Non-filing of ITR by suppliers does not render purchases bogus: ITAT

M/s Everest Food Products Pvt. Ltd., engaged in manufacture and sale of spices under the “Everest” brand, filed its return for AY 2021-22 declaring income of Rs. 517.71 crore. The case was selected for scrutiny on the grounds of substantial purchases from certain suppliers allegedly identified as non-filers or low-turnover entities.

The Assessing Officer treated purchases of Rs. 55.55 crore from four suppliers as non-genuine solely because some suppliers had not filed income-tax returns or audited their accounts, and without rejecting the books, applied a gross profit rate of 46%, making an addition of Rs. 25.55 crore.

The CIT(A) deleted the addition after noting that the assessee had furnished complete documentary evidence supporting the purchases.

Main Issue: Whether purchases can be treated as non-genuine merely because suppliers allegedly failed to file income-tax returns or audit accounts, despite comprehensive documentary evidence and audited books.

ITAT Held: The ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s order. It held that non-filing of returns by suppliers, by itself, does not render purchases bogus. The Tribunal noted that the assessee had substantiated the purchases through invoices, GRNs, e-way bills, transport records, bank payments, GST data, and income-tax portal records.

The Assessing Officer neither disproved the evidence nor conducted any independent enquiry to establish that the suppliers were accommodation entry providers, nor were corresponding sales disturbed. Thus, the gross profit addition was held to be unsustainable.

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