Income Tax Disallowances Made On Ad Hoc Basis Without Specifying A Particular Mistake: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has observed that disallowances have been done on an ad hoc basis without specifying a particular mistake.

The two-member bench of Astha Chandra (Judicial Member) and Shamim Yahya (Accountant Member) has set aside the orders of the authorities below and decided the issue in favor of the assessee and observed that AO has not pointed out specific documents that were missing.

The assessee/appellant challenged the ad hoc disallowance on the issue of the disallowance of subcontractor charges. AO noted that the assessee has debited Rs. 6,37,62,122 as subcontractor expenses. Assessee was asked to submit vouchers, but AO noted that the assessee could not substantiate adequate supporting vouchers, hence he made an ad hoc disallowance of Rs. 3,00,000.

Following the assessee's appeal, the CIT (A) compared the assessee's net profit and gross profit ratio for the AYs 2013–14 and 2014–15 and found that the assessee's net profit had decreased from 6.96% in the AY 2013–14 to 5.90% in the AY 2014–15. Hence, he proceeded to confirm the disallowances.

The assessee submitted that these additions have been done on an ad hoc basis without cogent reasoning. AO has not pointed out specific documents that were missing. Just because the ratio has fallen a little bit does not give blanket permission to make ad hoc disallowances.

The tribunal allowed the appeal of the assessee and set aside the disallowance made on an ad hoc basis.

Case Title: Dynamix India Drill-Con Co. Versus ACIT

Citation: ITA No.6110/Del./2018

Date: 16.03.2023

Counsel For Appellant: S. Krishnan

Counsel For Respondent: Indu Bala Saini

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