Bogus purchase allegations via SKTPL sent back for fresh verification based on new GST and transport evidence

ITAT Pune set aside the CIT(A)'s deletion of addition on alleged bogus purchases from SKTPL and restored the matter to the file of the AO/JAO for limited verification. The Tribunal noted fresh and voluminous evidence including transportation documents (delivery challans, lorry receipts), GST search and investigation reports, closure report, and proof of discharge of GST liability under DRC, which had not been examined earlier. Holding that the genuineness of purchases through SKTPL required detailed verification in light of this additional material, ITAT directed the AO/JAO to re-examine the transactions and decide afresh in accordance with law. Revenue's appeal was allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the disallowance of purchases from a specific supplier as "bogus purchases" under section 37(1) was justified on the basis of absence of transportation evidence and adverse findings in the supplier's assessment.

1.2 Whether the appellate authority was justified in deleting the addition by relying, inter alia, on GST investigation closure reports and other materials treated as additional evidence without complying with Rule 46A and without a detailed, reasoned (speaking) order as required by section 250(6).

1.3 Consequential treatment of the appeal and cross objection in light of additional evidence and incomplete factual verification regarding genuineness of purchases.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance of purchases from supplier as bogus under section 37(1)

(a) Interpretation and reasoning

2.1 The Assessing Officer disallowed 100% of purchases from the identified supplier on the basis that: (i) no transportation bills or related documentary proof were furnished either by the assessee or the supplier despite repeated opportunities; (ii) the supplier showed negligible expenses and abnormally low profit against very high turnover, with no freight/transportation cost recorded; (iii) physical verification indicated only two small, empty warehouses of about 250 sq. ft. each, inadequate for the reported turnover, and non-existence at the address on invoices; (iv) books of account of the supplier were rejected in its own assessment and its sales were held to be bogus; and (v) the pattern of low margins and low expenses across related entities suggested "paper circular transactions."

2.2 The Assessing Officer concluded that the alleged purchases from the supplier were bogus, holding that once the entire transaction is found bogus, full disallowance is warranted, referring to judicial precedent, and treated the amount as disallowable under section 37(1).

2.3 The appellate authority, by contrast, held that the purchases were genuine, principally on the grounds that: (i) the Assessing Officer had not established the classic elements of a bogus/paper purchase (fake invoicing, cheque rotation, cash withdrawal, and return of cash); (ii) there was no material to show circulation of cash or that the assessee had received cash back; (iii) the size and nature of the supplier's premises (small room with cartons) was not inconsistent with the nature of traded tools; (iv) a closure/intimation letter from GST authorities indicated that goods had actually been supplied by the said supplier; (v) the supplier's existence and continuing business relationship were not in doubt; (vi) the assessee's profit levels were at arm's length with comparable traders and manufacturers; and (vii) discrepancies and reconciliation gaps pointed out by the Assessing Officer were minuscule.

2.4 Before the Tribunal, the Departmental Representative emphasized the continued absence of transportation evidence, the supplier's minimal expenses and profits, and the adverse findings in the supplier's own assessment, and attacked the appellate order as non-speaking and contrary to section 250 and Rule 46A.

2.5 The assessee, before the Tribunal, relied on extensive documentary material (purchase orders, invoices, delivery challans with vehicle numbers and lorry receipt numbers, confirmations, ledgers, and bank statements) and further relied upon investigation and closure reports under GST law which, according to the assessee, accepted the purchases from the supplier as genuine. It was also asserted that all transportation-related documents are now available in a voluminous paper book.

2.6 The Tribunal noted that the Assessing Officer's conclusion of bogus purchases was largely driven by the absence of transportation evidence and adverse inferences drawn in the supplier's assessment. At the same time, the Tribunal observed that significant subsequent materials, including GST search, summons, panchanama and closure reports, as well as further transportation documents and other evidences, had not been before the Assessing Officer and had not been examined by him.

(b) Conclusions

2.7 The Tribunal did not affirm either the Assessing Officer's full disallowance or the appellate authority's deletion on merits. It held that, in light of additional evidences and factual aspects not examined by the Assessing Officer, the genuineness of the purchases from the supplier requires fresh factual verification.

2.8 The issue of genuineness or bogus nature of the purchases from the supplier was therefore remanded to the jurisdictional Assessing Officer for fresh examination, confined to this limited purpose, in accordance with law and after affording reasonable opportunity to the assessee.

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Issue 2: Reliance on additional evidence by appellate authority and requirement of a speaking order

(a) Legal framework discussed

2.9 The Departmental Representative specifically invoked section 250(6), which mandates that the order of the appellate authority shall state the points for determination, the decision thereon, and the reasons for the decision. Rule 46A governing admission of additional evidence before the appellate authority was also relied upon, with emphasis that any additional evidence should be confronted to the Assessing Officer for comments.

2.10 Judicial precedents were cited (by the Departmental Representative) to underline that quasi-judicial orders must be reasoned, and that failure to pass a speaking order and to follow Rule 46A procedures vitiates the appellate order.

(b) Interpretation and reasoning

2.11 The appellate authority had relied, inter alia, on a closure/intimation letter of the CGST authorities and another closure report under GST law to conclude that the supplier existed and that goods were actually supplied.

2.12 The Departmental Representative contended that: (i) the closure/intimation letter dated 24.12.2021 was not on record before the Assessing Officer; (ii) it was not a formal "closure report" and, in any case, was limited in scope to mismatch of vehicle data; (iii) it was issued on the request of the assessee and did not disclose the full nature of proceedings; (iv) the other closure report dated 27.04.2023 pertained to suspicious input tax credit and did not name the supplier; and (v) both documents, being additional evidence, were required to be forwarded to the Assessing Officer under Rule 46A, which was not done.

2.13 The Tribunal noted, from the assessee's own submissions, that the GST search and closure letter were indeed subsequent and had not been placed before the Assessing Officer. The assessee fairly accepted that these materials had not been before the Assessing Officer and expressed no objection if the matter was remanded to him for verification, including verification of the GST enquiries and closure.

2.14 The Tribunal recorded that significant aspects relating to (i) GST search and summons, (ii) closure reports under GST law, and (iii) detailed transportation evidence and other documents in the extensive paper book, had all remained unexamined by the Assessing Officer.

(c) Conclusions

2.15 Implicitly accepting the Department's contention that such additional material had not been considered by the Assessing Officer and that proper procedural compliance had not been ensured, the Tribunal held it appropriate to restore the matter to the jurisdictional Assessing Officer for a limited, fresh examination.

2.16 The appellate authority's order deleting the addition was not sustained on the existing record; instead, the Tribunal directed a de novo consideration by the Assessing Officer on the genuineness of the purchases after examining all evidences, including the additional materials relied upon before the appellate authority and the Tribunal, in accordance with law.

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Issue 3: Consequential orders in appeal and cross objection

(a) Interpretation and reasoning

2.17 In view of the remand of the core issue (genuineness of purchases from the supplier) to the jurisdictional Assessing Officer for limited verification and fresh decision, the Tribunal treated the Revenue's appeal and the assessee's cross objection as not requiring adjudication on merits at this stage.

(b) Conclusions

2.18 The Revenue's appeal was allowed for statistical purposes, with directions to the jurisdictional Assessing Officer to re-examine the genuineness of purchases from the supplier after considering all relevant, including additional, evidences and after granting reasonable opportunity to the assessee.

2.19 The assessee's cross objection, being dependent on the fate of the core issue remanded, was also treated as allowed for statistical purposes.

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