By TIOL News Service

NEW DELHI, JAN 15, 2016: THE issue is - Whether merely because notices u/s 133(6) could not be served on the suppliers, assessee-buyer cannot be put to an inconvenience of disallowance when he has provided the correct address of those parties. YES is the answer.

Facts of the case The assessee is engaged in the business of manufacturing and sale of forgings, iron and steel in form of billets and blooms. During assessment, the AO noticed that assessee had not maintained any quantitative details or stock registers. The AO had issued notices to two firms u/s 133(6) to verify the purchases of M/s. R. K. Enterprises and another M/s. Vasu Trading Corporation, the assessee however could not furnish any evidence to verify the existence of these firms. The AO concluded that no genuine business entities existed. Therefore, disallowed the total expenses. He further held that books of accounts of assessee were also not reliable as it was not verifiable and made addition on account of expenditure incurred outside the books of accounts to arrange for fictitious bills. On appeal, the CIT(A) held that the details submitted by assessee, it has discharged the onus of the purchases made and in absence of any contrary evidence in possession of AO despite 133(6) notices not served on the parties no disallowance can be made on account of bogus purchases.

The Tribunal held that,

++ it seems that mainly the disallowance is made because of the petition filed tax Evasion Petition by one of the director of the company Sameer Khandelwal who alleged that assessee is evading the taxes by debiting bogus expenses in the nature of repair expenses. However, in the order of AO we could not gather what evidence he has laid before AO to prove that assessee is evading taxes by booking bogus expenses. In the office note attached with the assessment order, which is filed before us, did not show any evidence available with AO or supplied by the assessee. In absence of any positive evidence led by the assessee and ITS independent examination by AO, it remains a mere allegation and based on mere allegation no addition/ disallowance can be made. Further Purchase bills shows all the requisite details of the suppliers in the bills, in our view it is a contemporaneous confirmation in itself by suppliers. AO is of the view that as both the suppliers have PAN however both of them are not assessed to Income tax. On this aspect no fault can be found with the assessee. Further disproportionate increase in packing material machinery expenditure compared to sales is the first point, which should provoke AO to make further investigation , which has not been done. In absence of further investigation such as with sales tax authorities, bankers who have received the cheque on behalf of suppliers etc. additions/ disallowance made on basis of disproportionate increase become a mere statistical exercise , which cannot be sustained. Merely because notices u/s 133(6) could not be served on the suppliers, assessee- buyer cannot be put to an inconvenience of disallowance when he has provided the correct address of those parties. In view of this we confirm the order of CIT(A) in deleting the disallowance of on account of bogus purchases.

(See 2016-TIOL-91-ITAT-DEL)