Business expenditure – Bogus purchases – A. Y. 2001-02 – No rejection of books of account – Substantial amount of sales to Government Department – Confirmation letters filed by suppliers, copies of invoices of purchases as well as copies of bank statements indicating purchases were made – Non-appearance of suppliers before authorities is not a ground to hold purchases bogus – No addition could be made –

For the A. Y. 2001-02, the assessee declared a total income of Rs. 42.08 lakh. The Assessing Officer disallowed an expenditure of Rs. 1.33 crore on account of purchases from seven parties on the ground that they were not genuine. The Tribunal found that the assessee had filed the letters of confirmation of suppliers, copies of bank statements showing entries of payment through account payee cheques to the suppliers, copies of invoices for purchases and stock statement, i.e. stock reconciliation statement and no fault was found with regard to it. Books of account of the assessee had not been rejected. The Tribunal deleted the disallowance holding that the purchases were not bogus.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The Tribunal had deleted the additions made on account of bogus purchases not only on the basis of stock statement, i.e. reconciliation statement but also in view of other facts. The Tribunal recorded that the books of account of the assessee had not been rejected. Similarly, the sales had not been doubted and it was an admitted position that a substantial amount of sales had been made to the Government Department.

ii) Further, there were confirmation letters filed by the suppliers, copies of invoices of purchases as well as copies of bank statements all of which would indicate that the purchases were in fact made.

iii) Merely because the suppliers had not appeared before the Assessing Officer or the Commissioner (Appeals), one could not conclude the purchases were not made by the assessee. The order of the Tribunal was well reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crore were not bogus. No fault could be found with the order of the Tribunal.”