Purchases supported by E-Way bill cannot be treated as Bogus: ITAT

LS Contractors Pvt. Ltd., engaged in government civil construction and sub-contracting work in Haryana, was assessed under Section 153C after a search on Sanjay Jain and Mehta Group. The AO alleged that five suppliers, said to be linked with Sanjay Jain, were accommodation-entry providers and treated all purchases from them as bogus, resulting in additions of Rs. 4.40 crore in AY 2019-20 and similar findings for AY 2020-21.

The assessee challenged that the projects were government-monitored, work quality had never been questioned, all receipts were accepted by the department, supplies were supported by invoices, banking-channel payments, and numerous E-way bills, and that no one in the search statements ever named the assessee as a beneficiary. Appeals to the CIT(A) failed, resulting in this further appeal.

Main Issue: Whether all purchases from the five suppliers should be disallowed as bogus, or whether only a reasonable profit element should be taxed when the assessee’s government contract receipts, consumption, and part of the purchases are supported by E-way bills.

Tribunal’s Ruling: The Tribunal held that purchases supported by genuine E-way bills must be accepted as real and cannot be treated as bogus. For the remaining purchases lacking supporting E-way-bill movement but still forming part of accepted contract receipts, only the embedded profit element could be taxed.

Relying on settled law that only margin on unverifiable purchases is taxable when sales are accepted, the Hon’ble ITAT directed the AO to apply a 6% profit rate on purchases other than those supported by E-way bills, subject to verification. Since additions were resolved on merits through estimation, the Tribunal left the jurisdictional objections under Section 153C open, without adjudication.

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