VAT return and books discrepancy cannot sustain addition without proof of bogus purchases or income suppression.

A discrepancy between purchases shown in VAT returns and those recorded in the books, explained by the Gujarat VAT rule requiring reversal of input tax credit on returned goods, could not by itself justify an income addition. The assessee furnished supplier-wise reconciliation, the sales figures matched, and the Revenue produced no material to show bogus, non-existent, or unverifiable purchases or any suppression of income. In the absence of evidence of fictitious transactions, the variation was treated as a mere accounting mismatch and the addition was held unsustainable.

---

---

Issues: Whether the addition made on account of difference between purchases shown in VAT returns and purchases recorded in the books of account was justified.

Analysis: The difference arose from the different treatment of purchase returns under the Gujarat VAT regime and in the books of account. Under Rule 15 of the Gujarat Value Added Tax Rules, input tax credit had to be reversed on returned goods even where no commercial credit note was issued by the supplier, whereas the books recognised only those returns supported by actual credit notes. A supplier-wise reconciliation was furnished, and no material was brought on record to show that the purchases were bogus, non-existent, or unverifiable. The sales figures as per VAT returns and the books were accepted as matching, and the variation was negligible in relation to total purchases. In the absence of evidence of suppression of income or fictitious transactions, the mere discrepancy could not justify the addition.

Conclusion: The addition of Rs. 9,99,393/- was unsustainable and was rightly deleted, in favour of the assessee.

Ratio Decidendi: A discrepancy between statutory VAT returns and books of account, where explained by mandated input tax credit reversal and supported by reconciliation, cannot by itself sustain an addition unless the Revenue proves bogus purchases or suppression of income.

---