Ankur Fine Products Vs ITO (ITAT Ahmedabad)
VAT vs Books Difference Explained – ITAT Ahmedabad Deletes ₹9.99 Lakh Disallowance for Statutory ITC Reversal in Pharma Trade
Ahmedabad ITAT deleted the disallowance of ₹9,99,393/- made on account of alleged inflated purchases arising from a difference between VAT returns & audited books of accounts.
Assessee, a partnership firm dealing in pharmaceuticals & bulk drugs, had declared purchases of ₹29.89 crore in its books, whereas the VAT return reflected ₹29.74 crore, leading the AO to conclude that purchases were inflated by ₹9.99 lakh. The assessee explained that the difference stemmed from Rule 15 of the Gujarat VAT Rules, which mandates reversal of Input Tax Credit (ITC) on goods returned to suppliers, even if the supplier does not accept the goods or issue a credit note. Consequently, VAT returns reflected higher purchase returns & lower purchases, while the books only recorded actual credit notes received.
AO & CIT(A) disbelieved this reconciliation & upheld the addition. However, before the Tribunal, the assessee furnished a supplier-wise reconciliation, explaining that the difference represented statutory VAT compliance & not income suppression, constituting only 0.33% of total purchases.
Tribunal observed that:
- There was no evidence of bogus or non-genuine purchases.
- Sales as per VAT & books were identical, confirming genuine trading results.
- The difference was a bookkeeping outcome of statutory compliance, not income manipulation.
Citing CIT v. President Industries (258 ITR 654, Guj.), ACIT v. Mahavir Dyeing & Printing Mills (P.) Ltd. [151 taxmann.com 298, Surat-Trib.], ITO v. Arihant Plastics [169 taxmann.com 477, Ahd-Trib.], & CIT v. Modi Rubber Ltd. (193 ITR 379, Del.), the Tribunal held that minor accounting variations due to indirect tax treatment cannot justify additions without proof of falsification.
