Case Law Details
Stranex Industries Private Limited Vs ITO (ITAT Hyderabad)
Bogus Purchase Disallowance Quashed Because Assessee Produced Audited Books and Bank Proofs; ITAT Rules Purchases Cannot Be Disallowed When Books of Account Are Accepted by AO; Addition for Alleged Bogus Purchases Deleted Since Revenue Found No Defect in Records; ITAT Holds Supplier’s Failure to Reply Under Section 133(6) Not Enough to Deny Purchase Claim.
The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, allowed the appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals), NFAC, for Assessment Year 2023-24. The dispute related to an addition of Rs.68,47,010 made by the Assessing Officer (AO) under Section 37(1) of the Income Tax Act on account of alleged bogus purchases.
The assessee, engaged in the business of manufacturing explosives and site mixed emulsion, had filed its return declaring total income of Rs.56,52,160. During scrutiny assessment proceedings, the AO noticed substantial sundry creditors and issued notices under Section 133(6) to certain creditors for verification. Since no response was received from M/s Core India Corporation, from whom purchases amounting to Rs.68,47,010 were made, the AO treated the purchases as bogus and disallowed the amount under Section 37(1). The assessment was completed under Sections 143(3) read with 144B, assessing total income at Rs.1,24,99,170.
The assessee challenged the addition before the CIT(A), but the appellate authority upheld the AO’s action. Before the Tribunal, the assessee argued that the disallowance was made solely because the supplier did not respond to the notice under Section 133(6). It was submitted that the assessee had maintained proper audited books of account and had furnished copies of audited accounts, bank statements, cash flow statements, purchase details, invoices, raw material purchase details, stock valuation records, and ledger accounts during assessment proceedings. The assessee also relied upon a confirmation issued by M/s Core India Corporation confirming opening balance, sales made during the year, payments received, and closing balance. It was further pointed out that all payments were made through banking channels.
The Revenue supported the orders of the lower authorities and argued that the supplier’s non-compliance with the notice under Section 133(6) cast doubt on the genuineness of the purchases.
After examining the material on record, the Tribunal observed that the AO himself had acknowledged receipt of all primary supporting documents from the assessee. The Tribunal further noted that the supplier had issued confirmation regarding the transactions and that payments were made through banking channels. It was also observed that the Revenue had not produced any material to show that the payments made through banking channels had returned to the assessee in any manner.
The Tribunal found that the AO had neither pointed out any discrepancy in the books of account nor rejected the books. The sales declared by the assessee were also not doubted. In such circumstances, the Tribunal held that purchases could not be disallowed merely because the supplier failed to respond to a notice issued under Section 133(6). It held that once the assessee discharged its primary burden by furnishing invoices, ledger accounts, confirmations, audited financial statements, and proof of payments through banking channels, non-response by the supplier alone could not justify treating the purchases as bogus.
The Tribunal concluded that the disallowance was based only on suspicion and surmises without any cogent adverse material on record. Accordingly, it directed the AO to delete the addition of Rs.68,47,010 and allowed the appeal of the assessee.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Stranex Industries Private Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 29.09.2025 for the A.Y.2023-24.
2. The assessee has raised the following grounds of appeal:
“1. The order passed by the learned Hon’ble Commissioner of Income Tax (Appeals)/NFAC is erroneous both in law and on facts.
2. The learned Hon’ble Commissioner of Income Tax (Appeals)/NFAC has erred in law and on facts in confirming the addition made by the A.O on account of unexplained expenses as per the assessment order dated 21.03.2025.
3. Any other grounds that may be urged at the time of hearing is hereby kept open”
3. The brief facts of the case are that the assessee is a company engaged in the business of manufacture of explosives and site mixed emulsion. The assessee filed its return of income for Assessment Year 2023-24 on 31.10.2023 declaring total income of Rs.56,52,160/-. The case of the assessee was selected for complete scrutiny and accordingly notice under section 143(2) of the Income Tax Act, 1961 (“the Act”) was issued by the Learned Assessing Officer (“Ld. AO”) to the assessee on 19.06.2024. During the assessment proceedings, the Ld. AO observed that the assessee had claimed huge amount of sundry creditors and therefore, for verification of genuineness of creditors, notice under section 133(6) of the Act was issued to the creditors randomly. No reply was received by the Ld. AO from M/s Core India Corporation from whom the assessee had made purchases of Rs.68,47,010/-. The Ld. AO treated the said purchases as bogus and disallowed Rs.68,47,010/- under section 37(1) of the Act. Accordingly, the assessment was completed by the Ld. AO under section 143(3) read with section 144B of the Act vide order dated 21.03.2025 assessing the total income of the assessee at Rs.1,24,99,170/-.
4. Aggrieved with the order of the Ld. AO, the assessee filed appeal before the Ld. CIT(A). However, the Ld. CIT(A), after considering the submissions of the assessee, was not convinced with the explanation furnished by the assessee and upheld the addition made by the Ld. AO.
5. Aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. Before us, the Learned Authorised Representative (“Ld. AR”) submitted that the solitary issue arising out of the grounds of appeal filed by the assessee is with regard to the addition of Rs.68,47,010/-made by the Ld. AO by disallowing the purchases under section 37(1) of the Act treating the same as bogus purchases. The Ld. AR submitted that the Ld. AO has treated the purchases made from M/s Core India Corporation as bogus merely on the ground that the said creditor did not respond to the notice issued under section 133(6) of the Act. The Ld. AR further submitted that the assessee had maintained proper books of account which were duly audited by the Chartered Accountant in accordance with the provisions of the Act. Inviting our attention to page no.5 of the assessment order, the Ld. AR submitted that the Ld. AO himself has recorded that the assessee had furnished copies of audited accounts, bank statements, cash flow statements, purchase details, invoices, raw material purchase details, stock valuation and ledger accounts during the course of assessment proceedings. He submitted that despite furnishing all these evidences, the Ld. AO has not pointed out any discrepancy therein. The Ld. AR further submitted that the gross value of purchases including taxes from M/s Core India Corporation was Rs.80,77,625/-during the year under consideration and all payments were made by the assessee through banking channels till 21.04.2023. He also invited our attention to the confirmation issued by M/s Core India Corporation placed at page no.28 of the paper book and submitted that the said concern has confirmed the opening balance, sales made during the year, amount received and closing balance. The Ld. AR further submitted that the Ld. AO without bringing any contrary material on record, treated the purchases as bogus merely because the supplier failed to respond to the notice issued under section 133(6) of the Act. Accordingly, he submitted that the addition made by the Ld. AO is purely based on suspicion and surmises and therefore liable to be deleted.
6. Per contra, the Learned Departmental Representative (“Ld. DR”) relied upon the orders of the lower authorities and submitted that the creditor did not comply with the notice issued under section 133(6) of the Act and therefore the genuineness of the purchases was not proved by the assessee. Accordingly, the Ld. DR submitted that there is no infirmity in the orders of the lower authorities in treating the purchases as bogus and disallowing the same under section 37(1) of the Act.
7. We have heard the rival submissions and perused the material available on record. We have gone through page no.5 of the order of the Ld. AO, which is to the following effect:
We have heard the rival submissions and perused
8. On perusal of the above, we find that the Ld. AO himself has recorded the fact that the assessee had submitted copies of audited accounts, bank statements, cash flow statements, purchase details, invoices, raw material purchase details, stock valuation and ledger accounts during the course of assessment proceedings. Accordingly, it is evident that all the primary documents in support of purchases were furnished by the assessee before the Ld. AO. We have also gone through the confirmation issued by M/s Core India Corporation placed at page no.28 of the paper book , which is to the following effect:
9. On perusal of the above, we find that M/s Core India Corporation has duly confirmed the opening balance, sales made during the year, amounts received and closing balance pertaining to the assessee during the year under consideration. We further observe that all payments towards purchases have been made by the assessee to M/s Core India Corporation through banking channels. The Revenue has not brought any material on record to establish that the payments made through banking channels have come back to the assessee in any manner. We further find that the Ld. AO has not pointed out any deficiency or discrepancy in the books of account and documents furnished by the assessee. The Ld. AO has also not rejected the books of account of the assessee and has accepted the book results declared by the assessee. Once the books of account are accepted and sales are not doubted, corresponding purchases cannot be disallowed merely because the supplier failed to respond to notice issued under section 133(6) of the Act. Therefore, in our considered view, noncompliance by the creditor to the notice issued under section 133(6) of the Act, by itself, cannot be a sole basis to treat the purchases as bogus when the assessee has discharged its primary onus by furnishing invoices, ledger accounts, confirmations, audited financial statements and proof of payments through banking channels. Thus, considering the entirety of facts and circumstances of the case, we are of the considered opinion that the disallowance of purchases under section 37(1) of the Act treating the same as bogus purchases is merely based on suspicion and surmises without bringing any cogent adverse material on record. Accordingly, we direct the Ld. AO to delete the addition of Rs.68,47,010/- made on account of alleged bogus purchases.
10. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 13th May, 2026.
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