Bogus purchase disallowance fails where books are intact, sales are accepted, and stock records support the transactions.

Purchases supported by bills, quantitative stock details and accepted sales were not disbelieved merely because vendor notices under section 133(6) were returned unserved. Since the books of account were not rejected, assessments were completed under section 143(3), and no independent material showed accommodation entries or routing of unaccounted income, the alleged bogus purchases could not be sustained. Corresponding stock movement and closing stock also supported the trading results. The additions on account of alleged bogus purchases were therefore deleted in favour of the assessee.

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Issues: Whether the additions made by treating the purchases as bogus were sustainable when the books were not rejected, quantitative stock records were maintained, sales were accepted, and payments were made through banking channels.

Analysis: The assessee had produced purchase bills and the trading results were supported by quantitative details in the tax audit report. The assessments were completed under section 143(3) without finding defects in the books of account or rejecting them. The sales were not doubted, and the record showed corresponding purchases, stock movement, and closing stock. Merely because notices issued to the vendors under section 133(6) were returned unserved, and without independent material showing that the transactions were accommodation entries or that unaccounted income was routed through sales, the purchases could not be disbelieved. The disallowance was therefore not justified on the facts found.

Conclusion: The additions made on account of alleged bogus purchases were deleted and the issue was decided in favour of the assessee.

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