Suppliers' Failure To File Income Tax Returns Alone Can't Render Purchases Bogus: ITAT Chandigarh

The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) has recently observed that purchases cannot be treated as bogus only because some suppliers failed to file income tax returns or did not respond to departmental notices when the transactions are otherwise supported by records.

Explaining this, a bench of Vice President Rajpal Yadav and Accountant Member Manoj Kumar Aggarwal observed that in the fctas of the case, the tax department had accepted the taxpayer's sales and had not found any supplier to be non-existent.

"Merely because few of the suppliers have not filed their Income tax returns or the fact that they did not have any valid email Ids, the purchases could not be disallowed. In two cases, the purchases have been doubted merely because in response to notices u/s 133(6), requisite details were not filed by these two parties. However, none of the parties is found to be non-existent. The assessee would have no control over third-party suppliers," the tribunal observed.

The case concerned a trader engaged in manufacturing and trading non-ferrous metals. He had filed regular returns for Assessment Years 2020–21 and 2021–22, both of which were taken up for scrutiny.

During assessment, the Assessing Officer treated purchases of Rs 10.15 crore for AY 2020–21 and Rs 11.66 crore for AY 2021–22 as non-genuine. This was done on the ground that some suppliers had not filed income tax returns, some did not have email IDs, and a few did not fully respond to notices issued under Section 133(6).

Before the Commissioner (Appeals), the purchaser said the purchases were supported by invoices, GST records, ledger accounts, and bank statements. It also pointed out that all payments were made through banking channels. The assessee added that it had no control over whether third-party suppliers replied to departmental notices.

Accepting this explanation, the Commissioner (Appeals) deleted the additions. The Revenue carried the matter in appeal to the tribunal.

While dismissing the Revenue's appeals, the tribunal noted that the Assessing Officer had not alleged any collusion or routing back of funds. It said that without purchases there could be no sales, and the sales turnover had already been accepted.

Referring to the suppliers who did not respond to notices, the tribunal noted that doubts were raised in only two cases for this reason. It clarified that “none of the parties is found to be non-existent.”

The tribunal also noted that the disallowance exceeded 40% of the total purchases. It recorded that the purchaser's profit levels were in line with earlier years and that no defects were found in the books of account.

On these facts, the tribunal upheld the order of the Commissioner (Appeals) and dismissed the Revenue's appeals for both assessment years.

Case Title: ITO Ward-3 v. Raman Kohli

Citation: 2026 LLBiz ITAT (CHA)14

Case Number: ITA No.445/CHANDI/2024

Counsel for Appellant/ Department: Advocate Bharat Bhushan Garg

Counsel for Respondent/ Assessee: Advocate Ekta Kumari and Mehak Dhiman