ITAT Delhi Ruling: Unanswered Section 133(6) Notices Cannot Justify Bogus Purchase Additions When Sales Are Accepted
In a significant ruling concerning the scrutiny of trading accounts and the verification of expenditure, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has reinforced the evidentiary burden placed on the Revenue Department. In the case of ITO Vs Mahesh Kumar Aggarwal, the Tribunal held that the rejection of books of accounts under Section 145(3) of the Income Tax Act 1961 and the subsequent estimation of net profit cannot be based merely on the non-response of suppliers to notices issued under Section 133(6).
The ruling clarifies that once an assessee has provided primary documentation—such as purchase invoices, banking records, and tax registration details—the onus shifts to the Assessing Officer (AO) to conduct a deeper inquiry before treating purchases as bogus.
Factual Matrix of the Case
The dispute arose from the assessment proceedings for the Assessment Year 2021-22. The assessee, an individual proprietor operating two concerns, M/s MK Overseas and M/s Shiv Trading Company, is engaged in the wholesale trading of scrap metal. The specific goods traded included Copper Scrap, Aluminium Scrap, Brass Scrap, and Stainless Steel Scrap metal.
The assessee filed a return of income declaring a total income of Rs. 25,86,260/- on 28-02-2022. However, the case was selected for "Complete Scrutiny" under the Computer Aided Scrutiny Selection (CASS). The primary reason for this selection was the flagging of substantial purchases made from suppliers who were categorized as:
- Non-filers of Income Tax Returns;
- Entities filing non-business returns; or
- Entities reflecting substantially lower turnover in their filings.
The Assessing Officer’s Stand
During the assessment, the AO invoked powers under Section 133(6) of the Act to verify the genuineness of the purchases. Notices were issued to five specific parties. The outcome of this exercise was mixed:
- Two parties responded to the notices.
- Three parties failed to provide any response.
Furthermore, the AO utilized the GST portal to check the status of the suppliers and noted that several GST registrations were inactive. The AO also raised doubts regarding the logistics of the transactions, specifically questioning the capacity of the vehicles used for transportation (identified as TATA Ace diesel) against the quantity of goods mentioned in the invoices.