Documentary evidence defeats bogus purchase and consultancy fee disallowances where revenue fails to verify adverse claims properly.

ITAT Mumbai deleted additions for alleged bogus purchases and management and consultancy fees because the assessee supported both claims with contemporaneous documentary evidence. For purchases, invoices, ledger confirmations, transport records, e-way bills, bank payments and GST input-tax-credit data established genuineness; the sales were accepted, the books were not rejected, and the supplier was neither properly examined nor offered for cross-examination. For consultancy fees, tax deduction at source and payment evidence were produced, while the revenue brought no material to show that services were not rendered or that the expenditure was bogus. Additions based only on suspicion and an unverified supplier reply could not stand.

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Issues: (i) whether the disallowance of purchases from Delightful Collections as bogus purchases was justified, and (ii) whether the disallowance of management and consultancy fees was justified.

Issue (i): whether the disallowance of purchases from Delightful Collections as bogus purchases was justified.

Analysis: The assessee produced purchase invoices, ledger confirmation, transport receipts, e-way bills, bank payment details and GST return data showing corresponding input tax credit. The sales were accepted and the books were not rejected. The adverse inference drawn from the supplier's reply was not supported by further investigation, and the supplier was not examined under section 131 of the Income-tax Act, 1961 or subjected to cross-examination. In the absence of contrary material, the documentary evidence furnished by the assessee was sufficient to establish genuineness of the purchases.

Conclusion: The disallowance of purchases was not sustainable and was deleted, in favour of the assessee.

Issue (ii): whether the disallowance of management and consultancy fees was justified.

Analysis: The assessee showed payment of consultancy charges supported by deduction of tax at source and the lower authorities did not bring any adverse material to show that the services were not rendered or that the expenditure was bogus. The qualification of the recipient by itself was not a valid basis to disallow a business expenditure when the payment and business expediency were not disproved.

Conclusion: The disallowance of management and consultancy fees was not justified and was deleted, in favour of the assessee.

Final Conclusion: The additions made on account of alleged bogus purchases and consultancy charges did not survive, and the assessee's appeal succeeded in full.

Ratio Decidendi: Where an assessee substantiates purchases and business expenditure with contemporaneous documentary evidence and the revenue fails to bring adverse material or conduct proper verification, the additions cannot be sustained on suspicion alone.

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