The Income Tax Appellate Tribunal, Delhi, has reaffirmed that genuine documentary evidence - including GST returns, Form 26AS, and bank records - must prevail over speculative third-party statements in assessing the genuineness of transactions. This ruling provides critical clarity for taxpayers engaged in inter-entity dealings with related parties.
Background & Facts
The Dispute
The appellant, Deepak Chauhan, operates a proprietary civil construction business under the name M/s Roadtech. For the assessment year 2023-24, he filed his income tax return on 31.10.2023 declaring a total income of Rs. 35,33,550. During a search and seizure operation conducted on 15.02.2024 at the premises of M/s S.S. Chauhan Group and related entities, the appellant was identified as a person of interest. Subsequently, his jurisdiction was transferred to the Assessing Officer in Central Circle-16, New Delhi, via an order under Section 127 dated 14.06.2024. A notice under Section 143(2) was issued on 25.06.2024, initiating scrutiny proceedings.
Key Facts
- The assessee made sales of goods worth Rs. 50,33,106 and rendered job work services worth Rs. 1,45,00,000 to M/s S.S. Chauhan & Sons, a partnership firm in which he is a partner.
- The assessee submitted copies of GSTR-1 and GSTR-3B returns filed with the GST authorities, showing these transactions were reported.
- Form 26AS records confirmed tax deducted at source (TDS) on payments received from the partnership firm.
- Ledger accounts maintained by the assessee corroborated the sales and service transactions.
- Payments for all sales and services were received through banking channels.
- The assessee’s purchases for these sales were made from independent third-party vendors, all of which were accepted as genuine by the revenue.
- Stock movement records showed corresponding reduction in inventory consistent with the sales volume.
- The assessee declared a profit of Rs. 11,71,987 from these transactions and offered it to tax.
- No incriminating material was found during the search against the assessee.
- The statements of Shri Jitendra Sharma and Shri Ashok Kumar, relied upon by the revenue, did not explicitly state that the sales to the partnership firm were bogus.
Procedural History
- 31.10.2023: Assessee filed return of income for AY 2023-24.
- 15.02.2024: Search and seizure conducted at premises of M/s S.S. Chauhan Group.
- 14.06.2024: Jurisdiction transferred to ACIT, Central Circle-16, Delhi under Section 127.
- 25.06.2024: Notice under Section 143(2) issued.
- 24.04.2025: Assessee submitted detailed rebuttal with documentary evidence.
- 25.04.2025: Assessing Officer passed order under Section 143(3), adding Rs. 15,62,648 as unexplained profit at 8% on sales to the partnership firm.
- 04.12.2025: Commissioner of Income Tax (Appeals)-28 upheld the addition.
- 13.05.2026: ITAT Delhi delivered judgment on appeal.
Relief Sought
The appellant sought deletion of the addition of Rs. 15,62,648 on the grounds that the sales to the partnership firm were genuine, supported by complete documentary evidence, and that the revenue’s reliance on third-party statements was legally unsustainable.
The Legal Issue
The central question was whether the revenue can disallow sales to a partnership firm and impose an arbitrary profit addition solely on the basis of uncorroborated third-party statements, when the assessee has provided complete documentary proof of genuineness including GST returns, Form 26AS, and bank records.
Arguments Presented
For the Appellant
The appellant contended that the sales to M/s S.S. Chauhan & Sons were fully documented and compliant with statutory requirements. He submitted GSTR-1 and GSTR-3B returns, Form 26AS, ledger accounts, and bank statements to prove the transactions were real. He argued that the statements of Shri Jitendra Sharma and Shri Ashok Kumar were internally contradictory and lacked specificity - neither explicitly declared the sales as bogus. He relied on the principle that documentary evidence must be accorded primacy over oral or hearsay statements, especially where the former is consistent, contemporaneous, and filed with statutory authorities. He further emphasized that the revenue had accepted the genuineness of his purchases from third parties, making it logically inconsistent to reject the corresponding sales.
For the Respondent
The revenue relied on statements recorded during the search, particularly those of Shri Jitendra Sharma, who allegedly hinted at fictitious job work entries. The revenue argued that the nature of the transactions between the assessee and his partnership firm raised suspicion, and that the absence of direct admission by the assessee did not negate the possibility of collusion. It contended that the 8% profit addition was a reasonable estimate based on industry norms and the lack of adequate explanation.
The Court's Analysis
The Tribunal conducted a meticulous review of the documentary trail and found no defect in any of the evidence submitted by the assessee. It noted that the GST returns were filed regularly and disclosed the transactions in question. The TDS deductions reflected in Form 26AS confirmed that the partnership firm had made payments, and the bank records showed crediting of these amounts into the assessee’s account. The Tribunal emphasized that the revenue had accepted the genuineness of the assessee’s purchases from independent vendors, which logically necessitated the acceptance of the corresponding sales.
"Once the purchases have been accepted as genuine, the corresponding sales made by the assessee cannot be doubted. It is not the case of the revenue that the assessee had retained the stock of goods purchased with him and is part of the closing stock. This goes to prove that the revenue itself had accepted to the fact that the stocks are not lying with the assessee which logically proves that it had been sold."
The Tribunal further held that the statements of Shri Jitendra Sharma were unreliable due to internal contradictions - he first claimed to have no knowledge of transactional realities, then later alleged fraud. The Tribunal observed that the revenue had not identified any falsification in documents, nor had it disproved the physical movement of goods or services. It concluded that the addition was based on conjecture and suspicion, not on any cogent evidence.
The Tribunal reiterated that the burden of proving the genuineness of transactions lies initially with the assessee, and once that burden is discharged through credible documentation, the onus shifts to the revenue to disprove it with concrete evidence - not speculative inferences.
The Verdict
The appeal was allowed. The Tribunal deleted the addition of Rs. 15,62,648 made by the Assessing Officer and upheld by the Commissioner (Appeals). The Tribunal held that the sales to the partnership firm were genuine and supported by documentary evidence. No further action was required on other grounds raised by the appellant. The order of the Assessing Officer dated 25.04.2025 and the Commissioner (Appeals) order dated 04.12.2025 were set aside.
What This Means For Similar Cases
Documentary Evidence Prevails Over Oral Statements
- Practitioners must insist that revenue authorities cannot rely on vague or contradictory third-party statements to reject transactions supported by GST returns, Form 26AS, and bank records.
- In cases involving related-party transactions, the burden is on the revenue to identify specific defects in documentation - not to raise suspicions.
Sales to Partnership Firms Are Not Inherently Suspicious
- Transactions between a proprietary concern and its partner’s firm are not per se bogus.
- The mere existence of a partnership relationship does not justify an arbitrary profit addition.
- Courts and tribunals will examine the substance of transactions, not their form.
Revenue Must Disprove, Not Assume
- Once an assessee produces complete and consistent documentary evidence, the revenue must provide specific, credible rebuttal evidence.
- Arbitrary percentages (e.g., 8% profit) cannot substitute for evidentiary analysis.
- Conjecture and suspicion are legally insufficient grounds for addition under Section 68 or 69A.
