M/S LS CONTRACTORS PRIVATE LIMITED,DELHI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 30, DELHI, DELHI

ITA 2208/DEL/2025

AI Insights

The case involves M/S LS Contractors Pvt. Ltd., which appealed against the orders of the CIT(Appeals)-30 sustaining additions made by the Assessing Officer regarding certain purchases deemed non-genuine and bogus for the assessment years 2019-20 and 2020-21. The primary contention was that the purchases were essential for executing government contracts and were supported by E-way bills, thus should not be considered bogus. The Tribunal found merit in the assessee's argument that purchases made through E-way bills could not be treated as non-genuine and directed a profit estimation on the remaining purchases. The Tribunal did not address the jurisdictional issues under section 153C of the Act, leaving them unresolved.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786877 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2020-2021
• Appeal Filed On: 02-04-2025
• Other Referred Cases: Prime Steel Industries Pvt. Ltd. vs. DCIT, DCIT vs. Kohinoor Foods Ltd., Pr. CIT vs. Mohammad Haji Adam & Co., Pr. CIT vs. Sunil Mittal (HUF), CIT vs. Simith Sheth, CIT vs. Nikunj Exim Enterprises Pvt. Ltd., Pr. CIT vs. Jakharia Fabric Pvt. Ltd., Dy CIT vs. DBM Geotechnics & Construction Pvt. Ltd., Kimaya Impex (P) Ltd. vs. ITO, Pr. CIT vs. Ram Builders, Pr. CIT vs. Vishwa Shakti Constructions, Pr. CIT vs. Tirupati Earth Neerprima JV, Pr. CIT vs. S.V. Jiwani, Pr. CIT vs. Batliboi Environmental Engineering Ltd., Mudra Biotech vs. CIT, CIT vs. Eastern Commercial Enterprises, Kishinchand Chelaram vs. CIT, Andeman Timber Industry vs. CCE, Pavitra Realcon Pvt. Ltd. vs. DCIT, Saksham Commodities Ltd. v. ITO, PCIT v. PGF Ltd., CIT v. Harjeev Aggarwal, Chetnaben J. Shah v. ITO, PCIT v. E-City Projects Lucknow, DCIT v. Sunil Kumar Sharma
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JITENDER SINGH
• Assessee Lawyers: M P RASTOGI; SHIVAM MALIK
• Keywords: Opportunity of being heard; Bogus purchase; Principle of natural justice; Accommodation entries; Bogus
• Section: 143(3)

Judgement Text

"ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER आ.अ.सं/.I.T.A Nos.2207 & 2208/Del/2025 िनधा रणवष /Assessment Years:2019-20 & 2020-21 M/S LS CONTRACTORS PRIVATE LIMITED H-12, Tropical Building, Connaught Place, New Delhi. PAN No.AABCL8541R बनाम Vs. DCIT, Central Circle-30, E-2, Ground Floor, ARA Centre, Jhandewalan Extension Karol Bagh, New Delhi. अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent Assessee by Shri M P Rastogi, Advocate & Shri Shivam Malik, Advocate Revenue by Shri Jitender Singh, CIT DR सुनवाईक\bतारीख/ Date of hearing: 15.10.2025 उ\u000eोषणाक\bतारीख/Pronouncement on 21.11.2025 आदेश /O R D E R PER C.N. PRASAD, J.M. These two appeals are filed by the Assessee against the order of the Ld. CIT(Appeals)-30 dated 24.02.2025 for assessment years 2019- 20 and 2020-21 in sustaining the addition made by the Assessing Officer in respect of purchases made by the assessee as non genuine and bogus. The assessee has raised the following common grounds except for the figures for these assessment years: - Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 2 1. “That the CIT(A) grossly erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the same was erroneous and bad in law. 2. That the CIT(A) grossly erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the same was erroneous and bad in law as the same was passed without any valid satisfaction note on record. 3. That the CIT(A) grossly erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the same was without jurisdiction and thus void ab initio. 4. That the CIT(A) gross erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the order dated 16.09.2022 centralizing the case of the appellant by the Pr. Commissioner of Income Tax-4, New Delhi was passed without any opportunity of being heard to the appellant. 5. That the CIT(A) gross erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the respondent erred in making an addition of Rs.4,40,54,907/- to the income of the Appellant. 6. That the CIT(A) gross erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the respondent erred in making an addition of Rs.4,40,54,907/- to the income of the Appellant without considering the material on record and in denial of the principles of natural justice. 7. That the CIT(A) gross erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the respondent erred in making an addition of Rs.4,40,54,907/- to the income of the Appellant without providing an opportunity to cross examine the persons whose statements have been relied and in denial of the principle of natural justice. Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 3 8. That the CIT(A) gross erred in law and on the facts and circumstances of the case in dismissing the appeal of the Appellant by confirming the order dated 26.03.2023 passed by the respondent without considering that the respondent erred in making an addition of Rs.4,40,54,907/- (not the profit rate) to the income of the Appellant without considering the material on record and without considering that the books of accounts of the Appellant were duly accepted. 9. That the CIT(A) on facts and in law erred in not deleting the interest levied by the respondent u/s 234A, 234B, 234C and 234D of the Act and further erred in not deleting the penalty levied by the respondent u/s 270A of the Act.” 2. Thereafter the assessee has also filed additional grounds of appeal challenging the assumption of jurisdiction u/s 153C of the Act by the AO as arbitrary, unjust and invalid by raising the following additional grounds: 1. “That the assumption of jurisdiction u/s 153C of the Act is arbitrary, unjust and invalid. 2. That in the absence of valid satisfaction contemplated u/s 153C of the Act, the assessment so framed by the Assessing Officer vide order dated 26.03.2023 is invalid and bad in law. 3. That the proceedings u/s 153C of the Act cannot be initiated in order to verify the genuineness of the transactions and consequently the satisfaction as recorded by the Assessing Officer for assumption of jurisdiction u/s 153C of the Act is arbitrary and bad in law and consequently the assessment so framed in furtherance of such invalid jurisdiction is also invalid. 4. That without prejudice to the aforementioned grounds, the satisfaction alleged to have been recorded by the Assessing Officer is not qua each year but has been recorded in a consolidated manner for the assessment years 2015-16 to 2021-22 and consequently the alleged satisfaction as recorded by the AO is not in accordance with law and so the assessment framed in furtherance of such invalid satisfaction is arbitrary, unjust and bad in law. 5. That there was no incriminating material qua the assessee found during the course of search on 26.10.2020 carried on one Mr. Sanjay Jain and accordingly in the absence of incriminating material found Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 4 during the course of search qua the assessee, the assumption of jurisdiction u/s 153C of the Act and assessment framed in furtherance thereof is arbitrary, unjust and bad in law.” 3. Brief facts are that there was a search on 26.10.2020 in the cases of Sanjay Jain & Mehta Group and in the premises of Sanjay Jain certain books of account and ledgers on the computer were found. During the course of search statement of Shri Sanjay Jain was also recorded on 26.10.2020, wherein he has stated that he is operating various companies wherein not only the actual business is conducted but also certain accommodation entries have been provided to various entities through intermediaries. Based on the statements and the materials found in the course of search, assessment in the case of the assessee was completed u/s 143(3) r.w.s. 153C of the Act by recording satisfaction note u/s 153C and accordingly an addition was made disallowing certain purchases treating them as bogus purchases. 4. On appeal the Ld. CIT(Appeals) sustained the additions. Before us the Ld. Counsel for the assessee made the following elaborate submissions on merits of the addition/disallowance made by the AO: “2. Grounds relating to Merits The appellant assessee is in the business of civil construction on its own as principal as well as on sub-contract basis. Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 5 During the year under consideration, the appellant assessee had carried out the work on sub-contract basis which was awarded to the principal M/s IND Sanitation Solutions Pvt. Ltd., M/s Parwati Enterprises by the Municipal Corporation, Rohtak, M/s Dayanand Contractor to whom the work was awarded by Municipal Council Jind as well as the independent contract awarded by Panchayati Raj Karnal and Police Housing. All the sub-contracts and contracts were to be executed in accordance with the quality prescribed by the Haryana Government PWD Manual 2018. During the course of its execution, the appellant assessee had purchased cement bags from various parties including the parties alleged to have been operated by one Mr. Sanjay Jain. Apart from the contract, the assessee also dealt in cement. 2.1 During the course of search on the premises of Sanjay Jain, the said Sanjay Jain admitted to have operated various concerns which traded cement. The said Sanjay Jain also admitted that these concerns carried out business on actual basis and in addition to that some bills are also issued in order to accommodate various parties. During the course of statement, the said Sanjay Jain had given the names of various parties to whom the accommodation entries were provided. But in the statement, the said Sanjay Jain never named the appellant assessee as beneficiary of accommodation entries. So much so, even the name of the appellant assessee has not been found in the papers as was reproduced and pointed by the assessing officer in his assessment order. 2.2 During the course of hearing, the appellant assessee furnished the details of the parties from whom the purchases of cements were made by and also stated that the payments against the purchases have been made only through banking channels. It is not the case of the assessing officer that whatever the payments made by the appellant assessee from banking channels have come back to the appellant assessee. The appellant assessee also stated that against various purchases, the e-way bills have also been issued in accordance with the GST provisions and all the parties are duly registered under the GST Act. However, the assessing officer was of the view that the purchases made from the following parties which are admittedly operated by Sanjay Jain are not genuine and are bogus purchases and on the basis of such inference derived from the statements of Sanjay Jain and other intermediaries namely Nikhil Sachhar and Bharat Bhushan, the assessing officer treated the purchases made by the appellant assessee from the above parties as bogus purchases and disallowed the same. • Jain Cement Udyog • Shri Lakshmi Associates Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 6 • R.K. Enterprises • Mahaveer Associates • R.R. Associates Assessee’s contentions 3. As submitted above, the appellant assessee is in the business of execution of civil contracts either on sub-contract basis or direct. All the contracts so executed were of the government bodies viz Municipal Corporation Rohtak, Executive Engineer, Panchayati Raj, Municipal Council Jind and Police Housing Samalka. All the contracts pertain to Haryana and were to be executed in accordance with the standards and quality prescribed by the Haryana State PWD. All the contract receipts are offered to tax and the same has also been accepted by the Department. 3.1 As per the Haryana State Quality Schedules, the estimate chart of quantity of cement bags required in the execution of contract for assessment years 2019-20 and 2020-21 enclosed. Had the quantity of cement bags alleged to have been shown as purchased from the entities controlled by Sanjay Jain are excluded, then the cement bags from different parties, would be insufficient to execute such huge contracts pertaining to government bodies plus trading, which shows that the appellant assessee had actually purchased the cement bags for the execution of the contracts, more particularly when the receipts shown by the assessee are accepted. 3.2 It is not the case of the assessing officer that the appellant assessee had received the contract receipts without execution of the contracts. So much so, till date no government department has taken any action against the appellant assessee even after lapse of 5-6 years on quality issues. In other words, in such circumstances, the purchase of cement and steel by the appellant assessee, payments whereof have also been made through banking channel are genuine and cannot be considered as bogus. In the alternate, however the fact remains that without the purchase of cement and steel, it is improbable to execute the civil contracts. The cement and steel, which are the necessary ingredients and are required to be consumed in the ratio prescribed by the Haryana government, would have definitely been purchased by the appellant assessee because without purchase of such important materials, it is impossible, to execute the contracts. 3.3 Such types of issues with regard to bogus purchases have also come up before courts from time to time, including the Supreme Court, in various types of cases including civil contractors and sub- contractors and the courts always held that if the sales have been accepted, it cannot be imagined that no purchases have been made Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 7 because without purchases, sales cannot be made. The courts held that if the alleged so-called purchases are not genuine in the opinion of the Department, then it has to be presumed that the appellant assessee would have purchased the material from someone else and in such circumstances, only the profits embedded in such purchases may be disallowed. Case Laws 1. Purchases utilized in manufacture of goods and sales have been accepted. Payments have been made through banking channel. No evidence that the amount has come back to the assessee. Books of accounts have not been rejected - entire purchases cannot be disallowed. Only the profit embedded therein should be disallowed. • 174 taxmann.com 547 (Chandigarh Tribunal) Prime Steel Industries Pvt. Ltd. vs. DCIT • 178 taxmann.com 424 (Delhi Tribunal) DCIT vs. Kohinoor Foods Ltd. Where the sales are not doubted, the entire purchases, even if not proved, it has to be presumed that the purchases have been made from grey market and accordingly entire purchases cannot be disallowed. • 103 taxmann.com 459 (Bombay High Court) Pr. CIT vs. Mohammad Haji Adam & Co. • 300 Taxman 288 (Guj) Pr. CIT vs. Sunil Mittal (HUF) • 356 ITR 451 (Guj) CIT vs. Simith Sheth • 372 ITR 619 (Bom) CIT vs. Nikunj Exim Enterprises Pvt. Ltd. • 429 ITR 332 (Bom) Pr. CIT vs. Jakharia Fabric Pvt. Ltd. • 194 ITD 579 (Bom) Dy CIT vs. DBM Geotechnics & Construction Pvt. Ltd. • 193 ITD 710 (Bom) Kimaya Impex (P) Ltd. vs. ITO 2. In Civil Construction cases (i) In the case of civil contractors, contracts allotted by semi government agencies, which is supervised by various wings of departments and audits and nobody has raised any objection. (ii) The contract receipts received after the completion of work not doubted by AO. Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 8 (iii) The consumption of material is also in proportion to the technical specifications. Without purchase of material, it was not possible to complete the works allotted and entire purchases cannot be disallowed when the payments have been made through banking channels. • 454 ITR 444 (Bom) Pr. CIT vs. Ram Builders • 454 ITR 448 (Bom) Pr. CIT vs. Vishwa Shakti Constructions • 457 ITR 521 (Bom) Pr. CIT vs. Tirupati Earth Neerprima JV • 290 Taxman 178 (Bom) Pr. CIT vs. S.V. Jiwani 3. If the sales are accepted, purchases cannot be treated as bogus. • 457 ITR 446 (Bom) Pr. CIT vs. Nitin Ramdeoji Lohia • 208 ITD 699-713 (Delhi Trib) Mudra Biotech vs. CIT • 446 ITR 238 (Bom) Pr. CIT vs. Batliboi Environmental Engineering Ltd. 4. Ground - Non-allowance of cross-examination. (i) In the instant case, on perusal of the assessment order, whole of the addition has been made by AO on account of inference drawn from the statement of Sanjay Jain, Nikhil Sachar etc. recorded during the course of search carried out on 26.10.2020. Such statements were recorded behind the back of the assessee. Based on the inference drawn from such statements, the AO made the addition by way of disallowance of all the purchases alleged to have been made from the entities controlled by Sanjay Jain. (ii) During the course of assessment proceedings, the AO has not put these persons to the assessee for cross-examination. (iii) It is a settled proposition of law that cross-examination is a sine qua non of due process of taking evidence and no adverse inference can be drawn against the party unless the party has put on notice made out against him. (iv) It is not out of place to mention here that opportunity to cross- examine is one of the corner stones of natural justice which has been elevated as a fundamental right in the Indian Constitution. The Calcutta High Court in the case of CIT vs. Eastern Commercial Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 9 Enterprises in 210 ITR 103, while considering the right of cross- examination, observed as under: “It is not just a question of form or a question of giving an adverse party its privilege but the necessity of the process of testing the truth of oral evidence of a witness. Without truth being tested, no oral evidence can be admissible evidence and could not form the basis of any interference against the adverse parties.” (v) Similar is the principle enunciated by the Kerala High Court in the case of P.S. Abdul Majid vs. Agricultural Income Tax in 209 ITR 821. The Kerala High Court, while enunciating the principle, followed the judgment of Hon’ble Supreme Court in the case of State of Kerala vs. K.T. Shaduli Yusuff in 39 STC 478. (vi) In the case of Kishinchand Chelaram vs. CIT in 125 ITR 713, the Hon’ble Supreme Court declined to consider the evidences which were recorded behind the back of the assessee and no opportunity to cross-examine was given to the assessee. (vii) In the case of Andeman Timber Industry vs. CCE in 281 CTR 241 (SC), the Hon’ble Sppreme Court deleted the addition where the right to cross-examine was not allowed to the assessee. (viii) Recently the Jurisdictional Delhi High Court in the case of Pavitra Realcon Pvt. Ltd. (ITA No. 579/2018 dated 29.05.2024), after considering the judgment of Hon’ble Supreme Court in the case of Shaduli Yusuff (supra) and Andeman Timber (supra) also held in the same way. In the instant case, the whole of the addition has been made by the AO on account of his inference drawn from oral statement of Sanjay Jain and others recorded during the course of search. Such statements cannot be relied upon to make addition in the hands of the assessee.” 5. In respect of the additional grounds where the assumption of jurisdiction u/s 153C of the Act was challenged, the Ld. Counsel for the assessee made the following submissions: - Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 10 “1. Additional Ground: Assumption of Jurisdiction u/s 153C of IT Act - not valid Important Dates Date Event 05.08.2022 The date on which the satisfaction note in the case of person searched was recorded and the relevant papers/documents were transferred to the Income Tax Officer, Ward 15(1), Delhi who was the Assessing Officer of the appellant assessee. 16.09.2022 The order u/s 127 of the Act transferring the jurisdiction to the Deputy Commissioner of Income Tax, Central Circle 30, New Delhi, who is also the Assessing Officer of the person searched. As per the narration in assessment order, there was a search on 26.10.2020 in the cases of Sanjay Jain and Mehta group. In the premises of Sanjay Jain, it has been alleged that certain books of accounts and ledgers on the computer was found. During the course of search, the statement of Sanjay Jain was also recorded on 26.10.2020 wherein he has stated that he is operating various companies wherein not only the actual business is conducted but also accommodation entries have been provided to various entities through intermediaries. 1.1 In the statement, the authorized officer, who had recorded the statement of Sanjay Jain had raised various queries and named various persons (the information would be available with the Department) to whom the accommodation entries were provided. In the statement, the said Sanjay Jain admitted certain entities and furnished the names to whom the said Sanjay Jain had provided the accommodation entries, but Sanjay Jain has not named the appellant assessee, nor the authorized officer had put up any question because the name of the appellant assessee was not in the books of accounts. 1.2 Thereafter, the assessing officer of the person searched i.e., Sanjay Jain had recorded a consolidated satisfaction note for the assessment year 2019-20 and 2020-21 on 05.08.2022 and sent it to the assessing officer of the third person i.e., the appellant assessee - copy of satisfaction note as supplied on 02.01.2025 placed at page 53 of paper book of AY 2019-20 and page 54 of the paper book for assessment year 2020-21. In the satisfaction note, which was annexed as ‘Annexure A’ to the proforma, the assessing officer of the person searched had simply discussed the modus operandi adopted in providing the accommodation entries. He did not discuss on what basis he derived the inference that the assessee is a beneficiary in the form of bogus purchases to the extent of Rs.5,57,07,002/- in assessment year 2019-20 and Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 11 Rs.99,12,000/- in assessment year 2020-21 totaling to Rs.6,55,19,002/-. In the satisfaction note, though the assessing officer referred to ‘Annexure R-l’ and ‘Annexure A-31’ but the copy thereof was not supplied to the appellant assessee. 1.3 Thereafter, on 16.09.2022, as is clear from the assessment order, an order u/s 127 of the Act was passed by the Principal Commissioner of Income Tax thereby transferring the jurisdiction of the appellant assessee from ITO, Ward 15(1) to DCIT, Central Circle 30, New Delhi. Thereafter, the assessing officer issued the notice under section 153C of the Act on 03.11.2022 for assessment years 2015-16 to 2021-22 after recording a consolidated satisfaction. 1.4 The satisfaction of the assessing officer is undated. In the satisfaction note, the assessing officer has discussed the procedure adopted in providing accommodation entries to various entities and had reproduced certain question-answers from the statement of Sanjay Jain on pick-and-choose basis which were suitable to the Department and left the question-answers which were favourable to the appellant assessee. In the satisfaction note, the assessing officer had reproduced certain screenshots from Tally recovered during search and had also named various entities controlled by the said Sanjay Jain as well as the names of the entities to whom the accommodation entries were provided but neither in the screenshots nor in the question-answers, the said Sanjay Jain ever named the appellant assessee with regard to the accommodation entries. 1.5 The said satisfaction note as recorded by the assessing officer for issuing the notice under section 153C of the Act is not a valid satisfaction as contemplated under the law for the assumption of jurisdiction under section 153C of the Act which cannot be made the basis for the assumption of jurisdiction inter alia because: (i) The so-called satisfaction as recorded by the assessing officer is a mechanical satisfaction without application of mind because no incriminating material relating to the appellant assessee either has been discussed or pointed out. In the case of Saksham Commodities Ltd. v. ITO [464 ITR 1 (Delhi)], the Hon’ble Delhi High Court observed: [para 51] 51. Ultimately Section 153C is concerned with books, documents or articles seized in the course of a search and which are found to have the potential to impact or have a bearing on an assessment which may be undergoing or which may have been Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 12 completed. The words \"have a bearing on the determination of the total income of such other person\" as appearing in Section 153C would necessarily have to be conferred pre-eminence. Therefore, and unless the AO is satisfied that the material gathered could potentially impact the determination of total income, it would be unjustified in mechanically reopening or assessing all over again all the ten AYs' that could possibly form part of the block of ten years. The SLP filed against the judgment of the Delhi High Court has also been dismissed by the Hon’ble Supreme Court reported in 304 Taxman 404 in the case of DCIT v. Vikas Wahi. In the instant case also, the assessing officer had not discussed any material, seized during the course of search, wherefrom it could be inferred that the said Sanjay Jain had provided accommodation entries to the appellant assessee. More particularly, when in the statement, the appellant assessee was never named. In fact, the said Sanjay Jain admitted that the entities were also involved in actual business as well as accommodation entries. (ii) On perusal of the provision of section 153C of the Act, it is very much clear that in the satisfaction, the assessing officer not only has to discuss about the books of accounts or documents or assets seized but also has to record a satisfaction that such books of accounts or documents have a bearing on the determination of the total income of the third person and the recording of the expression, which has been brought to the statute book by the Finance Act, 2015, “have a bearing on the determination of the total income” is a sine qua non condition and this should be clearly reflected in the satisfaction note so recorded for issuance of notice under section 153C of the Act. Such recording of the expression “have a bearing on the determination of the total income” has been considered by the Hon’ble Delhi High Court in the case of Saksham Commodities Ltd. v. ITO [464 ITR 1 (Delhi)]. The Hon’ble Delhi High Court held that recording of “have a bearing on the determination of the total income” is a mandatory requirement to validate the satisfaction. The judgment of the Hon’ble Delhi High Court has also been affirmed by the Hon’ble Supreme Court thereby dismissing the SLP filed by the Revenue against the order in the case of DCIT v. Vikas Wahi (supra). In the instant case, the assessing officer, first of all did not discuss anything about the documents/papers which have been made the basis 'of the satisfaction about such bogus purchases alleged to have been made by the appellant assessee from Sanjay Jain and there is a complete absence of the Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 13 expression “have a bearing on the determination of the total income” in the satisfaction note. Therefore, the very satisfaction which is totally based on the inference and not material, as alleged to have been recorded by the assessing officer for the assumption of jurisdiction under section 153C of the Act is not a valid satisfaction in law and so the issuance of notice under section 153C of the Act by the assessing officer is also invalid and the proceedings in furtherance thereof are also invalid. (iii) No incriminating material (a) The case of the appellant assessee is of unabated assessment because the appellant assessee had filed its original return for assessment year 2019-20 on 31.10.2019 and for assessment year 2020-21 on 25.11.2020 and thereafter no notices u/s 143(2) of the Act were issued within the limitation prescribed under law and accordingly whatever income was disclosed had become final. Thereafter, the notices u/s 153C of the Act were issued on 03.11.2022. As already submitted above, all the purchases as made by the appellant assessee have been duly recorded in the books of accounts and the payments have also been made through banking channel. In other words, all transactions are duly recorded and disclosed in the books of accounts maintained by the appellant assessee. In the satisfaction note, the assessing officer has not pointed out any incriminating material seized from the premises of Sanjay Jain in the search on 26.10.2020 qua the appellant assessee. From the satisfaction note,' the assessing officer had drawn the inference from the statement of Shri Sanjay Jain recorded on 26.10.2020 that he is involved in providing accommodation entries through various concerns controlled by him though in the statement itself, Sanjay Jain stated that he is doing actual business along with providing accommodation entries. On the basis of alleged statement of Sanjay Jain and that too with respect to only certain questions and answers, the assessing officer had made the satisfaction note. It is brought to your kind notice that it is a settled proposition of law that the statement recorded during the course of search had to be read as a whole and secondly the statement itself is not an incriminating material and cannot be made the basis of satisfaction unless until some material is actually recovered during the course of search. • PCIT v. PGF Ltd. [457 ITR 607 (Delhi)] Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 14 • CIT v. Harjeev Aggarwal [241 Taxman 199 (Delhi)] • Chetnaben J. Shah v. ITO [288 CTR 579 (Gujarat)] However in the statements, the said Sanjay Jain clearly stated that the companies involved are not purely in business of accommodation but actual business is also there. It is also brought to your kind notice that it has been held by the Hon’ble Orissa High Court in the case of PCIT v. E-City Projects Lucknow (P.) Ltd., 290 Taxman 281 (Orissa) that even the statement recorded in post search inquiry is also not incriminating material. In the instant case while framing addition, the assessing officer had reproduced certain question- answers from the statement of Sanjay Jain even without finding the name of the appellant assessee therein. (b) In the case of DCIT v. Sunil Kumar Sharma [469 ITR 197 (Karnataka)], an issue arose that whether for the purpose of taking action u/s 153C of the Act, the seized papers found during ' the course of search containing jottings can be considered as incriminating material or not. The Hon’ble Karnataka High Court, after following the judgment of the Hon’ble Supreme Court in the case of V.C. Shukla (supra) and Common Cause (A Registered Society) v. Union of India [394 ITR 220 (SC)] held that a sheet of paper containing jottings in loose form, not shown to form a part of the books of accounts regularly maintained, does not constitute material evidence and cannot be made the basis of addition. The SLP filed by the Revenue against the judgment of the Hon’ble Karnataka High Court was dismissed by the Hon’ble Supreme Court in the case of DCIT v. Sunil Kumar Sharma [469 ITR 271 (SC)]. (iv) On perusal of the satisfaction note, it is clear that a consolidated satisfaction has been recorded by the assessing officer for initiation of proceedings under section 153C for assessment years 2015-16 to 2021-22. It has been held by the Hon’ble Karnataka High Court in the case of DCIT v. Sunil Kumar Sharma [469 ITR 197 (Karnataka), that the satisfaction note for the purpose of assumption of jurisdiction under section 153C has to be recorded separately for each assessment year and the consolidated satisfaction note, if recorded, will vitiate the entire assessment proceedings. Against the judgment of the Hon’ble Karnataka High Court, the SLP filed by the Revenue has been dismissed by the Hon’ble Supreme Court in 469 ITR 271 (SC). Recently the Coordinate Delhi Bench of the ITAT in the case of Brij Kumar vs. DCIT in ITA No. 2011/Del/2003 dated Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 15 23.07.2025, after following the judgment of Sunil Kumar Sharma (supra), quashed the proceeding initiated u/s 153C of the Act on account of the consolidated satisfaction recorded by AO u/s 153C of the Act. In the instant case, the assessing officer recorded the joint satisfaction and accordingly such consolidated satisfaction is not valid in law.” 6. On the other hand, the Ld. DR strongly supported the orders of the authorities below. 7. Heard rival contentions on merits as well as assumption of jurisdiction u/s 153C of the Act. In the course of hearing on a query to the Ld. Counsel that this is a case where certain purchases were treated as bogus purchases and the assessee is into Government contracts and the consumption of materials cannot be ruled out as the projects should not have been completed without the consumption of materials and therefore whether the assessee is agreeable for estimation of certain purchases of profit element on the alleged entry sustained by the assessee, the Ld. Counsel agreed and submitted that the gross profit rate in the case of the assessee could be estimated around 4%. However, the Ld. DR stated that if certain percentage of profit element is to be estimated on the turnover of the assessee the reasonable percentage of profit element of 8% may be considered as reasonable. Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 16 8. The Ld. Counsel for the assessee with regard to the query raised by the Bench on estimation of profit element in the alleged non genuine purchases made the following submissions: “1. In addition to the submissions already made in relation to the merits of the case, it is further brought to your kind notice that the total purchases from the alleged five bogus parties which have been considered are at page 132 of the paper book relating to Assessment Year 2021-22: (i) M/s RK & Co. Rs.56,20,933.75 (ii) M/s Mahavir Associates Rs.39,20,437.50 (iii) M/s Shree Lakshmi Associates Rs.1,06,14,107.76 (iv) M/s Jain Cement Udyog Rs.45,54,006.25 (v) M/s RR Associates Rs.1,93,55,362.52 TOTAL = Rs.4,40,54,907.78 2. Out of the aforesaid purchases from M/s R.R. Associates, the purchases amounting to Rs.1,61,71,338/- have been made through e-way bills, the details whereof have been placed at pages 622 to 796 of the paper book. The E-way bill number has been duly mentioned on the concerned invoices and some of the energy bills were also filed before the Assessing Officer to prove the case. As already submitted in earlier submissions, the purchases from the aforesaid parties are mainly of cement and some purchases were in respect of iron and steel. The cement was consumed while executing the civil contracts and sub- contacts awarded by the semi government authorities located in Haryana and the execution has to be made in accordance with the standards prescribed by the Haryana PWD prevailing in the relevant years. 2.1 All the civil contracts were subjected to not only audits by the Government authorities but under the supervision of various other Government authorities meant for monitoring the projects. Till date none of the Government authorities have raised any objection with regard to the quality of work and all the payments on the completion of works have been duly recorded in the books of accounts and have been accepted by the Assessing Officer. Even the books of accounts have been duly audited by the Chartered Accountant in accordance with law and Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 17 the Auditor’s reports are already on the record of the Assessing Officer. The Assessing Officer did not point out any defects in the books of accounts and the books of accounts have not been rejected by the Assessing Officer. 3. The additions have been made by the Assessing Officer, thereby holding the purchases from the aforesaid entities alleged to have been controlled by one Sanjay Jain who appears to have been searched by the Revenue authorities on 26th October 2020. In the assessment order, though the Assessing Officer has referred certain questions/answers out of the statements of Sanjay Jain and other persons recorded at the time of search by the search authorities and reproduced in the assessment order. 3.1 In the assessment order the Assessing Officer only reproduced those very portions of the statements which were suitable to him and had not reproduced the complete statement of Sanjay Jain and others. Even the copies of statements of Sanjay Jain and others have been supplied to the assessee only on 9th October 2025. However, in the portion of the statements, whatever has been reproduced by the Assessing Officer, none of the aforesaid persons has named the assessee as beneficiary of the accommodation entries though the names of other parties were there. However, if whole of the statement is considered, then it is clear that he specifically stated that all the aforesaid entities are not purely accommodation providers but they are doing actual business also which the Assessing Officer intentionally ignored, the reasons whereof are best known to the assessee. So much so, even Sanjay Jain and others have not put for cross-examination. 3.2 In such circumstances, nothing incriminating material has been found during the course of search and the said Sanjay Jain himself has admitted that he is doing the actual business as well as the accommodation entries business also. Thus unless any incriminating evidence has been found and brought on record by the Assessing Officer, no disallowance can be made on the ground of suspicion merely because the assessee had made purchases. 3.3 However, the fact remains that when the civil contracts were of the Government organizations or 'semi-Government authorities and the proceeds relating thereto have also been accepted by the Assessing Officer and the books of accounts have not been rejected by the Assessing Officer, then it has to be presumed that the assessee made the actual purchases of cement etc. which have been consumed while executing the Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 18 contracts because without cement and steel, the civil works cannot be executed and accordingly whatever the disallowance on account of alleged bogus purchases has been made by the Assessing Officer, the same deserves to be deleted. 4. However, in the alternative it is bought to your kind notice that it has been consistently held by the courts and even the Hon’ble Supreme Court that where the proceeds of the civil contract have been accepted by the Assessing Officer and the books of accounts have not been rejected, then it has to be presumed that the purchases would have been made by the assessee from grey market if the alleged purchases are not verifiable and in such circumstances it would be reasonable to restrict the addition to the extent or profits embedded in such alleged purchases. 5. During the course, the Hon’ble Bench has required the assessee to furnish the GP chart even of three preceding years and the same are enclosed, but the GP of the years under consideration cannot be compared with earlier years because the nature of business in earlier three years was different. In earlier three years, there was no execution of civil contract, whereas in the year under consideration, the main receipts are from civil contract. 5.1 It is also pointed out that if any addition is likely to be sustained, then the purchases made through E-way bills may kindly be excluded from such alleged purchases as indicated above. The details of purchases made without E-way bills and E-way bills enclosed.” Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 19 9. As could be seen from the above for the AY 2019-20 the assessee purchased cement worth Rs.1,61,71,338/- from R.R. Associates and these purchases were said to have been procured by way of E-way bill. If the Assessee had made purchases on E-way Bill the movement of goods cannot be doubted and thus the purchases to that extent cannot be treated as non genuine. Similarly during the AY 2020-21 the assessee purchased cement worth Rs.77,43,750/- from RK & Company & RR Associates by E-way bill which shows that the assessee procured cement from these parties and to that extent cannot be treated as non genuine. Therefore, we are of the view that wherever the assessee had procured the materials by way of E- way bill such materials cannot be treated as non genuine and the materials procured other than E-way bill for these two assessment years can be considered as unproved purchases and certain percentage of profit element should be considered for the purpose of the addition since there is no dispute that the sales were already considered for taxation. Thus, taking the totality of facts and circumstances into consideration, we direct the Assessing Officer to estimate the profit element from the purchases other than those made by way of E-way bill @6% subject to verification. Printed from counselvise.com ITA Nos. 2207 & 2208/DEL/2025 M/S LS CONTRACTORS PVT. LTD. 20 10. As we have estimated the profit element embedded in the purchases we are not adjudicating the additional grounds raised by the assessee on the assumption of jurisdiction u/s 153C by the AO and also the other technical grounds raised by the assessee and they are left open. 11. In the result, both the appeals of the Assessee are partly allowed as indicated above. Order pronounced in the open court on 21.11.2025 Sd/- Sd/- (AVDHESH KUMAR MISHRA) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 21.11.2025 *Kavita Arora, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "