Bogus Purchase Addition Deleted due to Genuine Documents & Invalid Reopening by JAO

Bogus Purchase Addition Deleted due to Genuine Documents & Invalid Reopening by JAO

Issue

1. Can an addition for bogus purchases under Section 69C be sustained when the purchases are recorded in books, paid via banking channels, supported by GST assessments, and no cash back trail is proven?

2. Is a reassessment notice under Section 148 issued by a Jurisdictional Assessing Officer (JAO) on 31.03.2022 valid in light of the Faceless Assessment Scheme notified under Section 151A?

Facts

• Assessment Year: 2018-19.

• The Addition: The AO made an addition of Rs. 7.67 Crores (bogus purchases of Rs. 7.38 Cr + commission of Rs. 29.53 Lakhs).

  • This was based on information that the supplier, M/s Jai Bhagwati Sales Corp. (JBS), was involved in fraudulent ITC claims and issuing fake bills.

  • JBS did not respond to Section 133(6) notices.

• Assessee’s Defense:

  • Submitted audited accounts, bank statements, purchase invoices, and transport documents.

  • Payments were made through banking channels.

  • GST authorities had already accepted the transactions and passed an order in Form GST ASMT-12 finding no discrepancy.

• CIT(A)’s Order: The CIT(A) deleted the addition, emphasizing the documentary evidence and the clean chit from GST authorities. The Revenue appealed this deletion.

• Legal Challenge (Cross-Objection): The assessee challenged the jurisdiction of the notice issued u/s 148 on 31.03.2022 by the local JAO instead of the Faceless Assessing Officer (FAO).

Decision

• The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal and allowed the assessee’s cross-objection.

• On Merits:

  • The Tribunal upheld the deletion of the addition. It found that the assessee had discharged the primary onus by providing bills, transport details, and proof of payment.

  • The order from GST authorities accepting the transactions contradicted the AO’s “bogus purchase” theory.

  • Without purchases, the corresponding sales (which were accepted) could not have been achieved.

  • Reliance on third-party information without cross-examination or independent corroboration (like cash trails) was insufficient to sustain the addition.

• On Legal Jurisdiction:

  • The Tribunal quashed the reassessment notice issued by the JAO on 31.03.2022.

  • Relying on the binding High Court judgment in Jatinder Singh Bhangu, it held that post the notification dated 29.03.2022, only a Faceless Assessing Officer could issue notices under Section 148. Issuance by a JAO vitiated the entire proceeding.

Key Takeaways

• GST Acceptance Matters: A clean chit from GST authorities regarding input tax credit and purchases is strong evidence in income tax proceedings to prove the genuineness of transactions.

• JAO Jurisdiction: Reassessment notices issued by local officers after the cutoff date (29.03.2022) for faceless assessment are legally void in jurisdictions covered by the Jatinder Singh Bhangu ruling.

• Section 69C Applicability: Section 69C (unexplained expenditure) applies only to expenditure not recorded in the books. It cannot be invoked for purchases that are duly recorded and paid for through banking channels, even if their genuineness is doubted.

• Sales-Purchase Nexus: Acceptable sales figures generally validate the corresponding purchases unless specific evidence proves inflation.

IN THE INCOME TAX APPELLATE TRIBUNAL
“B” BENCH, CHANDIGARH
Income Tax Officer
Ward 1
Jind-126102.
बनाम/
Vs.
Shri Vikas Jain
Nav Bharat Steel & General Industries
Indira Bazar, Jind-126102.