2025 (11) TMI 1503

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....the facts and circumstances of the case, and in law, the Ld. Commissioner of Income-tax (Appeal) ['the CIT(A)'] erred in confirming the disallowance amounting to Rs. 9,99,393/- made by the Income Tax Officer Ward 6(1)(2)-Ahmedabad (Ld. AO'), without considering the submission filed the Appellant which has resulted in violation of principle of natural justice. 2. In doing so, the CIT(A) further erred in upholding the disallowance of purchases amounting to Rs. 9,99,393/-, merely on account of the difference between the VAT returns and as per books of account, without rejecting audited books of account, and bringing any corroborative contrary evidence on record. Without Prejudice to the above: 3. The CIT(A) further e....

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.... returns of Rs. 66,04,712/-, resulting in net purchases of Rs. 29,74,71,364/-. However, as per the Profit & Loss Account, purchases were shown at Rs. 29,89,09,398/-, thus leading to a difference of Rs. 14,38,034/-, which upon adjustment for VAT came to Rs. 9,99,393/-. The Assessing Officer was of the view that the assessee had inflated purchases to the extent of Rs. 9,99,393/- thereby reducing gross profit and taxable income. The assessee, in response to the show-cause notice issued by the Assessing Officer submitted that the difference arose solely due to the manner in which purchase returns were treated under the Gujarat Value Added Tax (GVAT) Act vis-à-vis in the books of account. Under Rule 15 of the GVAT Rules, an assessee was r....

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...., the addition was confirmed. 5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the learned Counsel for the assessee reiterated that the difference of Rs. 9,99,393/- arose solely due to reversal of input tax credit as mandated by Rule 15 of the GVAT Rules, and not due to inflation of purchases. It was submitted that under the VAT law, reversal of ITC is mandatory on all goods returned, regardless of whether the supplier accepts the goods or issues a credit note. However, in the profit and loss account, the assessee's books record only those returns where the supplier has issued a commercial credit note, whereas the VAT return includes all goods for which ITC ....

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.... placed on ITO v. Arihant Plastics [2024] 169 taxmann.com 477 (Ahmedabad - Trib.), wherein the Tribunal held that mere difference between VAT and book figures, arising due to statutory treatment of ITC, does not justify disallowance of purchases without corroborative evidence of falsification. 6. The Departmental Representative, on the other hand, supported the orders of the lower authorities, and submitted that no independent evidence was provided at the assessment stage to substantiate the reconciliation. 7. We have carefully considered the rival submissions and examined the record. We are of the considered view that it is undisputed that the difference of Rs. 9,99,393/- arose out of statutory reporting under VAT and accounting trea....