Genuineness of related party purchases upheld where contemporaneous documentary evidence and commercial explanation exist, reversing disallowance.

The note addresses sustaining or reversing an addition disallowing related party purchases where the assessee produced contemporaneous documentary evidence - invoices, ledger entries, supplier confirmations and delivery proofs - and explained direct deliveries under its commercial model. It states that substantive documentary evidence and a consistent commercial explanation establish genuineness of related party purchases, and that non disclosure in Form 3CD or absence of e way bills (where GST exemption applies and delivery pattern is explained) do not, by themselves, justify disallowance; the addition was therefore deleted and the assessee's position accepted.

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Issues: Whether the addition of Rs. 28,54,59,071/- made by the Assessing Officer by disallowing purchases of day-old broiler chicks from Sri Rajeshwara Hatcheries Pvt. Ltd. for A.Y. 2022-23 was rightly sustained, having regard to the evidence furnished by the assessee, non-disclosure of related party transactions in Form 3CD under Section 40A(2)(b) of the Income-tax Act, 1961, and absence of e-way bills/delivery challans where the goods are GST exempt.

Analysis: The issue requires examination of (i) whether the assessee furnished adequate contemporaneous documentary evidence-purchase invoices, ledger entries, confirmations and delivery proof-establishing purchases from the related party; (ii) the legal significance of non-disclosure of related party transactions in Form 3CD under Section 40A(2)(b) of the Income-tax Act, 1961; and (iii) the relevance of absence of e-way bills/delivery challans where the goods claimed to be purchased (day-old broiler chicks) are GST exempt. The evidence on record includes purchase invoices, ledger accounts, confirmations from the supplier and explanation for direct delivery to farmers consistent with the integration business model. The absence of separate disclosure in Form 3CD and non-generation of e-way bills was examined in context: non-reporting in Form 3CD may result from accounting preparation errors and is not ipso facto fatal where substantive evidence supports the transaction; e-way bill requirements do not apply where GST exemption obtains, and direct delivery to multiple farmer addresses is consistent with the commercial nature of day-old chicks and supported by the records submitted.

Conclusion: The addition of Rs. 28,54,59,071/- is deleted and the Assessing Officer's disallowance is reversed; the assessee's position is accepted.

Final Conclusion: The appeal filed by the Revenue is dismissed, leaving the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre dated 26.07.2024 intact; the assessee's purchases from the related party are held to be genuine on the facts and evidence produced.

Ratio Decidendi: Where substantive documentary evidence and a consistent commercial explanation establish the genuineness of related party purchases, non-disclosure in Form 3CD and absence of e-way bills (when goods are GST exempt and delivery pattern is explained) do not justify disallowance of such purchases.

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