E-way bill-backed purchase claims vs bogus purchase additions; only 6% profit added for unsupported purchases, after verification.

Whether purchases could be treated as bogus where supported by E-way bills was the dominant issue. The ITAT held that E-way bills evidence movement of goods, so purchases supported by such bills could not be treated as non-genuine for either AY. For purchases not supported by E-way bills, the ITAT treated them as unproved purchases but, since corresponding sales were already accepted for taxation, only the profit element could be brought to tax. Consequently, the AO was directed to exclude E-way bill-supported purchases from disallowance and, subject to verification, to estimate and add 6% profit on purchases not backed by E-way bills.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether purchases supported by E-way bills could be treated as non-genuine/bogus purchases for making an addition.

(ii) Where purchases were not supported by E-way bills, but contract receipts/sales were already subjected to tax and consumption of material could not be ruled out, whether the entire purchase amount could be disallowed or only the profit element embedded in such unproved purchases should be added; and at what rate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Purchases supported by E-way bills-whether non-genuine

Legal framework: The Court proceeded on factual verification of documentary support evidencing movement/procurement of goods through E-way bills, treating such evidence as materially relevant to the genuineness of purchases.

Interpretation and reasoning: The Court held that where purchases were made through E-way bills, the movement of goods cannot be doubted. Consequently, such purchases could not be characterized as non-genuine merely on the general allegation that certain suppliers were involved in accommodation entries.

Conclusions: Purchases supported by E-way bills were directed to be excluded from the category of non-genuine purchases and could not be disallowed as bogus. The Court specifically accepted that purchases of cement evidenced through E-way bills in the relevant years were to that extent genuine.

Issue (ii): Purchases not supported by E-way bills-scope of addition and rate of profit element

Legal framework: The Court applied the principle that where receipts/sales are already taxed and material consumption cannot be ruled out in executing works, disputed purchases (to the extent not fully proved) may be treated as unproved purchases warranting estimation of profit element, rather than disallowance of the entire purchase value.

Interpretation and reasoning: The Court noted there was "no dispute that the sales were already considered for taxation" and accepted that, given the nature of business involving civil contracts, consumption of materials could not be ruled out. Therefore, for purchases other than those backed by E-way bills, the Court treated them as unproved and considered it appropriate to estimate a percentage as profit embedded in such purchases.

Conclusions: The Court directed the Assessing Officer to estimate the profit element on purchases other than those made through E-way bills at 6%, subject to verification of the E-way bill-supported portion and the balance purchases.

Matters not decided

Since the Court granted relief by restricting the addition to an estimated profit element and excluding E-way bill-supported purchases, it expressly did not adjudicate the additional grounds challenging assumption of jurisdiction under section 153C and other technical grounds, leaving them open.

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