The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of Rs. 15.35 lakh made against the assessee after finding that the very foundation of the reassessment had collapsed following a favourable GST appellate order.
The Bench of Udayan Das Gupta (Judicial Member) and Annapurna Gupta (Accountant Member) allowed the assessee’s appeal for Assessment Year 2020-21, holding that once the GST appellate authority concluded there was no evidence of clandestine removal or suppressed sales, the Income Tax Department could not sustain an estimated addition based exclusively on those allegations.
The appellant/assessee, a partnership firm engaged in the manufacture of tyres, had filed its return declaring a total income of ₹1.01 crore for AY 2020-21. Subsequently, the Income Tax Department reopened the assessment under Section 147 based on information received through the Insight Portal. The information originated from a search conducted by GST authorities under Section 67(2) of the CGST Act on October 10, 2019.
Buy Now: INCOME TAX E-COMPILATION – JUNE 2026
According to the GST department, the assessee had allegedly removed tyres and tubes valued at ₹1.74 crore without accounting for the sales, leading to an allegation of suppressed turnover. Acting solely on this information, the Assessing Officer estimated undisclosed profits by applying the assessee’s disclosed gross profit rate of 8.79% on the alleged suppressed sales and made an addition of ₹15.35 lakh. The reassessment order was subsequently upheld by the Commissioner (Appeals).
Before the ITAT, the assessee produced a crucial development that occurred after the income-tax proceedings. The Commissioner (Appeals), CGST, Jaipur, in February 2026, had already examined the GST allegations in detail and overturned the demand of ₹48.91 lakh IGST arising from the alleged clandestine interstate sales.
The GST appellate authority found that the department had failed to establish that the alleged diary entries represented unaccounted sales. It accepted the assessee’s explanation that the names appearing in the seized documents were agents rather than customers and observed that the investigating officers had incorrectly matched agents’ names with tax invoices.
The appellate authority also noted several glaring deficiencies in the investigation. It found no corroborative evidence of procurement of unaccounted raw materials, no proof of actual removal of finished goods, no evidence of transportation, no statements from buyers, no evidence of receipt of sale proceeds, and no material linking the seized documents with actual clandestine clearances. Consequently, it held that the demand for IGST was unsustainable.
The ITAT observed that the reassessment proceedings under the Income Tax Act were founded entirely on information supplied by the GST authorities regarding alleged suppressed sales of ₹1.74 crore. During the hearing, even the Departmental Representative did not dispute that apart from the GST material, there was no independent evidence available with the Assessing Officer to establish suppression of sales.
The Tribunal noted that once the GST appellate authority had categorically concluded that there was no suppression or concealment of sales, the very basis of the income-tax addition disappeared.
Since the addition represented merely an estimate of profit on alleged suppressed turnover, and the allegation of suppressed turnover itself had been rejected by the competent GST appellate authority, the Tribunal held that the addition could not legally survive.
A significant aspect of the ruling is the Tribunal’s emphasis that the Assessing Officer had not conducted any independent investigation to establish undisclosed income. The reassessment relied exclusively on GST findings that were subsequently overturned.
The Tribunal therefore held that, in the absence of any independent material demonstrating suppression of sales, the estimated addition of ₹15.35 lakh had “no legs to stand on” and deserved to be deleted.
The Jaipur Bench deleted the entire addition made by the Assessing Officer and sustained by the Commissioner (Appeals), thereby granting complete relief to the assessee.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
