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January 19, 2023

Transaction cannot be questioned only because a section 133(6) notice wasn’t responded to

by CA Shivam Jaiswal in Income Tax

Transaction cannot be questioned only because a section 133(6) notice wasn’t responded to

Fact and issue of the case

The brief facts of the case as emanating from the record are: The assessee is engaged in the development of software. For the year under consideration, the assessee filed its return of income on 27/11/2015 declaring a total income of Rs. 1,34,26,440. During the assessment proceedings, upon perusal of the profit and loss account, it was observed that the assessee has debited an amount of Rs. 2,17,52,924 on account of marketing expenses. Accordingly, the assessee was asked to submit the names and addresses of the parties to whom the aforesaid amount was paid. To verify the genuineness of the aforesaid payment, information was called under section 133(6) of the Act. Initially, in respect of 5 parties, the notice issued under section 133(6) of the Act was returned unserved. However, subsequently, 3 out of 5 aforesaid parties filed their response to the notices issued under section 133(6) of the Act. Ultimately, only two parties, namely, M/s EIH Ltd and The Lalit Golf and Spa Resort failed to respond to the notices issued under section 133(6) of the Act. In respect of the payment made to the aforesaid 2 parties, the assessee filed the extract of Company’s bank account statements evidencing the transactions. The assessee also provided the PAN No. of these entities. The Assessing Officer (‘AO’) vide order dated 21/11/2017 passed under section 143(3) of the Act held that in absence of response to notices issued under section 133(6) of the Act, it is not ascertainable as to how the assessee could be able to come into contact with both these parties and could obtain the documents furnished by it. The AO further held that merely because the funds have moved through the bank channel and the entities concerned have arranged the paperwork, the transaction cannot be held to be genuine. Accordingly, the AO held that the assessee has failed to establish the genuineness of marketing payment made to the aforesaid 2 entities namely, M/s EIH Ltd and The Lalit Golf and Spa Resort, and disallowed the marketing expenditure amounting to Rs. 22,43,401 under section 37(1) of the Act by treating the same as non-genuine/non-business transaction/expenditure.

The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before

During the hearing, the learned Authorised Representative submitted that the assessee provided PAN numbers, TDS details, bank account details, and complete address of these parties to the AO, as was available with it. However, the assessee itself was not able to contact these parties to persuade them to file a response to the notice issued under section 133(6) of the Act. It was further submitted that both the entities are well-known Hotel chains in India and therefore it cannot be assumed that the assessee’s transaction of payment of marketing expenditure to these entities is not genuine merely because these entities failed to respond to the notice issued under section 133(6) of the Act.

On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the lower authorities.

Observation of the court

The tribunal has considered the rival submissions and perused the material available on record. During the year, the assessee incurred marketing expenditure of Rs. 2,17,52,924 which was debited to the profit and loss The said payment was made by the assessee to 17 entities in respect of various events conducted during the year. In order to determine the genuineness of the payment made by the assessee, the AO issued notices under section 133(6) of the Act. However, only 2 parties namely, M/s EIH Ltd and The Lalit Golf and Spa Resort failed to respond to the aforesaid notice. In order to substantiate the genuineness of the payment to these 2 entities, the assessee furnished the bank account statement, which reflected the payment made to these parties, invoices raised by these entities to the assessee, details of tax deducted on payment made to these parties, PAN No. and complete address. It is no doubt true that payment through the bank channel is not conclusive proof of the transaction. However, at the same time, when the assessee has provided all the information available with it regarding the transaction, merely on the basis that the entity has not responded to notice issued under section 133 (6) of the Act the transaction cannot be doubted and be treated as non-genuine, particularly when the same has been entered into with entities which are well-known Hotel chains in India. It is also not the claim of the Revenue that these entities are not in existence or the documents furnished by the assessee are bogus. Thus, in the peculiar facts of the case, we find no basis in upholding the addition by the AO merely on the basis that only 2 out of 17 parties failed to respond to the notice issued under section 133(6) of the Act. Accordingly, we direct the AO to delete the addition of Rs. 22,43,401. As a result, grounds No. 2-6 raised in assessee’s appeal are allowed.

Ground no.1 is general in nature and needs no separate adjudication in view of our aforesaid findings.

Ground No. 6 pertains to the levy of interest under section 234B of the Act, which is consequential in nature. Therefore, the said ground is allowed for statistical purposes.

Ground No. 7 is pertaining to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed.

The assessee has also filed an application dated 18/08/2021 seeking admission of additional ground of appeal, which was not pressed during the Therefore, the aforesaid application is dismissed as not pressed.

In the result, the appeal by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 02/12/2022.

Read the full order from here

Transaction-cannot-be-questioned-only-because-a-section-1336-notice-wasnt-responded-to-1

Conclusion

The tribunal has ruled in favour of the assessee and dismiss the appeal

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