Delhi HC Mandates DIN for GST Writs to Curb Duplicate Litigation; ITAT Jaipur Upholds Major Addition in Accommodation Entry Case

New Delhi/Jaipur – In a significant week for tax litigation, two major judicial pronouncements have underscored the judiciary's focus on enhancing procedural integrity and rigorously scrutinizing tax evasion schemes. The Delhi High Court has initiated a procedural reform to prevent duplicative litigation in GST matters, while the Income Tax Appellate Tribunal (ITAT), Jaipur, has delivered a decisive ruling against the use of accommodation entries, upholding a substantial addition under Section 68 of the Income Tax Act, 1961.

Delhi High Court Implements System to Track Challenges to GST Orders

In a move aimed at enhancing judicial efficiency and preventing conflicting rulings, a division bench of the Delhi High Court has directed its Registry to introduce a new mandatory field for recording the Document Identification Number (DIN) and date of the impugned order when filing writ petitions related to Goods and Services Tax (GST).

The direction, passed by Justices Prathiba M. Singh and Shail Jain in the case of Purshottam Ray v. Principal Commissioner Of CGST & Ors , addresses a growing problem where a single adverse order, often involving hundreds of entities in complex Input Tax Credit (ITC) fraud cases, is challenged through multiple, separate writ petitions.

The Court observed that this multiplicity makes it nearly impossible for the bench to recall if a particular order has already been adjudicated upon, creating a risk of inconsistent judicial outcomes. The bench noted, “Thus, in order to avoid conflicting rulings in respect of the same impugned order, the Registry is directed to add a 'FIELD' related to impugned order recording the corresponding DIN number and the date, at the time of filing of writ petitions challenging the same.”

This new procedure is intended to ensure that the Court is immediately aware of any prior or pending litigation concerning the same impugned order. The High Court drew a parallel to an established practice in criminal law, stating, “Such practice is adopted by this Court in criminal matters arising out of the same FIR and the said practice could be replicated in the tax roster as well which would assist the Court as also counsels/litigants.”

The direction was issued while hearing a plea from a firm-owner challenging a demand of over Rs. 550 crores raised against 286 entities. The Court discovered that the same order had already been challenged and decided in M/S Montage Enterprises Private Limited & Ors. Vs. Central Goods and Services Tax Delhi North & Ors. , where the matter was relegated to the appellate remedy. The bench expressed its disapproval that counsel for the petitioner had not disclosed this prior ruling, emphasizing the duty of fairness to the court.

This procedural reform is expected to streamline the handling of tax cases, particularly large-scale GST matters, by creating a transparent mechanism to link related challenges, thereby conserving judicial resources and ensuring legal certainty.

ITAT Jaipur Delivers Scathing Verdict on Accommodation Entries, Upholds Rs. 5 Crore Addition

In a robust affirmation of the onus placed on assessees to prove the legitimacy of financial transactions, the ITAT Jaipur Bench has allowed an appeal by the Revenue Department, sustaining an addition of Rs. 5.05 crores made under Section 68 for unexplained cash credits disguised as unsecured loans. The case, ITO Vs Bagaria Trade Impex , serves as a comprehensive judicial analysis of accommodation entry schemes and a stark warning to taxpayers engaging in such practices.

The Tribunal's detailed order systematically dismantled the assessee's attempts to legitimize the loans, which were found to be sham transactions facilitated by notorious entry operators. The ITAT emphasized that the assessee "miserably failed to establish the essential three ingredients as prescribed in section 68 of the Act"—namely, the identity of the creditors, the genuineness of the transaction, and the creditworthiness of the parties.

Factual Matrix: A Classic Case of Sham Transactions

The assessee, a trading firm, had shown unsecured loans from various entities. However, investigations by the Assessing Officer (AO) revealed a web of deceit. Summons sent to the purported lenders were either returned unserved or were met with categorical denials of any transaction. Faced with this, the assessee introduced a "mediator" who claimed to have arranged the loans but provided no corroborative evidence of his role or income from such activities.

The ITAT's analysis of the Income Tax Returns (ITRs) of the lending entities was particularly damning. It created a table demonstrating a classic pattern of entry operators: the companies providing crores in loans had negligible returned income and were consistently claiming tax refunds. The Tribunal observed, “It’s a typical model of entry operators where they either file return of income below taxable or always claim the refund of T.D.S. deducted out of such transactions.”

The Tribunal also highlighted the assessee's non-cooperation, noting that despite repeated requests, the balance sheets and bank statements of the creditor companies were never produced, which was essential to prove their creditworthiness.

Legal Principles Reaffirmed: Substance Over Form

The ITAT's order is a powerful reiteration of established legal principles, drawing heavily on landmark Supreme Court judgments like Kale Khan Mohammad Hanif vs. CIT and PCIT vs. NRA Iron & Steel (P.) Ltd. Key takeaways from the ruling include:

• Onus on Assessee: The initial and primary burden to prove the source of any sum credited in the books lies squarely on the assessee.
• The Three Pillars of Sec. 68: Merely providing the identity of creditors is insufficient. The assessee must also prove their capacity to advance the funds (creditworthiness) and the genuineness of the transaction.
• Squared-Up Loans No Defence: The Tribunal rejected the argument that loans repaid within the same financial year are exempt from scrutiny under Section 68. It reasoned that squaring up accounts is a common feature of accommodation entries and does not negate the need to prove the transaction's veracity.
• Piercing the Corporate Veil: The ITAT invoked the doctrine of "Substance over Form," emphasizing that courts will not hesitate to look beyond the corporate structure to unearth tax evasion, fraud, or sham arrangements. Quoting the Supreme Court's decision in Vodafone International Holdings B.V. , the bench stated that entities involved in such malpractices "can’t simply come out of the glitches of the law, in the guise of some technical issue."

Technical and Jurisdictional Arguments Dismissed

The assessee's counsel attempted to shift the focus to technical and jurisdictional arguments, which the Tribunal systematically rejected.

• Jurisdiction: The assessee challenged the validity of the notice issued by an officer who initially held PAN jurisdiction, even though the case was later transferred. The ITAT decisively dismissed this argument, citing the Supreme Court’s recent ruling in DCIT (Exem.) vs. Kalinga Institute of Industrial Technology , which holds that an assessee cannot question jurisdiction after participating in proceedings without a timely objection.
• Scope of Scrutiny: An argument that the AO had exceeded the limited scope of a CASS-based scrutiny was also found to be untenable. The Tribunal clarified that the relevant CBDT instructions limiting the scope of inquiry apply to specific types of CASS selections (like AIR/CIB mismatches) and do not restrict a "full scrutiny" case like the assessee's.

The ITAT concluded by confirming the AO's additions, not only for the unexplained loans under Section 68 but also for the estimated commission paid to the entry operators under Section 69C, thereby allowing all three of the Revenue's appeals. This comprehensive ruling serves as a crucial precedent, reinforcing the judiciary's rigorous approach to combating tax evasion through accommodation entries.