, delivery challans and Form 3CD entries and had recorded payments and GST consequences (including reversal/payment of ITC, interest and penalty). Those facts, and precedents cited, support the proposition that mere supplier non-appearance or supplier irregularity does not automatically convert purchases into unexplained income. However, the Tribunal found material gaps: lack of stock register/physical inward/outward entries and insufficient verification of actual movement of goods and correspondence between alleged purchases and sales/output; absence of cross-examination of supplier statements and incomplete supply of investigation material to assessee meant fact-finding on genuineness of purchases remained unresolved. The Tribunal concluded that these factual deficiencies require further enquiry rather than immediate deletion of section 69C addition.

Ratio vs. Obiter: The direction to remit the matter for verification of physical movement, stock records and further inquiry is ratio - it is the operative decision resolving the dispute on the present record. Observations that authorities/case law support either party are explanatory (obiter) to the extent they do not settle the specific facts here.

Conclusions: Addition under section 69C cannot be sustained or quashed on the limited record; the matter is remitted to the Assessing Officer for further verification of physical movement, stock registers, inward/outward entries, price comparability and related inquiries, with opportunity to the assessee to be heard following principles of natural justice.

Issue 3 - Correctness of invoking section 115BBE instead of treating the amount as business income

Legal framework: Section 115BBE applies to specific types of income (e.g., unexplained cash credits, investments, money, bullion, etc.) taxed at special rates; whether a sum is taxable under section 115BBE or under normal law as business income depends on its characterization as unexplained income versus business profit and on whether the assessing officer has invoked the special provision in the assessment order.

Precedent treatment: Parties cited a range of authorities on characterization of additions and applicability of section 115BBE versus assessment under normal heads of income.

Interpretation and reasoning: The Assessing Officer did not invoke section 115BBE in the assessment order; the Revenue treated the disallowance as addition under section 69C. The assessee contended that the amount should be treated as business expenditure (deductible purchases) rather than being subject to section 115BBE. The Tribunal noted these contentions but did not make a definitive ruling on invocation of section 115BBE because the core factual question (genuineness of purchases and whether they escape assessment) remains remitted for factual verification. Hence any pronouncement on section 115BBE would be premature.

Ratio vs. Obiter: Any statement about inappropriateness of section 115BBE is obiter in this appeal because the Tribunal remitted the primary factual issues; no operative reversal on taxation head was made.

Conclusions: No final adjudication on section 115BBE versus business income is made; resolution deferred to the Assessing Officer during remand after factual verification. The Tribunal noted that AO had not invoked section 115BBE originally.

Issue 4 - Procedural fairness, supply of statements and weight of supplier's GST-recorded admissions

Legal framework: Principles of natural justice require supply of material relied upon for adverse conclusions and opportunity for cross-examination where required; statements recorded by other departments (GST) are relevant but require verification and may be subject to cross-examination in tax proceedings; rejection of books requires adherence to statutory criteria.

Precedent treatment: Authorities cited by the assessee emphasize necessity of supply of adverse evidence and fair opportunity to controvert; decisions also indicate that admissions to other departments are relevant but not conclusive absent independent verification.

Interpretation and reasoning: The Tribunal observed that certain statements recorded by GST authorities were available but either not fully supplied or cross-examined in IT proceedings; supplier's admission that invoices were used to pass ITC weighs against the genuineness of supplier's business yet does not by itself conclusively establish that the purchaser did not receive goods. Given the absence of stock register entries and physical verification, the Tribunal held factual adjudication is necessary; mere supplier admission without corresponding verification of inward entries/stock movement or full supply of investigation report cannot, on the present record, support a conclusive addition under section 69C.

Ratio vs. Obiter: Direction to supply full material and permit further inquiry and cross-examination on remand is ratio; characterizations of the evidentiary weight of GST statements are explanatory and contingent on further inquiry (obiter in part).

Conclusions: The Assessing Officer is directed on remand to supply all relevant statements/investigation material to the assessee, permit appropriate cross-examination/verification, examine stock registers, inward/outward entries and price comparability, and then adjudicate the genuineness of purchases and correct tax treatment in accordance with law and principles of natural justice.

DISPOSITIVE RESULT

The appeal is partly allowed for statistical purposes: the Tribunal remands the assessment to the Assessing Officer for further factual verification and adjudication on the genuineness of purchases, application (if any) of section 69C or section 115BBE, and to give the assessee opportunity of hearing after supplying requisite material; no substantive quashing of addition is made on the present record and reopening challenge is dismissed as not pressed.

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