S. 68: Purchases cannot be treated as “bogus” only on the ground that the suppliers are not traceable

The AO held that as the parties from whom the purchases were allegedly made by the assessee could not be located, they were bogus and an addition had to be made u/s 68 in the hands of the assessee. The CIT(A) and Tribunal deleted the addition on the basis that the purchases could not be held to be bogus as corresponding sales had been effected by the assessee and similar purchases in the earlier and subsequent years were not questioned by the AO. On appeal by the department to the High Court HELD dismissing the appeal:

The Tribunal has found that the purchases are genuine because they are supported by bills, entries in the books of account, payment by cheque and quantitative details. The AO did not find any inflation in purchase price or inflation in consumption or suppression the production. The addition had been made only on the ground that the parties are not traceable. The assessee had made payment through crossed cheques and AO did not find that payment made came back to assessee. The ratio of creditors to purchases is normal considering the past records of the assessee. The creditors were outstanding owing to liquidity as assessee is also required to get credit in respect of sales also. Even otherwise, section 68 is not attracted to amounts representing purchases made on credit. This is a finding of fact which does not give rise to a question of law.