G.R. Corporation Vs ITO (ITAT Jaipur)
Jaipur ITAT Deletes Addition Based Solely on GST Allegation After GST Appellate Authority Finds No Suppression of Sales
The Jaipur ITAT allowed the assessee’s appeal by deleting an addition of ₹15.35 lakh, which had been made by estimating profit at 8.79% on alleged suppressed sales of ₹1.74 crore. The reassessment had been initiated solely on the basis of information received from the GST authorities alleging clandestine removal of tyres and tubes without payment of GST.
During the appellate proceedings before the Tribunal, the assessee produced the GST Appellate Authority’s order, which, after examining the seized documents and books of account, categorically held that there was no evidence of interstate movement of goods, clandestine removal, or suppression of sales. The GST authority further found that the Department had failed to establish essential corroborative evidence such as procurement of unaccounted raw materials, transportation, buyers’ statements, sale proceeds or any other material to support the allegation of clandestine sales, and accordingly set aside the IGST demand of ₹48.91 lakh.
The Tribunal noted that the Income-tax addition rested entirely on the GST information, and the Revenue fairly conceded that no independent material existed before the Assessing Officer to establish suppression of sales. Since the very foundation of the reassessment had ceased to exist following the GST appellate order, the Tribunal held that the estimated addition could not survive and accordingly deleted the entire addition of ₹15.35 lakh. The assessee’s appeal was allowed.
Cases Discussed
- State of Karnataka v. Azad Coach Builders Pvt. Ltd. (SC)
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal is filed by the assessee against the order of ld. CIT (A), NFAC, Delhi, passed u/s 250 of the Act, 1961 vide order dated 10.10.2025 which has emanated from the order of AO, NFAC, passed u/s 147 r.w.s. 144B of the Act, vide order dated 17.03.2025.
2. The grounds of appeal taken in Form 36 are as follows:
“1. The impugned order u/s 147rws 143(3) rws 144B of the I.T. Act, 1961 dated 17.03.2025 as well as the action taken u/s 147 rws 143(3)rws 148 and notices u/s 148A(b), 148A(d) and 148 and other notices are illegal, bad in law and on the facts of the case for want of jurisdiction, without proper satisfaction of higher authorities and various other reasons or bared by limitation and further contrary to the real facts of the case, hence the same may kindly be quashed.
2. Rs. 15,35,425/-: The Id. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the trading addition of Rs.15,35,425/-made by the Id. AO on alleged 8.79 percent Gross Profit on alleged unaccounted sales of Rs.1,74,67,856/-.The Ld. AO and CIT(A) both have also erred in not considering the vital facts and material available on record in their true perspective and sense, also erred in making the trading addition without rejecting the books of accounts and without invoking the provisions of sec. 145(3), also erred in making the addition without invoking any provisions of the Act. Hence the addition so made by the Id. AO and confirmed by the Id. CIT(A) is also being contrary to the real facts of the case and not according to the provision of law, hence the same may kindly be deleted in full.
3. The Id. AO has grossly erred in law as well as on the facts of the case in charging the interest u/s 234A, B,C. The interest so charged is being totally contrary to the provision of law and on facts of the case and hence same may kindly be deleted in full.
4. That the appellant prays your honour indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.”
3. Brief facts emerging from records are that the assessee is a partnership firm engaged in the business of manufacturing of tyres, and has filed its original ROI on 15.02.2021 declaring a total income at 1,01,73,500/-. Subsequently, as per flagged information available on insight portal in CIRU/VRU,(flowing from a search operation conducted by the GST authorities u/s 67(2) of the CGST Act 2017, at the premises of the assessee, on 10/10/2019), that the assessee is allegedly engaged in clandestine removal of taxable goods ( tyres and tubes ) valued at Rs.1,74,67,856/-, reassessment proceedings has been initiated by issue of notice u/s 148 dated 29/03/2024 ( as per procedure ), in response to which return filed disclosing the originally returned income, has been assessed with an addition of Rs.15.35 lakhs on account of undeclared profits ( calculated @ 8.79% of suppressed sales of Rs. 1.74 crores), being the GP rate disclosed by the assessee in audited accounts.
4. The matter carried in first appeal has been dismissed by the ld CIT(A) ,in absence of any supporting proof or evidence produced by the assessee ,to counter the allegation of suppressed sales ( clandestine removable of taxable goods ), which has remained unrecorded in regular books of accounts , thereby generating excess business profits.
5. Now the assessee is before the tribunal on the grounds contained in form 36. In course of hearing before the tribunal ,the Ld AR of the assessee filed a copy of the order dated 06thFebruary, 2026 passed by the Commissioner ( A) ,Central Excise , Customs and Central goods and Service Tax, Jaipur, being the order – in – appeal No 13 to 16 (GS)CGST/JPR/2026, passed u/s 107 of the CGST Act 2017.
6. Referring to the above order in appeal, the Ld AR of the assessee submitted that the entire reassessment proceedings in the instant case was initiated on the basis of information flowing from GST authorities, regarding undisclosed sales amounting to Rs. 1.74 crores, and non deposit of IGST amounting to Rs.48.91 lakhs during the period April 2019 to September 2019.
6.1 However, in appellate proceedings after examination and verification of all seized documents vis a vis regular books, the GST appellate authority has arrived at a conclusion that there is no evidence to establish inter state movement of goods and clandestine removable of goods and has held that the demand of GST amounting to Rs.48.91 lakhs ( IGST ) is not sustainable.
6.2 For ready reference we are reproducing relevant para of the order of the GST appellate authority as under:
“A.3 The calculation chart was prepared by the officers of DGGI, Jaipur on the basis of above and it was observed that M/s GRC have supplied 27,905 no.s of rubber tyres and 27,905 no.s of rubber tubes to various customers having taxable value of Rs. 1,74,67,856/- clandestinely and have not deposited IGST of amounting to Rs. 48,91,000/-during the period from April 2019 to September 2019 as detailed in Annexure C.
A.4 In this regard, it is submitted that the demand of Rs. 48,91,000/- of IGST has been confirmed, which is allegedly clandestine sales of Tyres/Tubes. It is vital to discuss that the inter-state sales of Tyres/Tubes is done by the appellant through Agents. In the loose papers page no. 56 to 142 contains names of Agents. Usually, an agent gives orders on behalf of 2 or 3 or many buyers and that order passed to the employees of the appellant. The employee who is assigned to fulfill the orders writes the name of that agent in the diary. When the goods are ready as per requirement, the agent is contacted and as per his guidance the goods are sent to various buyers along with tax invoices. The department tried to tally the names of Agents with the name of customers mentioned in the tax invoices and inference that the entire inter-state sales is without payment of GST, which is entirely wrong. Moreover, the department also failed to co-relate remaining inter-state sales with the other entries mentioned in the diary or loose papers.”
7. The final conclusion is in para 45.5 of the order which is reproduced:
“45.5 It is also noticed that the adjudicating authority has not co-related inter-state sales with the entries mentioned in the diary or loose papers. In this regard, it is noticed that the taxpayer has prepared a Chart C-1 in this regard, which affirms that all the sales were duly made on payment of proper IGST. There was no investigation at the end of agents. No investigation in respect of procurement of unaccounted for raw material required by the taxpayer for manufacturing of Tyres- Natural Rubber, Synthetic Rubber, Oil, Carbon black, Reinforcement material, Packing Material, Electricity for running machine, Manpower/Labour. No evidence in respect of: Raw materials, Instances of actual removal, Discovery of such finished goods, Instances of sales, Receipt of sale proceeds, Use of electricity, Statements of buyers, Proof of actual transportation, Link between the document recovered. Therefore, in absence of corroboratory evidence, the demand of IGST of Rs. 48,91,000/- is not sustainable. My above view has been supported from the following decision-
a. The Hon’ble Supreme Court in State of Karnataka v. Azad Coach Builders Pvt. Ltd. held that movement of goods is a sine qua non for determining the nature of supply.
45.6 In absence of evidence establishing inter-State movement of goods and clandestine removal of goods, the demand of GST amounting to Rs. 48,91,000/- (IGST) is not sustainable and is liable to be set aside. I hold accordingly.”
7.1 Referring to the above the Ld. AR prayed that since the addition has been made by the AO, by estimation of profits arising out of allegation of unrecorded sales of Rs. 1.74 crores (flowing from GST search operations),which has been subsequently deleted by GST appellate authorities, with an observation that there is no unrecorded sales and in absence of any other material before the AO to arrive at a conclusion that the assesssee has suppressed any sales, the estimated addition of Rs. 15.35 lakhs determined at a percentage of alleged suppression of sales, has no legs to stand on and the same may please be deleted.
8. The ld. DR relied on the order of the ld. CIT(A). However, on going through the order passed in appeal by the GST appellate authorities he has not disputed fact that apart from this GST records there are no other materials before the AO to arrive at a conclusion of suppression of the sale by the assessee.
9. We have heard the rival submission and we find that in the entire addition in the instant case, has been made on the basis of information received by the AO from GST authorities relating to suppress sales amounting to Rs. 1.74 crores on which profit has been estimated @ 8.79% an addition of Rs.15.35 lakhs.
9.1 After considering the documentary evidences furnished by the ld. AR (which is the appellate order in Appeal No.13 to 16 (GS)(GST/JPR/2026 where the GST authorities has arrived at a conclusion that there is no suppression or concealment of sales. As such, the addition made by the AO and sustained by the ld. CIT(A) on the basis of such information does not stand and as such, the addition made by the AO is hereby deleted.
10. In the result, the appeal of the assessee is allowed.
Order pronounced on 28.07.2026 under Rule 34(4) of the Income Tax Appellate Tribunal Rules 1963.
