That the return of notices issued under Section 133(6) unserved by the postal authorities is not sufficient to reach to the conclusion that sales to those parties are not genuine where the assesse has provided all the documentary evidence to prove genuineness of the sales. Further, disallowance on the ground of non-genuine sales cannot be a basis for addition u/s 68 of the Income Tax Act, 1961 – ITAT Delhi

• In the year under consideration,​​ the assessee derives income from import of mobile phones from China and its sales in India.

• The major portion of the assessee’s sales is by way of high sea sales i.e., out of the total sales of `62.91 crores, `59.11 crores of sales is on high sea sales basis.

• The Assessing Officer issued notice under Section 133(6) to the​​ High Sea Sales Buyers.

• However, such notices were returned.

• The Assessing Officer, on the basis of these two facts i.e., the receipt of major portion of sale consideration in cash and return of notices under Section 133(6), reached to the conclusion that the high sea sales are not genuine.

• Accordingly, he made​​ the addition of `59,11,29,517/- u/s 68 of the act and added back the same to the total income of the assesse.​​ 

• It seems that the Assessing Officer has probably not understood the scope of Section 68. Section 68 is not for the purpose of allowability or disallowability of any deduction and moreover, the question of disallowance may arise in respect of any expenditure or allowance claimed by the assessee.

• In respect of a sale consideration, there cannot be any question of any disallowance.

• In the second paragraph above, the Assessing Officer has alternatively applied Section 69C. Section 69C is also for unexplained expenditure.

• Admittedly, there is no question of any unexplained expenditure in the case under appeal before us and therefore, Section 69C is also not applicable.

• Further,​​ On one hand, he mentioned the high sea sales to be not genuine and on the other, he has accepted the business income disclosed by the assessee.

• Therefore, his stand while making the addition under Section 68 or 69C is contradictory to his stand taken while accepting the business income which is not permissible in law. 

• The only dispute​​ here​​ is with regard to high sea sales.

• The custom authorities have approved the high sea sales agreement. The custom clearance documents of such goods show that the delivery of goods was taken by the buyer on high sea sales.

Hence, the assessing officer is not right in doubting the genuineness of the high sea sales only on the basis that the notices u/s 133(6) were not served and no addition can be made u/s 68 of the Income Tax Act on such ground.​​ ​​