2025 (10) TMI 563 - AT - Income Tax

Addition for labour charges deleted where documentary evidence and TDS showed genuineness despite third parties not responding to s.133(6) notices

Sampat Khimraj Jain, Mumbai Versus Jt. Commissioner of Income Tax, Range - 14 (2), Mumbai

ITAT MUMBAI - AT allowed the appeal and directed deletion of additions made for labour charges. The assessee furnished ledger confirmations, ITR, PAN, ... Addition on account of labor charges paid - HELD THAT:- As in the case of these three parties, the assessee has furnished ledger confirmations, ITR, Pan, Aadhar card, bank statements indicating payments made and labour charges vouchers. Merely because these parties did not respond to the notice u/s 133(6) of the Act, would not be the sole reason to make the impugned addition when there are documentary evidences mentioned hereinabove which go on to prove the identity and genuineness of the payments as all the payments were subject to TDS. Considering the evidences brought on record, we do not find any reason in making the impugned addition. The AO is directed to delete the same. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether additions to income on account of labour charges paid to three non-responding payees can be sustained solely because the payees did not reply to notices under section 133(6) of the Act. 2. Whether ledger confirmations, income-tax returns, PAN, Aadhaar, bank statements showing payments, labour-charges vouchers and evidence of TDS constitute sufficient documentary proof to establish identity and genuineness of payments for purposes of disallowance/addition. 3. Whether the Assessing Officer's reliance on non-response to third-party summons, without reconciling or testing documentary evidence placed on record by the assessee, is a permissible basis for making additions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legitimacy of additions based solely on non-response to section 133(6) notices Legal framework: The statutory scheme allows the AO to issue notices under section 133(6) to third parties for verification, but the power to make additions requires satisfaction on the existence of undisclosed income or non-genuine expenditure; procedural non-cooperation by third parties is a relevant but not conclusive factor. Precedent Treatment: The judgment does not cite or apply any prior authorities; the Tribunal treats the non-response as an evidentiary factor rather than an automatic basis for addition. Interpretation and reasoning: The Tribunal held that non-receipt of replies to s.133(6) notices cannot, by itself, justify additions where the assessee has placed sufficient corroborative documentary material on record. The non-response was considered insufficient to overcome direct documentary evidence establishing identity and genuineness of the payees and payments. Ratio vs. Obiter: Ratio - a third-party's failure to respond to s.133(6) does not automatically permit disallowance/addition if the assessee furnishes contemporaneous and corroborative documentary evidence; Obiter - none expressly stated. Conclusions: The addition based solely on non-response to s.133(6) was unjustified and directed to be deleted. Issue 2 - Sufficiency of documentary evidence (ledger confirmations, ITR, PAN, Aadhaar, bank statements, vouchers, TDS) to prove identity and genuineness Legal framework: The burden of proof as to the correctness of claims lies with the assessee to the extent contested; however, admissible contemporaneous documents and financial records may discharge the burden and negate the necessity of third-party oral evidence. Precedent Treatment: The Tribunal applied principles of evidentiary sufficiency without invoking or distinguishing reported decisions; the approach treats multi-pronged documentary proof as capable of establishing transactions. Interpretation and reasoning: The Tribunal examined the ledger confirmations, income-tax returns, PAN and Aadhaar details, bank statements evidencing payments, labour-charges vouchers and TDS deductions and concluded that these materials collectively establish both the identity of the payees and the genuineness of the labour payments. Given that payments were subject to TDS and appropriate supporting documents were before the record, the documentary matrix was held to be adequate to rebut the inference of sham or undisclosed receipts. Ratio vs. Obiter: Ratio - the combination of ledger confirmations, taxpayer filings, identity documents, banking evidence and vouchers, together with TDS records, can be sufficient to establish genuineness of payments and negate additions; Obiter - specific weight to each document not exhaustively ranked. Conclusions: Documentary evidence furnished by the assessee discharged the onus to prove identity and genuineness for the three challenged payments; hence the additions were deleted. Issue 3 - Requirement to test or reconcile documentary evidence before making additions Legal framework: The AO must assess evidentiary material and may seek verification, but the exercise of making additions requires positive satisfaction on available evidence; where the assessee produces convincing records, the AO should not make additions merely because third parties did not respond. Precedent Treatment: No authority was cited; the Tribunal's approach emphasizes assessment of the assessee's materials and calling for remand reports where appropriate (the record shows a remand report was sought by the CIT(A)). Interpretation and reasoning: The Tribunal stressed that the AO's reliance on non-response overlooked the contemporaneous documentary proof produced by the assessee. The Tribunal noted that the lower authority (CIT(A)) had itself remanded aspects and deleted other labour-charge additions after review, indicating that proper testing of records may lead to deletion; for the three items in dispute the AO/CIT(A)'s justification based primarily on non-reply was held deficient. Ratio vs. Obiter: Ratio - before making additions, revenue authorities must give due weight to documentary evidence produced by the assessee and cannot sustain additions merely on third-party non-cooperation; Obiter - procedural mechanisms such as remand reports may be employed to verify contested items. Conclusions: The assessing machinery should not uphold additions without reconciling or disproving the documentary evidence; the Tribunal directed deletion of the impugned addition of Rs. 4,52,034/-. Final Disposition (relating to the issues) The Tribunal allowed the appeal in respect of the labour-charge addition of Rs. 4,52,034/-, holding that documentary evidence (ledger confirmations, ITRs, PAN, Aadhaar, bank statements, vouchers and TDS) established identity and genuineness and that non-response to s.133(6) notices alone could not sustain the addition; the AO was directed to delete the impugned addition.