SR BLUE METALS,PUDUKKOTTAI vs. DCIT, CIRCLE-2(1), TRICHY

Aggrieved by the additions made by the AO, the assessee preferred an appeal before the ld.CIT(A). The assessee filed a detailed submission before the ld.CIT(A) and pleaded that the additions made is not warranted as the assessee had filed the complete details in respect of the impugned additions. Further, the assessee also stated that the loan amount of Rs.1.00 crore was received from Mr.A.Karuppaiah, who has declared an income of Rs.1,39,35,010/- during the year and also filed a confirmation letter from the lender. The assessee also filed a certificate from State Bank of India confirming the RTGS received from Mr.A.Karuppaih’s bank account to the assessee’s account. Therefore, the assessee submitted that the identity, genuineness and also the creditworthiness of the lender has been clearly established along with the source of the credit and hence prayed for deleting the same.

The assessee also explained the nature of expenditure spent for giving tips to the drivers and cleaners to meet the refreshment expenses, while waiting for their term in the quarry for loading the goods. In respect of the commission paid to Mr.Arumugasamy, the assessee furnished the PAN of the recipient along with documents showing the details of declaring the said commission receipt in his GST monthly returns. Further, the assessee also stated that before making the payment of commission, the applicable TDS has been deducted and the corresponding Form 26Q was also furnished before ld.CIT(A). The assessee also stated that the entire commission payments have been made through

On perusal of the entire submissions along with the details and documents, the ld.CIT(A) was not convinced and by referring to various judicial precedents, passed an order dated 20.01.2026 by dismissing all the grounds of the assessee and confirmed the additions made by the AO.

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee assailing the action of the AO as well as the ld.CIT(A), stated that both the authorities have erred in making the additions on account of commission and lorry tips paid to the lorry drivers and cleaners along with the addition on account of unexplained cash credit u/s.68 of the Act. In support of the claim of expenditure of commission, the ld.AR submitted that the commission has been paid to Mr.Arumugasamy, who is an Income-tax assessee. During the assessment proceedings, the assessee had already filed the PAN of the recipient along with his GST returns and also the GSTR-2B evidencing the transactions of commission shown. Further, the ld.AR stated that the assessee has duly deducted the applicable TDS and also the corresponding Form 26Q has been furnished before the authorities during the Income-tax proceedings. The ld.AR also stated that the corresponding payments towards commission paid has been made through banking channels and furnished the supporting bank statement and RTGS proof.

The ld.AR stated that the authorities have erred in making the disallowance on account of commission, for the sole reason that the recipient has not responded to the notices issued u/s.133(6) of the Act, which was not under the control of the assessee. In support of the aforesaid contention, reliance is placed on the decision of the Kolkata Bench of the Tribunal in Unique Finance & Securities Private Limited v. ACIT, ITA No.110/Kol/2025, order dated 13.05.2025, wherein the Tribunal, while holding that an addition cannot be sustained merely on account of non-compliance with notices/summons issued

In respect of the addition made u/s.68 of the Act, of Rs.1.00 crore, the ld.AR submitted that the onus of the assessee to prove the source by providing the identity, creditworthiness and genuineness of the transaction. Accordingly, to prove all the three ingredients required u/s.68 of the Act, the assessee had submitted that the identity of the lender by providing the PAN, Income-tax return copy along with the confirmation issued by the lender. To establish the creditworthiness of the lender, the assessee filed lenders Income-tax return, who had declared Rs.1,39,35,010/- as current year’s income. Further, the ld.AR stated that to prove the genuineness of the transaction, the assessee had filed bank statements of both the lenders we well as the recipient to show that the funds has been transferred to the assessee through a normal banking channel in the regular course of the business. Therefore, the ld.AR submitted that the authorities have erred in making the addition u/s.68 of the Act and prayed for deleting the same.

The next disallowance of Rs.62,30,330/- u/s.37(1) of the Act on account of lorry tips paid to the drivers and cleaners, the ld.AR stated that it is a customary trade practice the assessee regularly pay tips to lorry drivers and cleaners towards refreshment expenses on regular basis. The said claim is very reasonable and co-related to the business, which is approximately 200 lorries

In support of the above arguments, the ld.AR relied on the decision of the Hon’ble High Court of Karnataka in the case of Sri.Ganesh Shipping Agency v. ACIT, in ITA No.366 of 2015, dated 06.02.2021, the Hon’ble High Court, having noticed that the books of account maintained by the assessee had been accepted by the Revenue and no specific defects therein had been pointed out, held that an ad hoc disallowance of expenditure merely on the ground that the payments were made in cash and were supported by self-made vouchers could not be sustained. The Hon’ble High Court further took note of the commercial expediency and prevailing trade practice involved in incurring such expenditure and accordingly deleted the estimated disallowance.

In view of the above, the ld.AR prayed for deleting all the additions, which were confirmed by the ld.CIT(A) by allowing the appeal of the assessee.

Per contra, the ld. DR strongly supported the orders of the lower authorities and submitted that the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) was justified in the facts and circumstances of

We have heard the rival submissions, perused the orders of the authorities below and carefully considered the material placed before us. The assessee has challenged the additions/disallowances made by the AO and sustained by the ld.CIT(A) in respect of (i) commission expenditure of Rs.32,56,324/-, (ii) unexplained cash credit of Rs.1,00,00,000/- u/s.68 of the Act, and (iii) lorry tips/refreshment expenditure of Rs.62,30,330/-. We shall deal with each of these issues separately.

The first issue relates to disallowance of commission expenditure of Rs.32,56,324/- paid by the assessee to Mr. Arumugasamy. The principal reason for sustaining the disallowance appears to be the non-compliance by the recipient with the notice issued u/s.133(6) of the Act. The case of the assessee, on the other hand, is that sufficient documentary evidence was furnished to establish the identity of the recipient as well as the genuineness of the commission transaction.

From the material placed before us, we find that the assessee had furnished the PAN particulars of the commission recipient and had also placed on record his GST returns as well as GSTR-2B reflecting the transaction. It is further stated that applicable tax was deducted at source from the commission payment and the corresponding TDS particulars/Form 26Q were also furnished before the authorities. The payment of commission was admittedly made through banking channels and the assessee had furnished the relevant bank statement/RTGS particulars in support thereof.

In our considered view, once the assessee has furnished primary documentary evidence in support of the expenditure, including the identity and tax particulars of the recipient, GST records, TDS particulars and evidence of

It is also relevant that the Revenue has not brought on record any material to demonstrate that the commission payment has flown back to the assessee or that the recipient is a fictitious person. Nor is there any specific finding that the GST records, TDS particulars or banking transactions relied upon by the assessee are false or unreliable. Therefore, the mere non-response of the commission recipient to the notice issued u/s.133(6) of the Act, in the facts of the present case, cannot override the other contemporaneous documentary evidence furnished by the assessee.

The principle that an addition cannot be sustained merely on account of non-compliance by the concerned party with notices issued u/s.131/133(6) of the Act, when the assessee has discharged the initial evidentiary burden, also finds support from the judicial precedents relied upon by the assessee, including CIT v. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC), CIT v. Orchid Industries Ltd. 397 ITR 136 (Bom) and the other decisions referred to before us.

Considering the totality of the facts and circumstances and the documentary evidence placed on record, we are of the considered view that the disallowance of commission expenditure merely on account of non-response by the recipient to the notice under section 133(6) cannot be sustained.

The next issue relates to addition of Rs.1,00,00,000/- u/s.68 of the Act in respect of loan received from Mr. A.Karuppaiah. It is well settled that where any sum is found credited in the books of an assessee, the initial burden is upon the assessee to satisfactorily establish the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. In the present case, we find that the assessee had furnished the PAN and income-tax return particulars of the lender as well as a confirmation from him. Therefore, there is prima facie material on record establishing the identity of the creditor. As regards creditworthiness, the assessee has specifically pointed out that the lender had declared income of Rs.1,39,35,010/- during the relevant year. The income-tax return of the lender was also placed before the authorities. As regards genuineness of the transaction, the assessee furnished the bank statements evidencing transfer of the loan through normal banking channels. The assessee had also produced a certificate from State Bank of India confirming the receipt of the amount through RTGS from the lender's bank account.

Thus, the transaction is not a case where the assessee has merely furnished the name and address of the creditor without any supporting evidence. The assessee has furnished documentary evidence going to all the three ingredients contemplated u/s.68 of the Act. Once such primary evidence is placed on record, the initial burden cast upon the assessee stands discharged and, thereafter, the burden shifts upon the Revenue to bring cogent material on record to demonstrate that the documents furnished by the assessee are unreliable or that the transaction is merely an accommodation entry.

Nothing has been brought to our notice from the orders of the lower authorities demonstrating that the bank transaction itself was fictitious, that the lender did not possess the stated financial capacity, or that the money transferred by the lender originated from the assessee itself. There is also no

In the light of the aforesaid facts, we are satisfied that the assessee has discharged the initial burden cast upon it u/s.68 of the Act by establishing the identity and prima facie creditworthiness of the lender as well as the genuineness of the transaction through documentary evidence. In the absence of any material brought on record by the Revenue to rebut such evidence, the addition of Rs.1,00,00,000/- cannot be sustained. We, accordingly, set aside the finding of the ld. CIT(A) on this issue and direct the AO to delete the addition made u/s.68 of the Act. The corresponding ground of the assessee is allowed.

The remaining issue relates to disallowance of Rs.62,30,330/- claimed towards lorry tips/refreshment expenditure. The assessee is engaged in the business of crushing stones and sale of jelly and M-sand. According to the assessee, approximately 200 lorries operate on a daily basis and tips/refreshment expenses are paid to drivers and cleaners during the waiting period at the quarry for loading and at customers' sites for unloading. It was submitted that approximately Rs.50/- per lorry was incurred towards drivers and cleaners and that such expenditure represents a customary business practice incidental to the nature of the assessee's business.

We find considerable force in the contention of the ld.AR that the allowability of such expenditure has to be appreciated having regard to the peculiar nature and scale of the assessee's business. The assessee has disclosed turnover of Rs.69.41 crores, apart from hire charges of Rs.27.99 lakhs, and has declared income of Rs.11.35 crores for the relevant assessment year. In a business involving movement of substantial numbers of heavy vehicles on a daily basis,

At the same time, expenditure allowable u/s.37(1) of the Act has to be demonstrated as having been incurred wholly and exclusively for the purposes of business. The absence of formal third-party vouchers in respect of small cash payments, by itself, may not justify complete disallowance where the nature of the business makes procurement of such vouchers impracticable. What is relevant is whether the expenditure is commercially plausible, whether it is connected with the business operations and whether the books and surrounding circumstances lend reasonable support to the claim.

In this regard, the reliance placed by the assessee on the decision of the Hon'ble Karnataka High Court in Sri Ganesh Shipping Agency v. ACIT, as referred to before us, is relevant to the extent that expenditure arising out of an established trade practice cannot be subjected to arbitrary disallowance merely because of the manner in which such expenditure is incurred, particularly when the underlying business practice is not disproved. The assessee has also relied upon CIT v. Sri Clifford D'Souza and CIT v. Konkan Marine Agencies, 313 ITR 308 (Kar), in support of its contention.

Similarly, the Raipur Bench of the Tribunal in M/s Sunita Finlease Limited v. ITO, ITA No.244/RPR/2017, as relied upon by the assessee, has held that an ad hoc disallowance cannot be sustained in the absence of identification of any specific item of expenditure which is unverifiable or unsupported. The principle emerging therefrom is that an addition or disallowance cannot be founded merely on conjecture or general suspicion without pointing out a specific defect in the claim of expenditure.

In the present case, the authorities below have not brought on record any material to establish that the expenditure claimed by the assessee was fictitious or that the amount had been diverted for non-business or personal purposes.

Considering the nature of the assessee's business, the volume of its operations and the customary nature of small payments claimed to have been made to lorry drivers and cleaners, it would be unrealistic to insist upon formal third-party vouchers for each and every such payment. The test u/s.37(1) of the Act is ultimately whether the expenditure has a nexus with the business and has been incurred for business purposes. In our considered view, the explanation offered by the assessee is commercially plausible and consistent with the nature of its business operations.

Further, no specific instance has been identified by the AO to establish that any particular payment recorded under this head was bogus, inflated or incurred for purposes unrelated to the assessee's business. In such circumstances, a wholesale disallowance of Rs.62,30,330/- merely for want of formal supporting vouchers would be disproportionate and cannot be sustained.

We are, therefore, of the considered view that the lorry tips/refreshment expenditure, being incidental to the assessee's business operations and there being no specific material brought on record to establish that the expenditure is bogus or incurred for non-business purposes, deserves to be allowed. Accordingly, we set aside the finding of the ld. CIT(A) and direct the AO to delete the disallowance of Rs.62,30,330/-. The corresponding ground raised by the assessee is allowed.

In view of the foregoing discussion, we hold that the assessee has furnished sufficient documentary evidence in support of the commission expenditure and the loan transaction, whereas the Revenue has not brought any cogent material

In the result, the appeal filed by the assessee is allowed.