E2E SUPPLY CHAIN SOLUTIONS LIMITED,CHENNAI vs. ACIT, CORPORATE CIRCLE 1(1), CHENNAI

Brief facts of the case are that the assessee, E2E Supply Chain Solutions Limited, ('the Company' or 'the Appellant') is engaged in the business of transportation of goods, stevedoring, port handling, warehousing and allied services. The subject appeal is against the assessment order passed by the Assistant Commissioner of Income Tax, Corporate Circle 2(1), Chennai ('Learned AO') dated 31.03.2016. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) - 6, Chennai on 30.04.2016 and the subject appeal has been transferred to the National Faceless Appeal Centre. For the subject AY, the turnover of the Company amounts to Rs.43.31 Crores and expenditure towards freight, stevedoring and port handling amounts to Rs. 41.74 Crores. The following additions have been made by the AO:

The assessee further challenged the order of the CIT(A) before this Tribunal.

The ld.AR submitted that the AO has erred in disallowing a sum of Rs.5,12,24,100/- u/s.40A(3) of the Act by erroneously treating the aggregate annual cash payments made to certain transporters as if such amounts were paid on a single day. It is submitted by ld.AR that no payment exceeding Rs.35,000/- per day per vendor was made during the relevant financial year. The assessee had furnished a list of transporters along with total annual payments, as called for by the AO. The ld.AR submitted that AO misinterpreted the data provided and mechanically applied the statutory threshold prescribed u/s.40A(3) on annual aggregates instead of verifying daily payment details. The detailed daily break-up of payments, subsequently furnished, clearly establishes that no violation of Section 40A(3) has occurred. He furthermore submitted that the disallowance is founded on a & 3101/Chny/2025 (AYs: 2008-09 & 2013-14) E2E Supply Chain Solutions Limited fundamental factual and mathematical misconception and is liable to be deleted in toto.

Regarding disallowance of Freight and Allied Expenses the AO has disallowed a sum of Rs.35,51,32,556/- solely on the ground that certain vendors did not respond to notices issued u/s.133(6) of the Act. The ld.AR for the assessee submitted that such disallowance is legally untenable for the reasons that the notices were issued indiscriminately to all parties, including government and quasi- government authorities, without any specific adverse material against the assessee. The notices were issued in mid-March 2016, affording an unreasonably short period for compliance. The assessee was never informed during assessment proceedings that such notices had been issued or that there was alleged non-compliance by vendors. No show cause notice or opportunity of rebuttal was provided prior to making the disallowance. Furthermore, the ld.AR submitted that the payments in question were made through banking channels, and complete particulars including PAN, addresses, confirmations, lorry receipts, work orders, bank statements, and other supporting documents were furnished. Hence he pleaded that in the absence of any material demonstrating that the transactions were bogus or fictitious, the mere non-response of third parties cannot justify wholesale disallowance of genuine business expenditure. He further added that the AO has not disputed the revenue earned by the assessee.

The assessee places reliance on the order of the Tribunal in its own case for earlier assessment years, wherein it was held that if vendor confirmations are not forthcoming, the AO ought to verify the & 3101/Chny/2025 (AYs: 2008-09 & 2013-14) E2E Supply Chain Solutions Limited transactions through the respective Assessing Officers of such vendors. Only in case of discrepancies should adverse inference be drawn. The Appellant submits that it has furnished all requisite vendor details including PAN and transaction summaries. In transport contracts falling under Section 194C(6), no TDS obligation arises subject to statutory conditions. The Assessee has discharged its primary onus by placing complete documentary evidence on record. It is further submitted that for AY 2014-15, the same AO completed the assessment without making any comparable disallowance. This reinforces the assessee’s submission that the impugned assessment for AY 2013-14 is a high- pitched assessment completed in haste, without due inquiry or application of mind.

The ld.AR for the assessee submitted that assessee in the course of the appellate proceedings, already placed on record exhaustive and voluminous documentary evidence comprising 35 volumes of paper books in physical form during the year 2017. These paper books contain comprehensive supporting materials in relation to the impugned disallowances, including but not limited to copies of PAN cards of the vendors, payment confirmation letters from transporters, memo slips/lorry hire slips, goods consignment notes, bank statements evidencing payments through banking channels, invoices, bills, and corresponding work orders. He furthermore submitted that the aforesaid documents collectively establish the identity of the payees, the genuineness of the transactions, and the factum of actual payment, thereby fully discharging the onus cast upon the Appellant under the provisions of the Act. The assessee further submitted that owing to technical constraints and file size limitations on the income & 3101/Chny/2025 (AYs: 2008-09 & 2013-14) E2E Supply Chain Solutions Limited tax e-filing portal, it was not feasible to upload the entirety of the said voluminous documentation electronically. Consequently, the same were furnished in physical form before the appellate authority. In this regard, the assessee had also filed a petition under Rule 46A before the Commissioner of Income Tax (Appeals)–6, Chennai on 04.07.2017 seeking admission of the additional evidence. He pleaded that the ld.CIT(A) has not considered the addition evidence in both the years for the additions challenged supra.

Per contra, the ld.DR relied upon the impugned orders and pleaded for the dismissal of the appeals.

We have carefully considered the rival submissions, perused the orders of the lower authorities and examined the material placed on record.

For Assessment Year 2013-14, the principal issues involved in this appeal relate to disallowance of Rs.35,51,32,556/- towards freight and allied expenses on the allegation that the transporters/vendors were fictitious and disallowance of Rs.5,12,24,100/- u/s.40A(3) of the Act. It is an undisputed fact that the Assessing Officer (AO) has accepted the turnover declared by the assessee at Rs.43.31 crores. However, substantial expenditure constituting the major component of the operational cost has been disallowed primarily on the ground that notices issued under section 133(6) were either not complied with or returned unserved. From the records, it is evident that the assessee had furnished complete particulars of the transporters including names, addresses, PAN, bank details, invoices, lorry receipts, & 3101/Chny/2025 (AYs: 2008-09 & 2013-14) E2E Supply Chain Solutions Limited consignment notes and proof of payments made through banking channels. The disallowance has been made solely on the basis of non- response by third parties, without bringing any positive material on record to demonstrate that the transactions were bogus or that the payments had come back to the assessee. Further, the assessee has contended that no effective opportunity was granted before drawing adverse inference and that additional evidences filed during appellate proceedings were not duly considered. In our considered view, mere non-response to notices u/s.133(6), without conducting further independent verification particularly when complete primary evidences were furnished, cannot justify wholesale disallowance of nearly the entire expenditure. When turnover is accepted, corresponding business expenditure cannot be disallowed in toto unless it is shown that the transactions are sham or fictitious through cogent material evidence. Moreover, where the assessee has discharged its primary onus, the burden shifts to the Revenue to make further enquiry, including verification through jurisdictional Assessing Officers of the concerned parties, if required. Such exercise has not been demonstrably carried out in the present case. Therefore, considering that certain notices were returned unserved and in the interest of justice, we deem it appropriate to set aside this issue to the file of the Assessing Officer for fresh examination. The Assessing Officer shall verify the documentary evidences already furnished, conduct necessary enquiries in accordance with law, and grant adequate opportunity of hearing to the assessee. The assessee shall also cooperate and furnish requisite details.

In the result, the appeal for AY 2013-14 is treated as allowed for statistical purposes in terms of above order.

For AY 2008-09, grounds relate to the disallowance of expenditure amounting to Rs.6,55,68,400/- incurred by the assessee towards payments made to M/s. Twinkle Vanijaya Private Limited, which has been treated by the Assessing Officer as non-genuine. The Assessing Officer made the impugned disallowance primarily on the basis of an alleged statement recorded from one Mr. Abhishek Chokhani. The ld. AR for the assessee submitted that the reassessment proceedings were initiated and concluded on the basis of the alleged statement of Mr. Abhishek Chokhani. However, neither during the assessment proceedings nor during the appellate proceedings was a & 3101/Chny/2025 (AYs: 2008-09 & 2013-14) E2E Supply Chain Solutions Limited copy of such statement furnished to the assessee. It was further contended that the said person was not produced for cross- examination despite specific requests made by the assessee. The ld. AR submitted that reliance on an undisclosed statement without affording an opportunity of rebuttal amounts to a violation of the principles of natural justice. The ld. AR further submitted that the assessee had discharged the primary onus cast upon it by furnishing various evidences in support of the impugned expenditure, including confirmation letters from the vendor, invoices, goods consignment notes and other supporting documents evidencing the services rendered. It was contended that despite the assessee furnishing such documentary evidence, the Assessing Officer (AO) proceeded to disallow the entire expenditure without conducting proper verification. It was also contended that the AO has accepted the turnover declared by the assessee and therefore the corresponding expenditure incurred for earning such income cannot be disregarded in the absence of cogent material establishing that the expenditure is bogus. The ld.AR further submitted that in the assessee’s own case for earlier assessment years, the Tribunal had considered a similar issue and had decided the matter in favour of the assessee in principle.

The ld. Departmental Representative (DR), on the other hand, supported the orders of the Assessing Officer and the ld.CIT(A).

We have considered the rival submissions and perused the material available on record. It is an admitted position that the disallowance has been made primarily on the basis of an alleged statement of a third party, namely Mr. Abhishek Chokhani. However, it & 3101/Chny/2025 (AYs: 2008-09 & 2013-14) E2E Supply Chain Solutions Limited is also evident from the record that the said statement was not furnished to the assessee and the assessee was not afforded an opportunity to cross-examine the said person. It is a settled principle of law that where any material or statement of a third party is sought to be relied upon against the assessee, the same must be confronted to the assessee and an opportunity of cross-examination must be provided. At the same time, we note that the assessee has placed on record certain documentary evidences such as confirmations from the vendor, invoices, goods consignment notes and other supporting documents in support of the claim of expenditure. The veracity and correctness of these documents require proper verification at the level of the Assessing Officer. In the interest of justice and fair play, we deem it appropriate to set aside the impugned order on this issue and restore the matter to the file of the Assessing Officer for fresh examination. The Assessing Officer shall verify the evidences furnished by the assessee in support of the expenditure claimed to have been incurred towards payments made to M/s. Twinkle Vanijaya Private Limited. If the Assessing Officer proposes to rely upon any statement or material of a third party, including the alleged statement of Mr. Abhishek Chokhani, the same shall be furnished to the assessee and an effective opportunity of cross-examination shall be granted in accordance with law if assessee wishes to cross examination. The assessee shall also be afforded adequate opportunity of being heard and shall be at liberty to file such additional evidences as may be considered necessary in support of its claim. The Assessing Officer shall thereafter decide the issue afresh in accordance with law after considering all relevant materials. Accordingly, Ground raised by the assessee are allowed for statistical purposes. Other grounds raised & 3101/Chny/2025 (AYs: 2008-09 & 2013-14) E2E Supply Chain Solutions Limited were not pressed. The levy of interest under section 234B of the Income-tax Act is consequential.

In the result, the appeal for AY 2008-09 is treated as allowed for statistical purposes in terms of above order.

While setting aside of the above appeals to AO for AYs 2013-14 and 2008-09, we expect the AO to expedite the matters.

In the result, the appeals in & 3101/Chny/2025 are allowed for statistical purposes.