TaxTMI 
TaxTMI 
2026 (9) TMI 1534
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....ase and in law, the Ld. CIT(A) erred in holding that AO had not conducted any independent investigation to verify the transactions during assessment proceedings ignoring the fact that AO had duly conducted independent verification by issuance of notices u/s. 133(6) of the Act to multiple entities during assessment proceedings and these entities failed to furnish any reply to statutory notices issued u/s. 133(6) of the Act. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not seeking remand report from Assessing officer in respect of additional evidences submitted by assessee company during appellate proceedings for necessary verification as mandated in the sub rule (3) of Rule 46A of the Income Tax Rules, 1962. 4. The appellant craves to leave to amend or alter any grounds or add new ground which may be necessary. 2. The assessee, a public limited company engaged in logistics and delivery services, filed its return of income on 31.10.2023 declaring a loss of Rs. 5,62,27,163/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (in short 'the Act'). Subsequently, return was selected for scrutiny and statuto....
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....under section 143(3) read with section 144B, restricted the addition to Rs. 10,08,86,697/- under section 69C. The total assessed income was consequently determined at Rs. 10,08,86,697/- as against the returned loss of Rs. 5,62,27,163/-. 2.4 The learned AO made the addition under section 69C of the Act on grounds, Firstly, the assessee failed to establish the credibility and tax compliance status of the vendors with whom transactions were conducted, (ii) Secondly, despite issuance of notices under section 133(6), the majority of the vendors did not respond, leaving the genuineness of transactions unverified and (iii) thirdly, the assessee did not furnish conclusive evidence to support the genuineness and necessity of the transactions, nor did it substantiate the nature and purpose of the expenditures claimed. 2.5 The learned AO, in the assessment order, observed that any expenditure, including purchases from unverifiable, non-compliant, or unresponsive parties, where the genuineness remains unsubstantiated, is liable to be disallowed. Accordingly, the entire transaction amounting to Rs. 10,08,86,697/- was added to the total income of the assessee as unexplained expenditure und....
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....eness of expenditure (though the correct provision would be section 37(1)), the question arises whether the assessee has discharged its burden of proving the genuineness. 3.3 The ld CIT(A) referred to the decision of the Hon'ble Supreme Court in CIT v. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78, wherein it is held that Once the assessee furnishes the name, address, PAN and other details of the parties and produces evidence of transactions, the initial burden is discharged and thereafter, the burden shifts to the Revenue to disprove the transactions with positive evidence. The ld CIT(A) noted that in the present case, the assessee had furnished substantial evidence, which includes (a) Primary Documentary Evidence: (i) Invoices raised by all 49 parties; (ii) Ledger accounts of 47 parties (except 2 parties with transaction value of Rs. 27,920); (iii) Bank statements evidencing payments through banking channels; (iv) Copies of agreements with 28 parties (except 21 parties with transaction value of Rs. 1,38,99,140); (b) Third-Party Verification Documents: (i) PAN and GSTIN of all 49 parties; (ii) Address and contact details; (iii) ITR acknowledgements/returns of some parties;....
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.... transactions were found in order. For the remaining 44 parties, the AO should have conducted further enquiries, such as: (i) Verification of PAN and GSTIN; (ii) Checking ITR filing status from departmental records;(iii) Verifying GST returns filed by the parties; (iv) Conducting field enquiries at the addresses furnished; (v) Issuing summons under section 131 for personal appearance. The ld CIT(A) observed that no such efforts were undertaken. He held that in those circumstances, addition cannot be sustained merely on the basis of non-response to section 133(6) notices. The CIT(A) found the enquiry by the AO as insufficient because the AO essentially relied upon the non-response without bringing further positive material on record to discredit the transactions. 3.7 The learned CIT(A) further observed that the assessee's business of logistics and delivery services necessarily involved expenditure on transportation, manpower and allied operational services, and that the corresponding business receipts had not been doubted. 3.8 The ld CIT(A) further referred to the Section 206AB, which defines a "Specified Person" as one who has not filed ITR for two preceding assessment ye....
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....6) notices, which is insufficient when substantial documentary evidence has been furnished. c) Non-Response to Section 133(6) Not Determinative As held by the Hon'ble Supreme Court in Orissa Corporation and by the Hon'ble Bombay High Court in Nikunj Eximp Enterprises, non-response to Section 133(6) notices, by itself, cannot be the basis for making additions when the assessee has furnished substantial documentary evidence. d) Business Necessity Established: The appellant is engaged in the business of logistics services, which requires hiring of transport vendors and manpower agencies. The expenditure in question is essential for the business. The revenue earned by the appellant has not been doubted. If services were rendered and revenue was earned, the related expenditure must have been incurred. e) GST Compliance and AIS Data: All invoices have been uploaded on the GST portal by the parties and are appearing in the AIS of the appellant. This is a strong indicator of the genuineness of transactions. The learned AO cannot selectively rely on government portal data that supports the Revenue while ignoring other government ....
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....ht any positive material to establish that the expenditure was fictitious or that the payments emanated from unexplained sources. 5.1 Further, regarding the ground No. 3 raised by the Revenue that procedure under Rule 46A has not been complied with in respect of the additional evidence, the learned counsel for the assessee submitted that no additional evidence had been filed before the learned CIT(A) and therefore invoking of Rule 46A of the Income-tax Rules did not arise. Further, the learned counsel submitted that the expenditure claimed has been duly entered into the books of account and source of the same is also explained from the books of account and therefore no disallowance could be made under section 69C of the Act. On this ground also the addition is not warranted. Learned counsel for the assessee relied on the order of the learned CIT(A). 6. We have heard rival submissions of the parties and perused the relevant material on record. As regard to the ground raised on the merit is concerned, we find that assessee has transacted with 49 parties which were identified by the Assessing Officer as non-filers. The Assessing Officer issued notice under section 133(6) of the ....
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....cerning the transactions, payments had been made through banking channels, the books had not been rejected and the Assessing Officer had not undertaken the necessary enquiry to discredit the evidence. 6.6 The decision in CIT v. Odeon Builders (P.) Ltd. [2019] 110 taxmann.com 64 (SC) is also instructive. The Hon'ble Supreme Court, while dismissing the Revenue's review petitions, noted that the disallowance had rested solely on third-party information which had not been subjected to independent verification, whereas the assessee had furnished documentary material supporting the purchases. 6.7 The section is attracted where the assessee has incurred expenditure but offers no explanation regarding its source, or where the explanation regarding such source is found unsatisfactory. In the present case, the expenditure was admittedly recorded in the assessee's books of account; the books were not rejected; and the payments were made through banking channels. The AO has not brought on record any material to show that the payments were made out of funds outside the books or that the source of the payments remained unexplained. 6.8 The question whether the transactions w....
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....ed a genuine doubt regarding particular transactions, the mere cessation of enquiry upon non-response to section 133(6) notices could not, in the facts before us, substitute for positive evidence establishing that the expenditure was not incurred or that its source was unexplained. 6.12 The principle emerging from Orissa Corporation (P.) Ltd. (supra), Nikunj Eximp Enterprises (P.) Ltd. (supra) and Sanjay Dhokad (supra) therefore applies with greater force where, as here, the assessee has furnished contemporaneous documentary evidence and the Revenue has not brought any independent material on record to discredit it. 6.13 We accordingly hold that the addition of Rs. 10,08,86,697/-under section 69C cannot be sustained merely on the basis of non-response to notices under section 133(6) and the alleged non-filing of returns by the vendors. 7. The Revenue has further alleged violation of Rule 46A on the ground that the learned CIT(A) considered additional evidence without obtaining a remand report. 7.1 We have examined the record. The learned Departmental Representative has not been able to identify any particular document which was admitted by the learned CIT(A) as addition....