High Court: Bogus Purchase Additions Unsustainable Once Supplier Exonerated in Excise Proceedings

A search under Section 132 of the Income-tax Act was conducted on the Suraj Group, including the assessee, Dee Are Texfab Pvt. Ltd., in December 2013. The Assessing Officer treated purchases aggregating to Rs. 28.35 crore as bogus and made additions under Sections 69/69C, while also initiating penalty proceedings.

The Commissioner (Appeals) granted partial relief by restricting additions to 12.5% of alleged bogus purchases. Both the assessee and the Revenue approached the ITAT. The Tribunal deleted all the additions, holding that the very foundation of the allegations had collapsed since the suppliers were already exonerated by CESTAT, the High Court, and the Supreme Court in excise proceedings based on the same material. Aggrieved, the Revenue filed multiple tax appeals before the Gujarat High Court proposing substantial questions of law.

Core Issue: Whether additions on account of alleged bogus purchases can survive under the Income-tax Act when the same transactions, based on identical digital data and statements, have already been held to be unsustainable in excise proceedings and have attained finality up to the Supreme Court.

HC’s Ruling: The Gujarat High Court dismissed the Revenue’s appeals, holding that no substantial question of law arose. The Court noted that the Assessing Officer merely resurrected allegations which had already failed before CESTAT, the High Court, and the Supreme Court in the case of the very same suppliers.

Once the suppliers stood absolved of charges of clandestine removal and bogus billing, the basis for treating the assessee’s purchases as non-genuine ceased to exist. The Court further declined to interfere on the issue of interest disallowance, considering the negligible amount involved.  Therefore, all additions were rightly deleted by the Tribunal.

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