Compliance history of supplier can’t be used to invalidate genuine business transactions of buyer

Compliance history of supplier could not be used to invalidate the genuine business transactions of the buyer especially when the same was supported by documentary evidences – ITAT

In a recent judgment, ITAT Chandigarh has held that compliance history of the supplier could not be used to invalidate the genuine business transactions of the buyer especially when the same was supported by documentary evidences. AO relied on wrong assumption that if a supplier had not filed its Income Tax Return or reflected lessor turnover in ITR than in GST returns, then the purchases must be bogus.

ABCAUS Case Law Citation:
4999 (2026) (01) abcaus.in ITAT

Important Case Laws relied upon by Parties
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In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the addition as made by AO invoking the provisions of Sec.69C of the Income Tax Act, 1961 (the Act).

The assessee’s case was subjected to scrutiny on the ground that the assessee made substantial purchases from suppliers who did not file Income Tax Return or reflected substantially low turnover in their respective Income Tax Returns.

To verify the purchases, notices u/s 133(6) were issued and physical verification was carried out by verification unit in few cases. However, the same did not elicit satisfactory response. It was also observed by AO that GST registration of many of the suppliers was suspended by GST department establishing that the sales made by them were not genuine. No credible supporting evidence was furnished by the assessee in support of purchases.

Therefore, the books were rejected u/s 145(3) and the entire purchase was added u/s 69C and the assessment was framed.

The CIT(A) held that that entire exercise of assessment was based on presumptions rather than a systematic transaction-based verification. The assessment order failed to demonstrate any cogent analysis or justification for such an extraordinary addition. It is settled principle of law that when an assessee had furnished primary evidences, the burden shifts to the revenue to dispute the claim with credible counter material. However, this burden was not discharged in the present case.

The Tribunal observed that the assessee had placed on record comprehensive documentary evidences to substantiate the purchases. However, AO did not undertake any transactional level scrutiny of assessee’s accounts or documentation. Instead of confronting the assessee with specific cases of non-filing, mismatched turnover or other discrepancies, AO relied on broad assumption that if a supplier had not file its Income Tax Return or reflected lessor turnover in ITR than in GST returns, then the purchases must be bogus. The said conclusion is clearly fallacious one and unsustainable in law.

The Tribunal further observed that the impugned purchases had duly been recorded in regular books of accounts and supported by GST invoices and e-way bills. The purchases were linked to verifiable transport documents and the purchases were followed by recorded sales which has been accepted to be genuine by AO. At no stage of the proceedings, AO had undertaken a comparative analysis of the documentary evidences as filed by the assessee. The documents had not been examined. There was no finding that the purchases were routed through accommodation entries or fictitious parties.

The Tribunal opined that the compliance history of the supplier could not be used to invalidate the genuine business transactions of the buyer especially when the same was supported by documentary evidences. Thus, the entire exercise of assessment was based on presumptions rather than a systematic transaction-based verification. The AO had failed to demonstrate any cogent analysis or justification for such an extraordinary addition. Therefore, the impugned additions could not be sustained in law.

Accordingly, the Tribunal dismissed the appeal of the Revenue.

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