IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT &

SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.195/Ahd/2025 (Assessment Year: 2017-18)

M/s. Ankur Fine Products, Vs. Income Tax Officer, Sagar House, Opp. Stock Ward-6(1)(2), Exchange, Panjarapole Char Rasta Ahmedabad Azad Society, Ahmedabad-380015 [PAN No.AADFA0503F]

(Appellant) .. (Respondent Appellant by : Shri Parin Shah, AR Respondent by: Shri Ravindra, Sr. DR Date of Hearing 04.11.2025 Date of Pronouncement 06.11.2025

O R D E R

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A)-2, Noida vide order dated 04.10.2024 passed for A.Y. 2017-

18.

2. The assessee has raised the following grounds of appeal:

“1. On the facts and circumstances of the case, and in law, the Ld. Commissioner of Income-tax (Appeal) [‘the CIT(A)’] erred in confirming the disallowance amounting to Rs.9,99,393/- made by the Income Tax Officer Ward 6(1)(2)-Ahmedabad (Ld. AO’), without considering the submission filed the Appellant which has resulted in violation of principle of natural justice.

2. In doing so, the CIT(A) further erred in upholding the disallowance of purchases amounting to Rs. 9,99,393/-, merely on account of the difference between the VAT returns and as per books of account, without rejecting audited books of account, and bringing any corroborative contrary evidence on record.

Without Prejudice to the above:

3. The CIT(A) further erred in upholding the action of the Ld. AO in accepting the total sales as per books of account which is much higher than the sale turnover as per VAT return. In doing so, he failed to appreciate that if the purchase is to be considered as per VAT Return than sales is also to be considered based on the VAT Return.

4. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing.”

3. The brief facts of the case are that the assessee, M/s. Ankur Fine Products, is a partnership firm engaged in the business of sale and purchase of pharmaceutical products, chemicals, bulk drugs and health-related items. The assessee filed its return of income for the Assessment Year 2017–18 declaring total income of Rs. 7,24,280/-. The return was filed electronically in Form ITR-5 and was based on duly audited books of accounts under section 44AB of the Income-tax Act, 1961 (the “Act”). The case was selected for scrutiny for verification of large turnover reported in ITR vis-à-vis non- filing of the audit report and to verify the correctness of purchases, VAT declarations, and profit disclosures. During the course of the assessment proceedings, the Assessing Officer observed that there was a discrepancy between the purchases reflected in the VAT returns and those recorded in the audited Profit & Loss Account. As per the VAT return for the financial year, total purchases (exclusive of VAT) amounted to Rs. 30,40,76,076/-, less purchase returns of Rs. 66,04,712/-, resulting in net purchases of Rs. 29,74,71,364/-. However, as per the Profit & Loss Account, purchases were shown at Rs. 29,89,09,398/-, thus leading to a difference of Rs. 14,38,034/-, which upon adjustment for VAT came to Rs. 9,99,393/-. The Assessing Officer was of the view that the assessee had inflated purchases to the extent of Rs. 9,99,393/- thereby reducing gross profit and taxable income. The assessee, in response to the show-cause notice issued by the Assessing Officer submitted that the difference arose solely due to the manner in which purchase returns were treated under the Gujarat Value Added Tax (GVAT) Act vis-à-vis in the books of account. Under Rule 15 of the GVAT Rules, an assessee was required to reverse input tax credit (ITC) on all goods returned to suppliers, even if the supplier did not issue a credit note for the returned goods. Thus, VAT returns showed higher purchase retu