E2E Supply Chain Solutions Limited Vs ACIT (ITAT Chennai)
Expenditure Cannot Be Disallowed Solely for Non-Response to Notices u/s 133(6); Matters Remanded for Proper Verification
The assessee, a logistics and supply chain company engaged in transportation, stevedoring and warehousing services, reported turnover of about ₹43.31 crore for AY 2013-14. During assessment, the AO disallowed substantial expenditure aggregating to ₹40.66 crore, including ₹35.51 crore towards freight and allied expenses alleging that certain transporters were fictitious, and ₹5.12 crore u/s 40A(3) on account of cash payments. The disallowance was mainly based on the fact that notices issued to certain vendors u/s 133(6) were either not responded to or returned unserved.
The Tribunal observed that the assessee had furnished extensive documentary evidence including PAN details of vendors, invoices, lorry receipts, consignment notes and bank payment proofs, establishing the identity of the parties and genuineness of transactions. It held that mere non-response of third parties to notices u/s 133(6) cannot justify disallowance of almost the entire expenditure, especially when the turnover itself was accepted by the AO and no material was brought on record to prove that the transactions were bogus.
However, since some notices were returned unserved and verification was incomplete, the Tribunal set aside the issue to the AO for fresh verification of the documentary evidence and necessary enquiries, including verification through jurisdictional AOs of the vendors if required.
Regarding the disallowance u/s 40A(3), the Tribunal noted that the AO had wrongly applied the statutory limit by aggregating annual cash payments instead of examining whether payments exceeding ₹35,000 per person per day were made. Since the assessee contended that no such payment exceeded the prescribed limit on any single day, the matter was also remanded to the AO for verification of daily payment details.
For AY 2008-09, the AO had disallowed payments made to a vendor based on an alleged statement of a third party. The Tribunal held that reliance on a third-party statement without providing the assessee a copy or opportunity for cross-examination violates principles of natural justice, and therefore remanded the matter to the AO for fresh examination after providing such opportunity.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
