The Income Tax Appellate Tribunal, Delhi, has clarified that the mere absence of e-Way bills cannot justify disallowance of legitimate business purchases under Section 37 of the Income-tax Act, where the assessee has furnished comprehensive documentary evidence of transaction authenticity. This ruling reinforces the principle that tax authorities must rely on substantive proof of fraud, not procedural gaps, to reject genuine expenses.
Background & Facts
The Dispute
The appellant, Akash Somany, operates a business dealing in the purchase, manufacturing, and sale of natural stones. During the assessment for AY 2022-23, the Assessing Officer disallowed purchases totaling Rs 1,20,65,111 made from three suppliers - Babu Singh, Sunil Kumar, and Lalitha Devi - on grounds that the assessee failed to produce e-Way bills and Dharam Kaanta slips, and that the suppliers could not be traced.
Procedural History
- 29-10-2022: Assessee filed return declaring income of Rs 3,07,58,400
- 02-06-2023: Case selected for scrutiny under CASS
- 13-07-2023 & 11-01-2024: Notices under Section 142(1) issued demanding detailed documentation
- 12-03-2024: Assessing Officer passed order disallowing purchases under Section 37
- 09-07-2025: Commissioner of Income Tax (Appeals) upheld the disallowance
- 11-03-2026: ITAT Delhi allowed the appeal
Relief Sought
The assessee sought deletion of the disallowance of Rs 1,20,65,111, arguing that all required documents - including purchase invoices, bank statements, ledger confirmations, GST returns, weighment slips, and affidavits from suppliers - had been submitted, and that e-Way bills were not legally mandatory for intra-state transactions under 50 km.
The Legal Issue
The central question was whether Section 37 of the Income-tax Act permits disallowance of business expenses solely on the ground of non-submission of e-Way bills, when the assessee has otherwise established the genuineness of transactions through bank records, supplier confirmations, and GST compliance.
Arguments Presented
For the Appellant
The Learned AR contended that:
- e-Way bills are not mandatory for movements under 50 km as per GST Rule 138(1)
- The burden to prove non-existence of suppliers lies with the revenue, not the assessee
- Affidavits and ITRs of suppliers, along with bank payment trails, constitute prima facie proof of transaction genuineness
- The CIT(A) erred in conflating GST procedural requirements with Income Tax evidentiary standards
- Relied on CIT vs Odeon Builders Private Limited (418 ITR 315 SC) to assert that full documentation discharges the assessee’s burden
For the Respondent
The Senior DR argued that:
- Non-submission of e-Way bills and Dharam Kaanta slips raised suspicion of fictitious transactions
- Physical verification reports indicated suppliers were untraceable
- Compliance with GST laws does not override evidentiary requirements under the Income-tax Act
- Relied on Section 145(3) to argue that book entries alone are insufficient without corroborative transport documents
The Court's Analysis
The Tribunal conducted a meticulous review of the documentary record and found that the assessee had discharged the primary burden of proof. The Court emphasized that Section 37 allows deduction of all business expenses incurred wholly and exclusively for the purpose of business, unless proven to be fictitious.
"There is absolutely no evidence brought on record by the revenue to prove that the suppliers are not traceable."
The Tribunal noted that the revenue failed to produce any proof of service of notice under Section 133(6) on two of the three suppliers. For Babu Singh, the supplier had directly responded to the AO’s inquiry. The affidavits and ITRs of Lalitha Devi and Sunil Kumar further corroborated the transactions.
The Court rejected the revenue’s contradictory stance: while asserting that GST compliance cannot override Income Tax evidentiary norms, it simultaneously used GST’s e-Way bill requirement as a basis for disallowance. The Tribunal held this inconsistency to be fatal to the revenue’s case.
The Tribunal also distinguished between procedural compliance under GST and substantive proof under Income Tax law. It held that the absence of e-Way bills, where legally not required, cannot be equated with absence of transaction. The assessee’s submission of weighment slips, invoices, and ledger confirmations was sufficient to establish the commercial reality of purchases.
The Verdict
The assessee won. The ITAT Delhi held that Section 37 does not permit disallowance of business expenses where the assessee has furnished invoices, bank statements, supplier affidavits, and GST compliance records. The disallowance of Rs 1,20,65,111 was deleted, affirming that procedural gaps in transport documentation cannot substitute for affirmative proof of fraud.
What This Means For Similar Cases
Documentary Evidence Prevails Over Procedural Gaps
- Practitioners must insist that revenue prove fraud, not merely highlight missing documents
- Bank statements, supplier confirmations, and GST returns are sufficient to discharge the assessee’s burden under Section 37
- Non-submission of e-Way bills cannot be grounds for disallowance if distance is under 50 km or invoice value below Rs 50,000
Revenue Must Prove Non-Existence, Not Assume It
- The burden to prove suppliers are fictitious or untraceable rests entirely on the revenue
- Absence of response to a notice under Section 133(6) does not equate to non-existence
- Affidavits and ITRs from suppliers are valid corroborative evidence
GST Compliance Cannot Be Ignored in Tax Assessments
- Revenue cannot selectively invoke GST rules to disallow expenses while ignoring their exemptions
- If GST authorities have not raised adverse findings, that fact must be weighed in the assessee’s favor
- Consistency in applying statutory thresholds (e.g., 50 km rule) is mandatory
