ITAT Delhi Deletes ₹9.16 Crore Bogus Purchase Addition Over Retrospective GST Registration Cancellation

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of a ₹9.16 crore addition over alleged bogus purchases after finding that the taxpayer had produced extensive documentary evidence to support the transactions, despite the Revenue relying, among other things, on the retrospective cancellation of the supplier's GST registration.

The tribunal also noted that the Assessing Officer had accepted the corresponding sales and had not rejected the books of account before making an ad hoc addition of 12.5% of the purchases.

A bench of Judicial Member Raj Kumar Chauhan and Accountant Member Renu Jauhri dismissed the Revenue's appeals and disposed of the assessee's cross-objections as academic. Affirming the findings of the Commissioner of Income Tax (Appeals) [CIT(A)], the tribunal observed:

"The assessee has provided whole evidence proving that the purchases made from RCI Industries were genuine and not bogus. An addition of 12.5% of the total purchases made was not legally justified.", the tribunal noted.

The dispute arose after the Assessing Officer reopened the assessment of Bonlon Industries Ltd. over purchases worth ₹73.32 crore made from RCI Industries & Technologies Ltd.

Treating the transactions as accommodation entries, the Assessing Officer added ₹9.16 crore, representing 12.5% of the purchases, as suppressed profit.

Before the tribunal, the tax department relied on the retrospective cancellation of RCI Industries' GST registration, the supplier's failure to respond to notices, and alleged deficiencies in the supporting records.

Bonlon, however, argued that the purchases were genuine and produced invoices and other documents to prove the same. It also contended that the Assessing Officer should have approached the Resolution Professional, as RCI Industries was undergoing CIRP.

The tribunal noted that the CIT(A) had found the purchases were backed by documentary evidence, the books of account and sales had been accepted, and the GST cancellation order was issued only in February 2023, after the transactions in question.

The bench also found merit in the assessee's contention that the Revenue had accepted similar transactions with RCI Industries in the cases of Captain Industries and Myco Electricals Pvt. Ltd., but had failed to explain the differential treatment. It also found the assessee's submission regarding the Resolution Professional to be "cogent and convincing", noting that the Revenue had offered no rebuttal.

The tribunal observed, "The arguments raised by the assessee regarding the Revenue in two other similarly placed ma tters involving purchases from RCI Industries and Technology Ltd. accepted the purchases as genuine and also tha t the AO has wrongly relied the non-receiving o f reply to the no tice from RCI Industries despite it has already gone into insolvency proceedings and the notice was required to be issued to the Resolution professional, are cogent and convincing and there is no rebuttal of the same by the Revenue."

Holding that the CIT(A)'s findings were based on a meticulous examination of the evidence and the material placed on record, the tribunal found no reason to interfere. It dismissed the Revenue's appeals and confirmed the deletion of the additions.

For Assessee: Ashok Khandelwal, CA and Shri Satish Rawat, CA

For Revenue: Jitender Singh, CIT-DR