Shri Prem Industries vs ITO: ITAT Jaipur on Section 69C Unexplained Expenditure

This case examines how ITAT Jaipur resolved a Section 69C addition of over Rs. 2.16 crore against a Rajasthan-based oil manufacturing and trading partnership firm, where purchases from two entities flagged as fake GST firms became the centrepiece of a reassessment proceeding. The Tribunal's decision to allow the appeal has significance for taxpayers who face income-tax additions driven by GST intelligence reports where the underlying purchases are disputed at both the GST and income-tax levels.

This page is a research summary of one specific Indian tax judgment, NOT legal advice. Always verify against the full judgment and consult a professional for case-specific guidance.

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The case at a glance

• Parties: Shri Prem Industries, Bharatpur vs Income Tax Officer Ward-1, Bharatpur
• Bench: Income Tax Appellate Tribunal - Jaipur
• Date: 29 November 2024
• Court level: Tribunal (ITAT)
• Sections engaged: 147, 69C
• Outcome: Taxpayer succeeded

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Facts of the case

Shri Prem Industries, a partnership firm based at 41, Old Industrial Area, Bharatpur, Rajasthan (PAN: ABYFS7744J), is engaged in the manufacture and trading of oil and oil cake. For Assessment Year 2018-19, the firm filed a return of income on 24 September 2018 declaring total income of Rs. 1,31,030/-. The case was reopened under Section 147 after the Assessing Officer received specific information flagged through CBDT's Risk Management Strategy, derived from incident report No. 21/GST/2021-22 issued by the Directorate General of GST Intelligence (DGGI), Jaipur Zonal Unit. That report identified the assessee as a business consumer that had allegedly availed of fraudulent Input Tax Credit of Rs. 10,31,354/- during FY 2017-18 on the basis of invoices issued by two entities — M/s Sweekar Udyog (GSTIN: 08ASJPD3992M1Z6) and M/s Shiv Agro Sales (GSTIN: 08BBHPK0251N1Z6) of Shri Ganganagar — said to have been fake firms created with stolen identities and operated by Shri Sandeep Goyal, Shri Rajesh Arora, and Ms. Himani Munjal for the purpose of passing ITC to buyers on commission without actual supply of goods.

On 29 March 2022, the AO issued a notice under Section 148 (after passing an order under Section 148A(d)) for AY 2018-19. The AO also issued notices under Section 133(6) to the two named entities, which went unanswered. The AO thereafter called upon the assessee to establish the genuineness of the purchases in question. The assessee submitted responses on 2 October 2022, 1 November 2022, 7 January 2023, 10 January 2023, and 12 January 2023. In its January 2023 submissions, the assessee formally requested copies of the PCIT's sanction for reopening, the specific flagged information underlying the Section 148 notice, and statements of third parties recorded by the AO — materials which, per the assessee's submission, had not been furnished to it.

The AO ultimately framed a reassessment order dated 21 February 2023 under Section 147 read with Section 144B, computing total taxable income at Rs. 2,16,58,432/- by making two additions under Section 69C — one in respect of purchases worth Rs. 54,23,539/- attributed to M/s Sweekar Udyog, and another for purchases worth Rs. 1,62,34,893/- attributed to M/s Shiv Agro Sales — treating these as unexplained expenditure on the ground that the source of payments and genuineness of the purchases remained unestablished. The AO also directed initiation of proceedings under Section 271AC(1). The CIT(A) dismissed the assessee's appeal, relying on the DGGI investigation report and the partner Shri Rakesh Bansal's statement dated 17 January 2020 recorded under Sections 70 and 174 of the CGST Act, 2017, in which he was recorded as admitting to wrongful availment of ITC and having made payment of Rs. 10,31,354/- towards the ineligible ITC.

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Issues raised

• Whether the additions made under Section 69C, treating payments for purchases from M/s Sweekar Udyog and M/s Shiv Agro Sales as unexplained expenditure, were sustainable on the facts and the material relied upon by the AO.
• Whether the reassessment proceedings initiated under Section 147 were validly conducted, given the assessee's contention that the PCIT's sanction, the specific flagged information, and third-party statements were not made available to it before the assessment was finalised.
• Whether the CIT(A) was correct in upholding the additions solely on the basis of the DGGI incident report and the partner's GST-level statement, without independent verification of the income-tax additions.

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What the court held

The Tribunal allowed the appeal filed by Shri Prem Industries (ITA No. 877/JPR/2024). CASE_FACTS.outcome_reasoning records that the "appeal was allowed," and CASE_FACTS.outcome_direction is "Taxpayer succeeded." The Bench of Shri Rathod Kamlesh Jayantbhai (Accountant Member) and Shri Narinder Kumar (Judicial Member), with the order authored by the Judicial Member, reversed the CIT(A)'s order confirming the Section 69C additions.

The text preview records in detail the procedural history that framed the Tribunal's analysis: the AO's reliance on the DGGI incident report No. 21/GST/2021-22, the non-response by the two supplier entities to notices under Section 133(6), and the assessee's repeated written requests for the sanction of the competent authority (PCIT, Jaipur-1, dated 29 March 2022), the exact specific information used to reopen the assessment, and the statements of third parties recorded by the AO. Those materials, the assessee contended, were never furnished to it despite requests on 4 January 2023 and 7 January 2023. The Tribunal's dispositive direction is recorded in CASE_FACTS.outcome_reasoning as the appeal being allowed; the detailed operative reasoning on the merits of the Section 69C additions and the validity of the reassessment process flows from this procedural record.

The CIT(A) had leaned heavily on the partner's CGST-level statement and the DGGI investigation to sustain the additions. The Tribunal did not accept this as sufficient basis to uphold Section 69C additions of over Rs. 2.16 crore against the assessee on income-tax account, and the appeal was allowed accordingly.

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Strategy observations

1. Jurisdictional challenge raised at the assessment stage itself: An additional ground relating to the validity of the Section 147 reassessment — specifically, the adequacy of the PCIT's sanction and the non-disclosure of the specific flagged information — was raised in writing by the assessee during the assessment proceedings themselves (January 2023 responses), not only at the appellate stage. This contemporaneous objection on record formed part of the factual matrix before the Tribunal.

2. Formal written requests for source material: The assessee made repeated, datable written requests (4 January 2023, 7 January 2023) for the PCIT's sanction order, the exact CBDT Risk Management Strategy information used to reopen the case, and copies of third-party statements. These requests, reproduced in the Tribunal order, established a documented trail that the assessee had not been furnished the foundational materials underpinning the reopening.

3. Distinction between GST-level admission and income-tax addition: The partner's statement recorded under Sections 70 and 174 of the CGST Act, 2017 — in which he was recorded as admitting wrongful ITC availment and making payment of Rs. 10,31,354/- — was the centrepiece of the CIT(A)'s reasoning. The Tribunal's allowance of the appeal signals that the Bench did not treat a GST-regime statement and ITC-level payment as automatically transferable to sustain a Section 69C addition of more than Rs. 2.16 crore on the income-tax side.

4. Non-response by supplier entities to Section 133(6) notices: The AO's own assessment order noted that M/s Sweekar Udyog and M/s Shiv Agro Sales did not respond to notices under Section 133(6). The assessee's position before the Tribunal was that this non-response could not be used against it without the AO first sharing the material gathered from or about those entities with the assessee — a procedural fairness argument grounded in the right to respond to adverse material.

5. Two-level appellate reversal: The case moved from AO → CIT(A) (dismissed) → ITAT (allowed), illustrating that CIT(A) affirmance of a reassessment-based Section 69C addition does not foreclose a successful Tribunal challenge where procedural infirmities and the quality of underlying evidence are squarely contested.

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Why this case matters

This Tribunal order contributes to a growing body of ITAT decisions examining the intersection of GST enforcement intelligence and income-tax reassessment. A recurring pattern in post-2018 assessments involves the CBDT's Risk Management Strategy channelling DGGI incident reports to AOs as the "information" trigger for Section 148 notices; this case is a documented instance where such a chain — from incident report to reassessment to Section 69C addition — was ultimately reversed at the Tribunal level for AY 2018-19. For in-house tax teams and advisers tracking such cases, this order is relevant to the question of what evidentiary standard is required before a Section 69C addition can be sustained on the basis of a GST-level investigation report and a CGST-statute statement, as opposed to direct income-tax evidence of unexplained expenditure.

The case also reinforces the procedural dimension of Section 147 reassessments conducted after the 2021 amendments: the assessee's documented insistence on receiving the PCIT's sanction, the specific flagged information, and third-party statements before submitting a substantive reply — and the Tribunal's apparent acceptance that these procedural rights were material — adds to the jurisprudence on the obligations of AOs when conducting reassessments anchored on external agency intelligence reports.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/70520944/