Guruvayur Infratech Private Limited Vs ACIT (Gujarat High Court)
In Guruvayur Infratech Private Limited vs ACIT, the Gujarat High Court quashed reopening proceedings for AY 2021–22, holding that the Assessing Officer (AO) travelled beyond the scope of the show-cause notice under Section 148A(1). The petitioner, a civil contractor, had entered into cement purchase transactions later flagged as bogus by DGGI and had paid GST, interest, and penalty of ₹5.13 crore. In scrutiny assessment under Section 143(3), detailed verification was conducted. Subsequently, reopening was initiated alleging bogus purchases of ₹14.07 crore. However, in the order under Section 148A(3), the AO shifted stance, alleging that ₹3.67 crore (GST component) was wrongly claimed as expenditure. The Court found that the petitioner had already written off ₹14.07 crore as bad debt and added it back to income, supported by ledger entries and a CA certificate. Holding that no income had escaped assessment and that the AO introduced a new case without notice, the Court set aside the reassessment proceedings.
Facts:
- Guruvayur Infratech Private Limited, the petitioner, is engaged in the business of civil construction. During the Financial Year 2020–21, the petitioner entered into transactions for purchase of cement from M/s Dhairya Enterprise and M/s Shree Enterprise. As per the negotiated terms, the petitioner paid an amount of Rs.17,75,00,000 to M/s Dhairya Enterprise and Rs.3,75,00,000 to M/s Shree Enterprise.
- On 28.11.2020, a survey was conducted by the Directorate General of GST Intelligence (DGGI), Gandhidham Regional Unit (GRU), Gandhidham, during which it was brought to the petitioner’s notice that the said entities were engaged in bogus billing. The petitioner, claiming to be unaware of these facts and not wishing to enter into litigation, paid GST credit along with interest and penalty aggregating to Rs.5,13,02,342 as directed by the DGGI, GRU, Gandhidham. Subsequent thereto, no adverse proceedings were initiated against the petitioner under the GST law.
- The petitioner filed its return of income under section 139(1) of the Income Tax Act, 1961 on 15.03.2022 for Assessment Year 2021–22, declaring a total income of Rs.28,63,36,000. The return was processed under section 143(1), determining the income at Rs.28,99,04,000. Thereafter, the case was selected for scrutiny on the ground that the petitioner had made substantial purchases from suppliers who were either non-filers, had non-business profiles, or reflected substantially lower turnover in their income-tax returns.
- During the course of scrutiny proceedings, the petitioner furnished details and explanations as called for from time to time. The assessment was ultimately completed under section 143(3) read with section 144B on 27.12.2022, assessing the total income at Rs.29,11,39,700.
- Subsequently, on 09.09.2024, the petitioner was served with a summons by the Deputy Director of Income Tax (Investigation), Ahmedabad, which was responded to by the petitioner vide reply dated 17.09.2024. Thereafter, another notice was issued by the Deputy Director of Income Tax (Investigation), Jamnagar on 17.12.2024, to which the petitioner submitted its response on 17.01.2025.
- Thereafter, based on information flagged on the Insight Portal regarding the alleged passing of fraudulent Input Tax Credit without actual supply of goods in the case of M/s Dhairya Enterprise (Prop. Drashti Shaileshkumar Jitiya), the Assessing Officer issued a show cause notice under section 148A(1) of the Act dated 31.03.2025 for AY 2021–22. The petitioner filed its objections to the said notice vide letter dated 13.04.2025.
- Despite the petitioner’s reply, the Assessing Officer passed an order under section 148A(3) of the Act on 28.06.2025 and issued a consequential notice under section 148 of the Act on the same date. The Assessing Officer held that the petitioner had debited expenses of Rs.17,74,50,073, out of which only Rs.14,07,06,100 had been disallowed as bad debts, and that the balance amount of Rs.3,67,43,973 was wrongly claimed as expenditure. On this basis, it was concluded that income to the said extent had escaped assessment.
Issue:
- Whether the issuance of notice under section 148A(1) of the Income Tax Act, 1961 dated 31.03.2025 for AY 2021–22, the order passed under section 148A(3) dated 28.06.2025, and the consequential notice issued under section 148 of even date are sustainable in law.
Observations:
- The High Court observed that initially, in the show-cause notice dated 31.03.2025 issued under section 148A(1) of the Act, it was alleged that the petitioner had entered into bogus purchase transactions amounting to Rs.14,07,06,096. However, while passing the order dated 28.06.2025 under section 148A(3) of the Act, the Assessing Officer held that against the amount of Rs.17,74,50,073 being the advanced sum against purchases, the petitioner had written off only Rs.14,07,06,100, whereas the remaining sum of Rs.3,67,43,973 was appropriated against the GST account and claimed as expenditure towards bogus purchases, and on that basis concluded that income had escaped assessment within the meaning of section 147 of the Act.
- The Court noted that the petitioner, in its ledger account, had fully disclosed that the amount of Rs.14,07,06,100 pertaining to M/s Dhairya Enterprise was transferred as bad debt and added back to the income of the company as per the computation of income, and hence was not claimed as expenditure. The petitioner had also furnished a certificate dated 12.04.2025 issued by a Chartered Accountant certifying the write-off of the amounts in question. In these circumstances, the allegation of claiming the amount of Rs.3,67,43,973 towards bogus expenditure during the assessment year under consideration was found to “fall flat”.
- The High Court further observed that in the show-cause notice issued under section 148A(1), the amount of Rs.14,07,06,100 was derived after considering the aforesaid facts, and therefore, the Assessing Officer travelled beyond the original show-cause notice and attempted to “unearth and bifurcate the amount”, despite the fact that the petitioner had already paid penalties and accepted the position, as it did not wish to enter into further litigation after discovering that M/s Dhairya Enterprise and M/s Shree Enterprise were bogus entities.
The Court held that upon an overall analysis of the facts and the amounts reflected in the ledger, it could not be said that any income had escaped assessment. On the contrary, the Assessing Officer attempted to “exhume” the amount of Rs.3,67,43,973 as bogus purchase from the amount of Rs.14,07,06,100. The Court further noted that the said amount of Rs.3,67,43,973 was claimed as deduction not as part of bogus purchases, but on account of payment of Rs.5,13,02,342 made subsequent to the survey by the DGGI. Even otherwise, the petitioner was never called upon by the Assessing Officer to explain the alleged bogus claim of expenditure of Rs.3,67,43,973 as GST on bogus purchases. Accordingly, the Court held that the impugned order and notice were required to be quashed and set aside.
