Case Law Details
Workenstein Collaborative Spaces Pvt. Ltd Vs DCIT (ITAT Chennai)
In a significant ruling concerning the genuineness of business expenditures, the Income Tax Appellate Tribunal (ITAT) of Chennai has allowed the appeal of Workenstein Collaborative Spaces Pvt. Ltd., thereby deleting a substantial disallowance made by the tax authorities. The decision centered on whether a company can be penalized for the non-compliance of its suppliers. The Tribunal’s order, dated August 29, 2025, provides clarity on the principle that the burden of proof on the assessee is discharged once primary evidence of a transaction is presented.
The case originated from an assessment for the financial year 2021-22, where the Assessing Officer (A.O.) identified purchases of over $3.4 million made from 21 parties who had not filed income-tax returns. A detailed verification was conducted for two of these suppliers, M/s. Deligent Metal and M/s. Interface flor India Pvt. Ltd. When these parties failed to respond to notices issued under Section 133(6) of the Income-tax Act, the A.O. concluded that the transactions were not fully verifiable. Consequently, 25% of the total purchases was disallowed as non-genuine, leading to an increase in the company’s taxable income.
Workenstein Collaborative Spaces Pvt. Ltd. challenged this decision before the Commissioner of Income Tax (NFAC), but the disallowance was confirmed. The CIT(A) upheld the A.O.’s view, stating that the company had failed to establish the identity, creditworthiness, and genuineness of the suppliers and their transactions “beyond doubt.” This led the company to file a second appeal before the ITAT, but with a delay of 149 days.
At the outset, the ITAT addressed the procedural delay. It considered the company’s petition for condonation and found “sufficient cause” for the late filing, a key legal term that indicates a valid and justifiable reason for the delay. The Tribunal’s decision to condone the delay allowed the appeal to be heard on its merits, paving the way for a substantive review of the disallowance.
On the core issue of the disallowance, the ITAT sided with the assessee. The company’s legal representative argued that all relevant evidence had been provided to the tax authorities, including copies of invoices, ledger accounts, and bank statements showing that payments were made through proper banking channels. The company contended that once such primary evidence is furnished, its responsibility, or ‘onus,’ to prove the genuineness of the transactions is fulfilled.
The Tribunal concurred with this position, stating that “non-response by the suppliers to notices issued by the A.O. or their non-filing of returns cannot be a ground to disallow genuine purchases.” The court reasoned that the company could not be held responsible for the actions or omissions of its suppliers. Since Workenstein had substantiated its transactions with clear documentation, the ITAT found no merit in the orders of the lower authorities. Consequently, it deleted the disallowance, effectively allowing the company’s appeal. No specific judicial precedents were cited in the provided text.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Aforesaid appeal filed by the assessee for Assessment Year (AY) 2021-22 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 27.09.2024 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 144B of the Income-tax Act, 1961 (hereinafter “the Act”) dated 27.12.2022.
2. There is a delay of 149 days in filing the appeal by the assessee. The assessee has filed condonation petition/affidavit stating the reasons for delay in filing the appeal. We have considered the petition/affidavit of delay in filing the appeal and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit. Hence, the delay is hereby condoned.
3. The assessee-company filed its return of income declaring a total loss of Rs. 6,40,61,654/-. The A.O in the assessment order has noticed that the assessee has made purchases of Rs. 34,20,192/-from 21 parties, who were non-filers of income-tax returns. The Assessing Officer (A.O) conducted verification in respect of two parties out of the said 21parties , namely, M/s. Deligent Metal and M/s. Interface flor India Pvt. Ltd., from whom purchases of Rs. 3,86,907/-and Rs. 23,53,571/- respectively were shown by issuing 133(6) notice. As these parties did not respond to the notices issued u/s. 133(6) of the Act the A.O treated the purchases as not fully verifiable and disallowed 25% of the same as non-genuine. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the disallowance holding that the assessee failed to establish the identity, creditworthiness of the suppliers, and the genuineness of the transactions beyond doubt, and therefore, rightly rejected the claim.
4. The Ld. Authorized Representative (AR) of the assessee submitted that the assessee had produced all relevant evidences, including details of suppliers, copies of ledger accounts, and bank statements reflecting payments made to the suppliers, to establish the genuineness of the purchase transactions. It was further submitted that the assessee’s accounts were duly audited and all available documents were furnished before the authorities. The Ld. AR contended that if the suppliers did not respond to the notices issued u/s. 133(6) of the Act, the assessee cannot be held responsible for the same, and therefore, no addition could be sustained on that ground.
5. On the other hand, the Ld. Departmental Representative (DR) relied upon the orders of the lower authorities.
6. We have heard the rival submissions and perused the material available on record. The A.O made the disallowance of 25% of the purchases on the ground that the suppliers were non-filers of income-tax returns and had not responded to the notices issued u/s. 133(6) of the Act. However, it is observed that the assessee had furnished the details of suppliers, PAN, ledger accounts, and bank statements evidencing payment through banking channels to prove the genuineness of the transactions. Once such primary evidences are produced, the onus stands discharged by the assessee. Non-response by the suppliers to notices issued by the A.O or their non-filing of returns cannot be a ground to disallow genuine purchases when the assessee has otherwise substantiated the transactions. We therefore do not find merit in the order of the Ld. CIT(A) and delete the addition made by the A.O .
7. In the result, the appeal filed by the assessee is allowed.
Order pronounced on 29thday of August, 2025 at Chennai.
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