2025 (10) TMI 1015 - AT - Income Tax

Additions for alleged bogus purchases deleted where invoices, transport and stock supported purchases and Section 148 reassessment failed

ITAT DELHI - AT held that additions for alleged bogus purchases must be deleted and the assessee's appeal allowed because the assessee produced purchase ... Addition of bogus purchases - assessee’s case was reopened by issuing notice u/s. 148 - HELD THAT:- Assessee has filed invoices of Balaji Trading Company and also submitted the invoices of transportation undertaken on cycle rickshaw and also maintained stock registers. Even, neither the AO nor the CIT(A) has doubted the sales made by the assessee, pursuant to purchase made from Balaji Trading Company. It means that the assessee has made sales out of the alleged bogus purchases. Hence, the department is unable to prove that Balaji Trading Company is a non-existent company and even Balaji Trading Company has utilized Input Tax Credit (ITC) amounting to Rs. 5.83 crores. It means that Balaji Trading Company is not conclusively proved by the revenue that it is non-existent company. Hence, delete the addition and accordingly, allow the appeal of the assessee. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether additions under section 69C read with section 115BBE for alleged bogus purchases can be sustained where the Assessing Officer and appellate authority rely on a supplier being 'inactive' on the GST portal and the supplier does not respond to departmental queries. 2. Whether production of purchase invoices, bank payment evidence, transportation particulars (including use of cycle rickshaw), and stock records is sufficient to rebut the Department's claim that purchases are bogus or that the supplier is a non-existent entity. 3. Whether the fact that the supplier has utilized substantial Input Tax Credit (ITC) on GST records is relevant to the question of the supplier's existence and the genuineness of transactions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainment of additions under section 69C read with section 115BBE based on supplier's GST inactivity and non-response Legal framework: Section 69C permits the addition of unexplained cash credits/unaccounted transactions where the assessee fails to explain the nature and source; section 115BBE prescribes special taxation of certain undisclosed income. The statutory scheme requires the Department to form a reasoned belief before reopening and then to prove the existence of unexplained investments/transactions; the evidentiary burden lies on the revenue to establish that claimed purchases are sham or from a non-existent person. Precedent Treatment: The judgment does not cite or apply any precedent authority; no precedent is expressly followed, distinguished or overruled in the record. Interpretation and reasoning: The Tribunal examined the material relied on by the AO/CIT(A) - principally the supplier's status as 'inactive' on the GST portal and lack of response from the supplier - against the documents produced by the assessee (invoices, bank statements, payment evidence, transport particulars, stock registers). The Tribunal found that mere portal 'inactivity' and non-response do not conclusively establish non-existence of the supplier or that purchases were bogus, particularly where contemporaneous documentary evidence has been produced by the assessee and where sales arising out of those purchases are not disputed. Ratio vs. Obiter: Ratio - Revenue must adduce sufficient evidence to prove that purchases are bogus or supplier is non-existent; administrative markers like GST 'inactive' status and silence of supplier are not, without more, conclusive. Obiter - implicit observation that procedural steps (reopening notice and queries) were followed but substantive proof is necessary. Conclusions: Addition under section 69C read with section 115BBE cannot be sustained on the record before the Tribunal where the revenue's reliance on GST portal inactivity and supplier's non-response is not supported by affirmative proof that the supplier was non-existent or that purchases were fabricated. Issue 2 - Sufficiency of assessee's contemporaneous documents (invoices, bank payments, transport particulars, stock records) to rebut claim of bogus purchases Legal framework: Tax assessment principles recognize that genuine transactions are evidenced by vouchers, bank payment trails, and corroborative records such as stock registers and transportation documents; where such documents are furnished, the AO must show discrepancies or infirmities that render them unreliable. Precedent Treatment: No precedents were cited; the Tribunal's approach follows the established evidentiary principle that production of credible contemporaneous documentary evidence shifts the onus back to the revenue to rebut genuineness. Interpretation and reasoning: The Tribunal noted that the assessee submitted invoices, bank statements showing payments/receipts, transportation vouchers (albeit indicating transport by cycle rickshaw), and maintained stock registers. The AO and CIT(A) did not impugn the assessee's sales resulting from the purchases. Given the absence of direct proof of fabrication and the presence of consistent books and vouchers, the Tribunal held that the documents sufficiently rebutted the presumption of bogus purchases in this case. Ratio vs. Obiter: Ratio - Contemporaneous invoices, bank payment evidence and stock records are competent evidence to rebut allegations of bogus purchases unless convincingly impeached; mere oddities (e.g., transport by cycle rickshaw) do not, without further adverse evidence, prove sham transactions. Obiter - procedural non-prosecution by the CIT(A) was noted but did not form the basis of the substantive decision. Conclusions: The assessee's documentary evidence was adequate to dispel the Department's allegation of bogus purchases on the facts; hence additions could not be sustained. Issue 3 - Relevance of supplier's utilization of Input Tax Credit (ITC) in establishing supplier's existence and genuineness of transactions Legal framework: Administrative tax records of a supplier (such as GST returns showing ITC utilization) constitute probative material relevant to the supplier's status and transactional activity; such records are part of the factual matrix to determine whether a supplier is operational or fictitious. Precedent Treatment: No prior authority cited or applied; the Tribunal treated ITC utilization as an evidentiary factor rather than a conclusive legal test. Interpretation and reasoning: The Tribunal observed that the supplier had utilized ITC amounting to a substantial sum, which indicates transactional activity and undermines the claim that the supplier was non-existent. The Tribunal treated this as material corroboration alongside the assessee's vouchers and bank evidence. It emphasized that ITC usage by the supplier is inconsistent with the supplier being non-existent and thereby weakens the Department's case. Ratio vs. Obiter: Ratio - Usage of ITC by the supplier is a relevant and material factor that supports the supplier's existence and the genuineness of transactions; it contributes to the overall assessment of whether purchases were bogus. Obiter - The Tribunal did not hold ITC utilization to be determinative in all cases; it applied the fact-specific weight of that evidence here. Conclusions: The supplier's ITC utilization materially supported the conclusion that the supplier was not a non-existent entity; on the totality of evidence, additions were to be deleted. Cross-reference and Final Disposition Cross-reference: Issues 1-3 are interlinked - the Tribunal evaluated the Department's reliance on GST portal inactivity and non-response in light of the assessee's contemporaneous documents and the supplier's ITC usage. The absence of direct or convincing rebuttal by the revenue on any of these strands led to a unified conclusion. Final conclusion: The Tribunal deleted the addition of alleged bogus purchases of Rs. 6,41,900/- and allowed the appeal, holding that the Department failed to establish that the supplier was non-existent or that the purchases were fabricated given the evidentiary balance on record.