Deepak Chauhan vs ACIT

PER M. BALAGANESH, AM

The appeal in ITA No.8575/Del/2025 for AY 2023-24, arises out of the order of the ld ld. Commissioner of Income Tax (Appeals)-28, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 04.12.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.04.2025 by the Assessing Officer, ACIT, Central Circle-16, New Delhi (hereinafter referred to as ‘ld. AO’).

The only effective to be decided on merits is as to whether the learned CITA was justified in confirming addition of Rs 15,62,648 on account of alleged commission earned by applying arbitrary rate @ 8% on sales by holding entire sales made by the assessee to his partnership firm as bogus in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of civil construction under the proprietary concern M/s Roadtech and had filed his return of income for the assessment year 2023-24 on 31-10-2023 declaring total income of Rs. 35,33,550. A search and seizure operation was carried out at the business and residential premises of M/s S. S. Chauhan Group on 15-02-2024 and its related individuals. The assessee is one of the individuals covered in the said search. The jurisdiction of the assessee was transferred to Learned DCIT Central Circle 16 Delhi, vide order under Section 127 passed by the Learned PCIT on 14-06-2024. Subsequently, notice under Section 143(2) of the Act dated 25-06-2024 stood issued to the assessee. During the course of such proceedings, statements of third parties were recorded. Based on these statements, the Learned AO drew a conclusion that sales made by the proprietary concern of the assessee to M/s S. S. Chauhan and sons which is the partnership firm of the assessee is bogus.

The said allegation was denied by the assessee vide his reply dated 24-04-2025. The assessee provided copy of GST returns and Form 26AS to substantiate the genuineness of the transactions with S. S. Chauhan & Sons. During the search proceedings, the statement of assessee was also recorded. The assessee submitted that on perusal of the statements, it can be noticed that there is nothing against assessee, there is no admission of some wrongdoing, it does not contain or refers to anything incriminating. Further, it was submitted that the Statement of Shri Jitendra Sharma was also recorded and he was asked to provide his comments on M/s Roadtech. In his response, he stated that he only enters data in tally accounting software on the directions of Shri Ashok Kumar. On further asked about M/s Roadtech involved in bogus billing, he appears to have stated that bogus job work expenses are being booked in the name of M/s Roadtech in the S. S. Chauhan & Sons. In regard to contents of the above statement, it was submitted by the assessee that Shri Jitendra Kumar is only a small inexperienced accountant in the partnership firm S. S. Chauhan & Sons, having basic knowledge of accounting, drawing salary of Rs. 2.5 lakhs per annum. In the initial part of the statement, he stated that he only enters data in accounting software and has no knowledge about the reality of transactions happening or not. But in the later part of same statement, he stated that transactions of job work by Roadtech to S. S. Chauhan & Sons are bogus. This shows that his statement is contradictory and hence not reliable. The Learned AO however did not agree to these contentions of the assessee and proceeded to treat the bogus sales made to the partnership firm S. S. Chauhan & Sons as bogus and added 8% profit thereon and made an addition of Rs. 15,62,648 in the hands of the assessee. This action of the learned AO was upheld by the learned CITA.

We find that the assessee gave his rebuttal to each of the statements recorded by the revenue during the course of search. The total sale of goods to S. S. Chauhan & Sons was Rs 50,33,106 and job work services rendered amounting to Rs. 1,45,00,000 are duly supported by documentary evidences such as copy of GST returns including GSTR-1 & GSTR-3B showing transactions reported to the GST authorities; copy of Form 26AS showing deduction of tax at source on these transactions; copy of ledger account of the GST sales against the goods sold and services rendered to the party. We find that no defect whatsoever was pointed out by the learned AO in the said documentary evidences furnished to substantiate the genuineness of sales and services made by the assessee. The payments for sales and services were received through regular banking channels; sales were disclosed in the regularly and timely filed GST returns; the proceeds of sales were duly credited in the profit and loss account of the assessee; the corresponding purchases made by the assessee were not doubted by the revenue; the assessee had sufficient stocks to effect the sales and to the extent of sales, sufficient reduction in the stocks were duly made by the assessee. It is pertinent to note that the purchases for effecting the sales to partnership firm were made from independent third party vendors in the normal course of business operations by the assessee, which has been accepted by the revenue. 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 assessee established the same to be sales made to partnership firm duly supported by documentary evidences. Hence there is no reason to disbelieve the same and the documentary evidences. Further assessee had made profit of Rs 11,71,987 on the sales effected to his partnership firm and offered the same to tax in the return. In none of the statements relied upon by the revenue, there is a mention that the sales made by the assessee to his partnership firm is bogus. Merely on the basis of statement of any third party and without finding any defect in the purchases made by the assessee and in the documentary evidences submitted by the assessee, no adverse inference could be drawn on the assessee by considering the sales made by the assessee to his partnership firm as bogus. Accordingly, we hold that the sales supported by the assessee to his partnership firm is genuine and consequentially no addition on account of profit element at the rate of 8 % thereon could be made in the hands of the assessee. There is absolutely no incriminating material found in the course of search to suggest that the sales made by M/s Roadtech to M/s S S Chauhan & Sons as bogus. The revenue had merely relied on the statements of Shri Jitender Sharma and Shri Ashok Kumar. Nowhere they had stated that the sales made to S S Chauhan & Sons by the assessee to be bogus. Hence the revenue had proceeded solely on unsubstantiated assumptions and conjectures without any cogent evidence on record. Hence we have no hesitation to delete the addition made in the hands of the assessee in the facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee on merits of the addition are hereby deleted.

Since, the relief is granted to the assessee on merits of the addition, the other legal grounds raised by the assessee need not be adjudicated and they are left open.

In the result, the appeal of the assessee is partly allowed.