LS Contractors Pvt. Ltd. Vs DCIT (ITAT Delhi)
Bogus purchase addition scaled down; E-way-bill purchases accepted as genuine; only 6% profit element sustained on remaining purchases; jurisdictional 153C grounds kept open
These two appeals by LS Contractors Pvt. Ltd. related to additions made u/s 153C treating purchases of cement & steel as bogus based on a search on Sanjay Jain group, who allegedly operated entities providing accommodation entries. AO relied on statements recorded during search & held that purchases from five concerns controlled by Sanjay Jain were bogus. CIT(A) confirmed the entire addition of ₹4.40 crore for both years.
Assessee contended that it was engaged in executing civil construction contracts awarded by Government bodies in Haryana & that such works could not be executed without actual purchase & consumption of cement & steel. It demonstrated that all payments were through banking channels, GST numbers were valid, materials were consumed in line with Haryana PWD specifications, government departments never raised quality objections, & books remained accepted without any rejection.
Assessee also argued that no incriminating material naming it was recovered during the search, statements relied upon were selectively reproduced, cross-examination was denied, & that where sales/contracts are accepted, entire purchases cannot be disallowed—only the profit element embedded may be added. Several judicial precedents across Bombay, Gujarat & Delhi High Courts were cited in support.
Assessee further raised additional legal grounds challenging the very assumption of jurisdiction u/s 153C—inter alia absence of incriminating material, mechanical satisfaction, consolidated satisfaction note, & failure to record the statutory phrase “have a bearing on determination of total income” as mandated by Delhi High Court in Saksham Commodities & affirmed by Supreme Court.
During hearing, the Bench queried whether estimation of profit element on non-verifiable purchases would meet ends of justice. Assessee suggested ~4% GP while Revenue proposed 8%. Tribunal examined the material & noted that for AY 2019-20, purchases of ₹1.61 crore from R.R. Associates were supported by valid E-way bills; for AY 2020-21, purchases of ₹77.43 lakh from RK & Co. & R.R. Associates also carried E-way bills. It held that wherever E-way bills existed, movement of goods was evidenced & such purchases could not be treated as non-genuine.
For the remaining purchases lacking E-way-bill trail, Tribunal held that only the embedded profit element could be brought to tax since contract receipts were accepted, books were not rejected, & actual consumption of materials was inevitable. Tribunal therefore directed AO to estimate profit @ 6% of such non-E-way-bill purchases, subject to verification.
In view of the above estimation, Tribunal declined to adjudicate the jurisdictional 153C grounds & other technical grounds, leaving them open. Both appeals were thus partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
