Substantiated business expenditure cannot be disallowed merely because payees ignore verification notices.

Disallowance of commission expenditure and annual maintenance service expenses was held unsustainable where the assessee substantiated the payments with agreements, invoices, confirmations, bank records, PAN and tax details, TDS particulars, and lower-deduction certificates under section 197(1). The Tribunal noted that the Revenue identified no specific defect in the evidence and did not show any routing back of funds. Mere failure of the payees to respond to notices under section 133(6) was insufficient to reject otherwise supported business expenditure, particularly when the related sales and service receipts were accepted and the commercial need for the arrangements was evident. The disallowance was deleted.

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Issues: Whether disallowance of commission expenditure and annual maintenance service expenses was justified merely because notices issued to the payees under section 133(6) remained unserved, despite the assessee producing agreements, invoices, confirmations, bank records, TDS particulars and certificates under section 197(1).

Analysis: The assessee's business involved sale of imported telecom equipment and provision of maintenance services, for which external agents and service providers were engaged under written arrangements. The record showed agreements, correspondence, tax invoices, PAN and service tax details, confirmations, banking-channel payments, and deduction of tax at lower rates pursuant to certificates issued by the Department under section 197(1). The Revenue did not point out any specific defect in these documents or establish that the payments had come back to the assessee. Mere non-compliance with notices under section 133(6) was treated as insufficient to reject otherwise supported expenditure, especially where the corresponding sales and service receipts were accepted and the commercial necessity of the arrangements was evident from the nature of the business.

Conclusion: The disallowance of commission and annual maintenance expenses was unsustainable and was deleted in favour of the assessee.

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