AO's disallowance of Rs. 27.55 lakh purchases over supplier address issue ruled unjustified under ITAT

ITAT Mumbai held that the AO was not justified in disallowing purchases of Rs. 27,55,482/- from M/s Shbham International, as there was no evidence to classify them as bogus. The tribunal noted that the assessee had furnished adequate documents, quantity details, and reconciled purchases with sales. The AO's disallowance based solely on the inability to provide current addresses of suppliers, due to cessation of dealings and the long gap between the financial year and reassessment, was unwarranted. The AO failed to prove any falsity in the documents submitted. Consequently, the ITAT set aside the CIT(A)'s order and directed the AO to delete the disallowance of the purchases.

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ISSUES:

Whether purchases made from identified accommodation entry providers can be disallowed under section 69C of the Income Tax Act solely on the ground that current addresses of such parties are not furnished.Whether section 69C applies to purchases that have been accounted for in the books of accounts and supported by purchase documents, quantity details, and reconciliation with sales.Whether purchases from a party not identified by the tax authorities as providing bogus bills can be disallowed under section 69C.

RULINGS / HOLDINGS:

The disallowance of purchases from alleged accommodation entry providers under section 69C was not justified merely because the assessee could not furnish the current addresses of those parties, especially when the assessee had submitted purchase documents, quantity details, and reconciled purchases with corresponding sales.Section 69C of the Act applies to unexplained expenditure and cannot be invoked against purchases that are duly recorded and supported by documentary evidence in the books of accounts.Purchases from a party not identified as providing bogus bills cannot be disallowed under section 69C; therefore, the disallowance of purchases from such a party was set aside.

RATIONALE:

The court applied the provisions of section 69C of the Income Tax Act, which deals with unexplained expenditure, and held that the section cannot be invoked where purchases are accounted for and supported by evidence.The court emphasized that inability to furnish current addresses of suppliers, especially after a lapse of about seven years, is not sufficient ground to treat purchases as bogus without proof of falsity.The court relied on the fact that the assessee reconciled purchase quantities with sales and submitted relevant documents, which the AO did not find deficient.There was no dissent or doctrinal shift noted; the judgment reaffirmed the principle that mere non-availability of supplier addresses does not justify disallowance under section 69C where other evidence supports the genuineness of transactions.

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