Alleged bogus sales and purchase transactions under GST scrutiny: reassessment notice u/s147/148A quashed; additions deleted

Reopening under s.147 was held invalid because the AO acted on borrowed satisfaction, merely reproducing generalized Investigation Wing information without independent verification, and the s.148A(b) notice was ambiguous as to whether the alleged transaction was sales or purchases and even misstated the quantum, showing no live and rational nexus between material and belief of escapement; consequently, reassessment and the consequential additions were quashed. Separately, the estimated 2% "commission" addition on alleged bogus sales was deleted as sales were recorded, supported by statutory/GST compliance, and the Revenue produced no tangible evidence of accommodation entry benefits or fund flow. The disallowance of alleged bogus purchases was deleted since purchases were supported by invoices and banking payments, stock/quantitative records matched, and a mere HSN classification difference with identical GST rate did not prove non-genuineness.

---

---

1. ISSUES PRESENTED AND CONSIDERED

(i) Whether reassessment could be validly initiated where the reasons recorded under section 148A(b) merely reproduced investigation input, contained basic factual inconsistencies, and failed to establish any live, rational nexus between the "information" and the belief of escapement of income.

(ii) Whether the notice under section 148 was invalid for having been issued by the jurisdictional Assessing Officer (and not by the faceless authority), in light of section 151A and the notified faceless scheme.

(iii) Whether an addition on account of estimated commission @ 2% on alleged bogus sales could be sustained when sales were supported by contemporaneous documentary evidence, books were not rejected, and no material showed receipt of commission or any benefit.

(iv) Whether disallowance of a portion of purchases as "bogus" under section 37 could be sustained where there was no investigation input against the supplier, the assessee produced complete documentary and banking evidence with corresponding stock/consumption records and GST reporting, and the Assessing Officer selectively disallowed only part of purchases from the same supplier without objective basis.

2. ISSUE-WISE DETAILED ANALYSIS

(i) Validity of reopening / "reason to believe" based on investigation input and reasons recorded under section 148A(b)

Legal framework (as discussed): The Court applied the requirement that reopening under section 147 must be founded on "reason to believe" formed independently by the Assessing Officer on relevant and verifiable material having a live link/nexus with alleged escapement; generalized, vague, or unverified information, by itself, is insufficient.

Interpretation and reasoning: The recorded reasons showed mechanical reproduction of investigation information without verification of accuracy or relevance to the assessee. The notice did not even clarify whether the impugned transaction was a sale or purchase. The reasons also contained internal contradictions as to the identity of the alleged conduit/party (two distinct individuals were interchangeably referenced without any material establishing linkage), indicating lack of basic fact verification. Further, the quantum cited in the notice differed from the assessee's recorded figure, and no attempt was made to verify the correct amount from books/records.

Conclusions: The Tribunal held that there was no live and rational nexus between the information and the belief of escapement, and that the belief was formed mechanically on vague and unverified material. The reassessment proceedings and additions founded on such reasons were held invalid in law; the assessee's challenge on these grounds was allowed.

(ii) Competence to issue notice under section 148 vis-à-vis section 151A / faceless scheme

Legal framework (as discussed): The Tribunal considered the challenge that the notice should have been issued under the faceless "e-Assessment of Income Escaping Assessment Scheme, 2022" and not by the jurisdictional Assessing Officer.

Interpretation and reasoning: The Tribunal recorded that the assessee accepted that the jurisdictional High Court had already decided this issue against the assessee's position.

Conclusions: The Tribunal rejected the challenge to the section 148 notice on this ground and dismissed it as meritless.

(iii) Addition of estimated commission @ 2% on alleged bogus sales

Legal framework (as applied): The Tribunal proceeded on the principle that no addition can be made on notional/hypothetical income without evidence of actual accrual/receipt, and that where sales are supported by contemporaneous records and books are not disturbed, mere suspicion cannot justify estimation of commission.

Interpretation and reasoning: The assessee had produced tax invoices, GST returns, gate passes, transporter receipts, confirmations, and bank statements supporting the sales, and asserted that sales were accounted in audited financials with GST collection and bank deposit. The Assessing Officer neither verified from the purchaser nor pointed out defects in documents nor confronted the assessee with any adverse material. There was no evidence of flow-back, receipt of cash, or any benefit to the assessee. The addition was based on suspicion and conjecture and was made mechanically by applying a flat rate.

Conclusions: The estimated 2% commission addition was held to lack factual and legal foundation and was deleted.

(iv) Disallowance of purchases as bogus (selective disallowance) under section 37

Legal framework (as discussed/applied): The Tribunal evaluated whether the expenditure/purchases could be disallowed as non-genuine when supported by documentary evidence and banking payments, with corresponding quantitative/stock records and GST reporting, and in the absence of contrary material or verification by the Assessing Officer.

Interpretation and reasoning: The Tribunal found it undisputed that there was no investigation input alleging bogus purchases from the supplier, and no finding that the supplier was non-existent, that goods were not received, or that payments returned to the assessee. The assessee furnished purchase invoices, orders, delivery challans, goods receipt notes, transporter receipts, and banking proofs; purchases were recorded in books/audited financials and matched consumption/production quantitative details. The Assessing Officer did not point out discrepancies in stock/consumption/sales. The Assessing Officer nevertheless disallowed only a portion of purchases from the same supplier while accepting the balance of identical purchases, which the Tribunal treated as irrational and indicative of suspicion-based assessment. The sole stated issue of difference in HSN classification was held technical, with identical GST rate and no shown revenue loss; such classification difference could not evidence bogus purchases where documentation and tax reporting existed. The Tribunal further noted that transactions were reflected in GST returns and ITC had not been disputed by GST authorities, and the appellate authority had merely repeated the Assessing Officer's conclusions without addressing evidence.

Conclusions: The selective disallowance of purchases was held unsustainable and was deleted.

---