Fake invoices: I-T dept reopening hundreds of old assessment cases

Businesses that may have claimed fake purchases in taxman's crosshairs

The income tax (I-T) department has begun reopening hundreds of old assessment cases, targeting businesses that may have claimed fake or inflated purchases to suppress profits and reduce tax liability.

 

According to sources, in some instances, authorities have even gone back as far as five years, where credible evidence of tax evasion has surfaced. Many businesses — particularly in trading, electronics, and construction — are alleged to have used fake invoices from non-existent suppliers, often referred to as “entry operators”, to inflate expenses and wrongly claim input tax credits (ITC) under the goods and services tax (GST).

 

“Even though these tax returns were originally processed and accepted without any questions or objections from the income tax department, they are now being reopened based on new evidence from GST authorities which suggests fake purchases or bogus invoices being used to understate income,” a source said.

 

According to sources, tax officers are relying heavily on data analytics and cross-verification between GST and income tax filings to detect such discrepancies.

 

These cases are being reopened under Section 147 of the Income Tax Act, which empowers the department to reassess income if it believes that taxable income has escaped assessment.

 

According to Section 148 of the Act, the tax department can reopen past cases up to three years from the end of the relevant financial year in normal cases and up to five years if the income escaped is more than ₹50 lakh, and is linked to an asset, expenditure, or book entry. If a taxpayer fails to prove the genuineness of purchases with credible documentation, the expenditure can be treated as unexplained and taxed accordingly, often with penalties.

 

An email sent to the Central Board of Direct Taxes (CBDT), which governs the income tax department, seeking comments remained unanswered till press time.   

 

Punit Shah, partner at Dhruva Advisors, said the income tax office and GST authorities are aligned in terms of questioning bogus purchases, especially where input tax credits are reversed by the purchasers.

 

"It would be appropriate for the purchasers to provide sufficient documentary evidence to prove that purchases are not bogus. Mere reversal of input tax credits under GST laws would not be sufficient for income tax authorities to establish that purchases are bogus," Shah said.

 

Avinash Gupta, partner at APT and Co LLP, pointed out that several taxpayers, who are already facing litigation under the GST law, are now receiving fresh notices from the income tax department. He added that in many cases, while the supply chain includes mostly genuine traders, due to issues with a few suppliers in the chain, genuine entities are also being denied the benefit of claiming the related expenditure.

 

Chetan Daga, founder of AdvantEdge Consulting, said: “The onus is on the taxpayer to prove that the purchases were genuine, goods purchased were actually received, and supported by documents such as e-way bills, Goods Received Notes, and transport records.”

 

Crackdown

 

> Many businesses — particularly in trading, electronics, and construction — are alleged to have used fake invoices to inflate expenses

> Tax officers are relying on data analytics and cross-verification between GST and income tax filings to detect discrepancies

> These cases are being reopened under Section 147 of the Income Tax Act