Non response from the party u/s 133(6)

AO proposing addition to the Income of the assessee by disallowing the genuine business Service Fees expenditure due to reason that notice u/s 133(6) to the receiving party not responded and that company not fillied ITR.

Assessee alreday submitted the proof of transaction by submitting all relevant docs and informations availlabe in normal course of business i.e

1- Service Agreement between the Assessee and the Service provider

2- Bank statement where payments have been made

3. Copy of Tax Invoices

4. GST return copy - paid to party, party deposited, reflected in 2A and input taken.

5. TDS deducted and paid -proof

6- All correspondences between the assessee and the service provider during complete financial year for normal business activity.

7- Contract terminated and the matter now reffereed to Arbitration process i.e Notice from the Service provider received and reply sent by advocates and it is in process

8- All other relevant docs and informations to proof genuinness of the transactions alreday submitted before AO.

Besides the fact as above ,AO wants to disallow the expenditure and add the total expenditure to total income of the Assessee

Please suggest your opinion whether the AO is correct or how to defend this with decided cases

Hey Manoranjan,

The AO’s proposal to disallow the genuine business service fees expenditure solely because the party didn’t respond to the notice under Section 133(6) and didn’t file their ITR is not justified if the assessee has already furnished sufficient proof of the genuineness of the transaction.

Key points and defense strategy:

Section 133(6) Notice is a power given to the AO to seek information from any person who is believed to be connected to the case.
- Non-response from the third party cannot be a sole ground for disallowing the expenditure if the assessee has independently proved the genuineness of the transaction.
Assessee’s burden of proof: You have already submitted
- Valid service agreements
- Bank payment proof
- Tax invoices and GST returns showing input credit
- TDS deduction and payment proof
- Correspondences and arbitration notices
These evidences strongly establish that the expenditure is genuine and incurred wholly and exclusively for business purposes.
Judicial precedents:
- CIT vs. Morarjee Textiles Ltd. (SC) – mere non-cooperation by the other party does not justify disallowance if assessee’s documents are complete.
- Godrej & Boyce Mfg. Co. Ltd. v. CIT – transactions are genuine based on assessee’s evidences, disallowance cannot be made just because the other party is not filing return or not responding.
- CIT vs. Patel Roadways Pvt. Ltd. – the assessee is not expected to prove the genuineness of the transaction beyond reasonable doubt, documentary evidence submitted suffices.
Legal position:
The Income Tax Act does not impose an absolute liability on the assessee to prove the transactions through responses from the counterparty. Adequate documents and evidence from the assessee are sufficient to claim deduction.

Suggested action:

File a detailed reply reiterating all proofs submitted.
Cite the above judicial rulings and case laws.
Emphasize that non-response of the other party cannot invalidate the genuine transaction.
If AO persists, consider filing an appeal with the Commissioner (Appeals) citing legal precedents.