ITAT Hyderabad Quashes Bogus Purchase Addition: Supplier's Non-Response to Section 133(6) Notice Insufficient for Disallowance
The intersection of third-party compliance and an assessee's tax liability has long been a contentious battleground in Indian tax jurisprudence. A recurring phenomenon during scrutiny assessments is the disallowance of legitimate business expenditures merely because a vendor or supplier fails to respond to departmental inquiries. Addressing this precise anomaly, the Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, recently delivered a decisive ruling in the case of Stranex Industries Private Limited Vs ITO.
The Tribunal categorically established that when an assessee furnishes irrefutable documentary evidence—including audited financial statements, tax invoices, and bank transaction proofs—the revenue authorities cannot treat the purchases as bogus solely due to a supplier's non-compliance with a notice issued under Section 133(6) of the Income Tax Act, 1961.
This comprehensive analysis delves into the factual matrix, the procedural history, the arguments presented by both the revenue and the assessee, and the broader legal implications of the ITAT's landmark verdict.
The Factual Matrix of the Dispute
The assessee, a corporate entity actively engaged in the specialized business of manufacturing explosives and site-mixed emulsion, initiated its annual tax compliance by filing its return of income for the Assessment Year 2023-24 on 31.10.2023. In this return, the assessee declared a total taxable income of Rs.56,52,160.
Subsequently, the case was flagged for a complete scrutiny assessment. Setting the procedural wheels in motion, the Assessing Officer (AO) issued a statutory notice under Section 143(2) of the Income Tax Act, 1961 on 19.06.2024.
The Genesis of the Suspicion
During the rigorous examination of the financial records, the AO's attention was drawn to the substantial volume of sundry creditors reflecting on the assessee's balance sheet. To ascertain the authenticity and genuineness of these outstanding liabilities, the AO exercised his investigative powers and dispatched notices under Section 133(6) of the Income Tax Act, 1961 to a randomly selected sample of these creditors.
Among the recipients of these notices was M/s Core India Corporation, a key supplier from whom the assessee had procured materials amounting to Rs.68,47,010. The crux of the dispute materialized when M/s Core India Corporation failed to tender any response to the departmental notice.
The Assessment Order
Relying entirely on this singular instance of non-responsiveness, the AO drew an adverse inference. Operating on the presumption that the absence of a reply equated to the absence of a genuine transaction, the AO classified the entire procurement of Rs.68,47,010 as bogus. Consequently, this amount was disallowed under Section 37(1) of the Income Tax Act, 1961.
The scrutiny proceedings culminated in an assessment order passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 on 21.03.2025. By factoring in the disallowance, the AO drastically escalated the assessed total income to Rs.1,24,99,170.