Assessee was engaged in the trading of fabrics and readymade garments. It had shown sundry creditors of a certain amount. Assessing Officer issued notices under section 133(6) to 27 parties, out of which 20 notices were returned unserved with remarks ‘wrong address/incomplete address/non-existent’. He held creditors to be non-existent and made an addition of entire closing balance under section 41(1). CIT(A) dismissed the appeal. On appeal, the Tribunal held that the assessee had made purchases from these parties during the year, which were duly accounted for and sold, and no doubts were raised with respect to sales. Assessee had filed VAT returns showing input tax on such purchases.It was also noticed that in almost all cases, balances were squared off in subsequent years by cash payments below Rs. 20,000 on a regular basis, which cast doubt on the genuineness of creditors. Since goods purchased were sold and sales were accepted, input of goods could not be doubted, and expenditure was to be treated as genuine, but in view of failure to establish identity and genuineness of creditors, disallowance was restricted to 25 per cent of such purchases (AY. 2012-13)