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Facts
The assessee, a textile manufacturer, filed its return and was selected for scrutiny. The Assessing Officer (AO) alleged that the assessee was a beneficiary of bogus GST billing based on information regarding purchases from M/s. Manjunatha Marketing. The AO found discrepancies in the GST portal, e-way bills, and transportation methods, leading to the addition of purchase amounts to the total income.
Held
The Tribunal held that the AO made the addition based on conjectures and surmises without conducting adequate inquiries or confronting the assessee with information. The Tribunal noted that the transportation methods were plausible for small businesses and that the invalidity of e-way bills did not automatically lead to the disallowance of purchases when GST credit was not withdrawn. Therefore, the addition was directed to be deleted.
Key Issues
Whether the addition made by the AO on account of alleged bogus purchases is justified without proper inquiry and evidence, and whether interest under sections 234A and 234B is leviable.
Sections Cited
143(3), 144B, 69C, 234A, 234B, 69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
This appeal is filed by Dress Code (the assessee/appellant) for the assessment year 201819 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 19.6.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) r.w.s. 144B of the Income-tax Act,
1961 [the Act] dated 24.9.2021 by the National Faceless Assessment Centre, Delhi [ld. AO] was dismissed.
The assessee is in appeal raising the following grounds of appeal:-
“General Ground 1. The learned Income Tax Officer, Ward-5(2)(1), Bangalore (hereinafter referred to as `AO') has erred in passing the order under section 143(3) read with section 144B of the Income-tax Act, 1961 (`the Act') in the manner passed by him and the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [hereinafter referred to as `CIT(A)'] has erred in confirming the said order. The said orders being bad in law are liable to be quashed. Grounds relating to addition under section 69C of the Act 2. The learned AO has erred in making an addition under section 69C of the Act amounting to Rs.18,69,992 and the learned CIT(A) has erred in confirming such addition.
3. The learned AO and the learned CIT(A) have erred in concluding that purchases made by the Appellant from M/s. Manjunatha Marketing aggregating to Rs.18,69,992 are bogus purchases.
4. The learned AO and the learned CIT(A) have erred in holding that evidence submitted in the form of invoices, payment proofs through banking channels, and e-way bills, etc., are not credible evidence to establish authenticity of purchases from M/s. Manjunatha Marketing.
5. The learned AO and the learned CIT(A) have erred in questioning the description of goods disclosed by M/s. Manjunatha Marketing in its registration under the relevant Goods and Services Tax (GST) laws as reflected in the online GST portal, over which the Appellant has no control.
6. The learned AO and the learned CIT(A) have erred in questioning the e-way bills generated from the portal operated by the State Government of Karnataka, which was operational till such time the portal developed by the Central Government was fully operational, for the reason that they are not validated as per the portal operated by the Central Government.
7. The learned AO and the learned CIT(A) have erred in questioning the mode of transportation of goods from the location of the supplier to the location of the Appellant without appreciating the fact that the same is a commercial arrangement between the parties.
8. The learned AO has erred in withholding the information available with him on the basis of which it was alleged that the Appellant was a beneficiary of bogus GST billing. The absence of an opportunity for the Appellant to review such information is against principles of natural justice.
9. On facts and circumstances of the case and law applicable, the addition under section 69C amounting to Rs.18,69,992 is bad in law and liable to be deleted.
10. Without prejudice to the above, the learned AO and the learned CIT(A) ought to have restricted the addition to the extent of gross profit earned by the Appellant from the sale of such goods which were alleged to have never been procured. Grounds relating to levy of interest under sections 234A and 234B 11. The learned AO has erred in levying interest under section 234A of the Act. On the facts and circumstances of the case and law applicable, interest under sections 234A is not leviable. The appellant denies its liability to pay interest under section 234A.
The learned AO has erred in levying interest under section 234B of the Act. On the facts and circumstances of the case and law applicable, interest under sections 234B is not leviable. The appellant denies its liability to pay interest under section 234B. Prayer 13. In view of the above and other grounds to be adduced at the time of hearing, the Appellant prays that the order passed by the learned AO as well as the learned CIT(A) be quashed or in the alternative, the aforesaid grounds and relief prayed for thereunder be allowed.
The Appellant craves leave to add, supplement, amend, delete or otherwise modify any of the grounds stated hereinabove at the time of hearing.”
The brief facts of the case show that assessee is a firm in the manufacture of textile, who filed its return of income on 16.10.2018 at a total income of Rs.4,48,140. The return was picked for scrutiny and necessary notices u/s. 143(2) was issued on 28.9.2019. It was found that the AO has information that assessee is one of the beneficiaries of the bogus GST billing. Assessee was questioned on this and assessee submitted a copy of balance sheet, profit & loss a/c, bank statement, GST return, month-wise purchase and sale invoices, e-waybills, etc.
The ld. AO noted that assessee has shown purchase of Rs.2,01,15,217 wherein assessee has purchased shirting and suiting from one, M/s. Manjunatha Marketing on 28.9.2017 for Rs.3,04,731. However, on verification of GST portal, it was found that this entity is dealing in building stone, natural stone tiles and pigments. The invoices produced by the assessee of the above party shows that there is purchase of shirting & suiting from that party. Thus the ld. AO held that the invoices of purchases made from this party by 6 invoices amounting to Rs.17,80,945 is bogus. Further out of 6 invoices the ld. AO enquired about the ewaybills and 6 out of 3 ewaybills were found to be invalid. On the basis of above information, ewaybills were verified and in some of the cases ewaybill shows transportation of goods by tractor, 2- wheeler and passenger car. The AO was of the view that suiting &
shirting could not have been transported in these vehicles. Accordingly, the above purchase of total amount of Rs.18,69,962 including GST were found to be bogus and addition was made to the total income determining at Rs.23,37,492 by assessment order passed u/s. 143(3) r.w.s. 144B of the Act dated 12.3.2021.
The assessee preferred appeal before the ld. CIT(A) wherein assessee submitted the details with respect to the purchases. The assessee also contested various findings of the ld. O. Based on the information and findings of the ld. AO, the ld. CIT(A) confirmed the same. He rejected the contention of the assessee also that assessee was not given an opportunity of cross-examination of the party.
The assessee aggrieved with the same has preferred the appeal.
The ld. AR submitted a factual paperbook containing 405 pages and also submitted 2 cash flow compilations relying upon 16 judicial precedents. The assessee has also extensively argued that GST portal is not a conclusive evidence of actual business activities carried out by the taxpayer because only principal items are mentioned therein. It was further stated that the assessee has also sold the dresses manufactured out of shirting & suiting purchased from Manjunatha Marketing and therefore when sales are accepted, the purchases cannot be denied as deduction. The ld. AR further stated that purchases are supported by bills, payment through banking channels, 3 out of 6 ewaybills are found to be in order and when the assessee has furnished the complete details, the onus shifts on the ld. AO to disprove the same. It was further stated
that the addition made by the ld. AO is merely on the basis of conjectures & surmises. Even otherwise, the addition could be upheld to the extent of Gross Profit , purchases cannot be added to the total income of the assessee.
The ld. DR vehemently supported the orders of ld. lower authorities and submitted that when assessee has shown bogus purchases, the addition is required to be made of the total purchases.
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. In this case, assessee has shown purchases from Manjunatha Marketing of Rs.18,69,992. The ld. AO was of the view that he is in possession of certain information that assessee is beneficiary of bogus GST billing with respect to the above party. The assessee is engaged in the business of manufacture and trading of textiles and garments for nearly 10 years and for this year assessee has purchased through 6 bills the total sum of Rs.18,69,992 from the above party. To support the same, assessee furnished the invoices, payment through cheques, ledger etc. Assessee also produced the ewaybills of the above party. With respect to the information that this party is not dealing in suiting & shirting, it was submitted that in the erstwhile VAT laws of Karnataka, assessee was required to take approval for every commodity dealt in, but later on according to the GST provisions all the goods are not required to be mentioned for GST registration. Therefore, it may be possible that in the case of Manjunatha Marketing suiting & shirting is not mentioned. However,
it is not the case that dealer does not exist. The assessee has given the complete address of Manjunatha Marketing at No.45, 7th Cross, Srinivasa Colony, Uttarahalli Post, Bangalore – 560061. This is the address which is available before the AO. The assessee also submitted the ewaybills and payment made to the above party during this financial year of Rs.10 lakhs, out of the total purchases of Rs.18,69,992 and outstanding balance of Rs.8,69,992 was subsequently paid. The assessee is also supplying dresses as per information provided in the annual accounts. The above party is also shown as sundry creditors at sl.No.21 in the Schedule 3 of the annual accounts. The assessee has also taken credit of the GST that has been charged by Manjunatha Marketing. The ld. AO has neither provided any information that is available with him that assessee is one of the beneficiaries of the bogus billing of Manjunatha Marketing nor he has discussed the same in the assessment order. The ld. AO merely on the basis of information submitted by the assessee held that purchases are bogus. The main reasons stated by the AO is that the transportation of goods in one case is found to be a tractor, one case is 2-wheeler and in one case in a passenger car. In this case all the 6 bills raised by Manjunatha Marketing is of approx. Rs.3 lakhs. It is not the case of the AO that goods could not have been supplied in a tractor or in a passenger car or a 2-wheeler. Merely because ewaybills are found to be invalid, the natural corollary would have been withdrawal of GST credit by the GST authorities, but that is not so stated by the ld AO or GST authorities. The ld. AO has also not brought on record wherefrom he received information, what information is received, whether he has applied his mind to that information and for using that information against the assessee what enquiry the AO has made . In this case, he has merely rejected the evidence submitted by the assessee. He has neither issued summons u/s. 131 or called for information u/s. 133(6) from Manjunatha Marketing. He has not also put forward to the assessee the information received by him. In view of the above facts, the ld. AO has merely made an addition with preconceived notion. No doubt, had the information been obtained from Manjunatha Marketing and it would have been found that party does not exist at all or would have confessed that it has not supplied goods but only invoices with goods, in that case addition would have been perfectly justified. It also cannot be denied that in the case of a small business, the goods can be also transported in a passenger car or 2 wheelers or in a small tractor. Merely mentioning the vehicle details, it may create a doubt that goods have not been supplied in the right mechanism or through right transport, but it is merely a suspicion which should be converted into conclusive evidence by making adequate enquiries. Such enquiry should be put forth before the assessee by confronting it and if assessee fails to discharge or rebut the evidence, addition is perfectly justified. However, in the absence of any enquiry, addition will remain merely on conjectures and surmises. In view of this, the ld. AO is directed to delete the above addition of Rs.18,69,992 made u/s. 69A of the Act. While dealing with this appeal, I do not enter into the controversy that if the sales are accepted, the relevant purchases should be allowed for the reason that in this case I am not in a position to uphold that same quantity of goods which entered into the stock register as purchases, has gone out of the business by sale. Accordingly ground No.9 of the appeal is allowed. The orders of the ld. lower authorities are reversed.
In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 22nd day of October, 2025.