Disallowance of 25% Purchases for Non-Filer Suppliers : ITAT Deletes Addition Based on Proof of Genuineness

The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) deleted a 25% disallowance on purchases made from non-filer suppliers after the assessee furnished sufficient evidence to prove the genuineness of the transactions.

Workenstein Collaborative Spaces Pvt. Ltd.,appellant-assessee, filed its return of income declaring a loss of Rs. 6,40,61,654/-. During assessment, the Assessing Officer (AO ) noticed purchases of Rs. 34,20,192/- from 21 parties who had not filed income-tax returns.

Verification was conducted for two parties, M/s. Deligent Metal and M/s. Interfaceflor India Pvt. Ltd., involving purchases of Rs. 3,86,907/- and Rs. 23,53,571/- respectively, by issuing notices under Section 133(6).

As no response was received, the AO treated the purchases as partly unverifiable and disallowed 25% as non-genuine. The assessee’s appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] was dismissed, as the CIT(A) held that the assessee failed to prove the identity, creditworthiness of the suppliers, and the genuineness of the transactions.

The assessee counsel argued that all necessary evidence, including supplier details, ledger accounts, and bank statements showing payments, was submitted to prove the genuineness of the purchases. It was stated that the accounts were duly audited and all documents were furnished to the authorities.

The counsel contended that the assessee could not be held responsible for the suppliers’ non-response to notices under Section 133(6), and therefore, the addition was not justified. The Departmental counsel , however, supported the orders of the lower authorities.

The two member bench comprising George George K (Vice President) and Jagadish (Accountant Member) heard both sides and reviewed the records. It noted that the AO had disallowed 25% of the purchases because the suppliers were non-filers and did not respond to notices under Section 133(6) of the Act.

However, the tribunal observed that the assessee had provided supplier details, PAN, ledger accounts, and bank statements showing payments through banking channels, which proved the genuineness of the transactions.

It held that once such evidence was furnished, the assessee’s onus was discharged, and non-response from suppliers or their non-filing of returns could not justify the disallowance. The tribunal, therefore, deleted the addition made by the AO.

Accordingly the appeal was allowed.

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