Absence of Cross-Verification u/s 133(6) Should Not Be Sole Basis to Disallow Expenses: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the absence of cross-verification under Section 133(6) of the Income Tax Act, 1961 should not be taken as the sole basis to disregard the nature and expediency of such expenses and also held that the assessee had reasonably established the nexus between the commission expenses and the purpose of the business.

The assessee, Shree Star Carrying Company, a partnership firm claimed commission expenses of Rs.26,87,160/- for the 2015-16 assessment year. The Assessing Officer (AO) issued notices under Section 133(6) of the Income Tax Act, 1961, but the AO failed to serve them to some beneficiaries and received no reply.

As a result, the AO disallowed the expenses by Rs.14,26,480/-. The assessee appealed to the Commissioner of Income Tax (Appeals), which upheld the AO’s order, and then to the Income Tax Appellate Tribunal (ITAT).

The assessee argued that the non-compliance with Section 133(6) of the Act could be forgiven due to the unique circumstances of the case. They argued that commission expenses were paid to small-time delivery and booking agents and that they provided the AO with the ITRs and confirmations for commission receipt.

The Revenue argued that the assessee had not complied with the requirements of Section 133(6) of the Act and also argued that the absence of cross-verification was a material omission and that the assessee had not discharged its burden of proof.

The Tribunal observed that the non-compliance with Section 133(6) of the Act could be forgiven in the peculiar circumstances of the case and noted that the assessee was a transport firm and that the commission expenses were paid to small-time delivery agents and booking agents who were located in far-flung places and also noted that the assessee provided the AO with ITRs and confirmations for commission receipt.

The Two-member bench comprising Kul Bharat (Judicial Member) and Pradip Kumar Kedia (Accountant Member) ruled that the assessee had provided the AO with ITRs and confirmations for commission receipt, establishing a reasonable connection between commission expenses and business purpose. It also ruled that the absence of cross-verification under Section 133(6) of the Act should not be used as a sole basis to disregard the nature and expediency of such expenses.

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