No Adhoc Disallowance Is Permitted Without Rejecting Books Of Account: Mumbai ITAT
Pankaj Bajpai
1 May 2024 1:15 PM IST
On finding that the AO had audited and still not rejected the books of account, the Mumbai ITAT held that the ad hoc disallowance made by the AO was not justified and needed to be deleted. The Bench of the ITAT comprising of Kuldip Singh (Judicial Member) and S. Rifaur Rahman (Accountant Member) reiterated while considering the findings of the CIT(A) that “because the books of...
On finding that the AO had audited and still not rejected the books of account, the Mumbai ITAT held that the ad hoc disallowance made by the AO was not justified and needed to be deleted.
The Bench of the ITAT comprising of Kuldip Singh (Judicial Member) and S. Rifaur Rahman (Accountant Member) reiterated while considering the findings of the CIT(A) that “because the books of accounts of the assess were audited and the AO did not find any infirmity in them, and also because, had the AO found any discrepancy/infirmity, he should have rejected the books of account of the appellant, which he clearly had not done, before proceeding further Moreover, in earlier cassessment years such expenses were allowed which is apparent from the earlier assessment orders. Even if the submission of the assessee may be considered not complete or considered as insufficient evidence, it will not grant a right to the AO to make an ad-hoe disallowance. What the AO should have done was to ask for specific evidence before making a decision in such specific instances.” (Para 6)
As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO noticed that the assessee had claimed direct expenses to the tune of Rs.78,55,48,913/-. In reply to the explanation called by the AO, the assessee stated that it has having turnover of Rs.600 crores, there are voluminous vouchers for expenses and it is difficult to upload all the vouchers on the Income Tax Business Application (ITBA) portal. The AO noticed that the assessee has not furnished even the documentary proof for the major expenses nor has filed a ledger concerning these expenses. So, the AO reached the conclusion that the assessee has failed to substantiate the expenses, hence made ad-hoc disallowance of 10% of the expenses and completed the assessment.
The CIT(A) has deleted the addition made by the AO.
The Bench noted that the books of accounts are duly audited under section 44 AB and the AO has not rejected the books of account while making ad-hoc disallowance.
The Bench observed while referring to the decision of the Supreme Court in the case of Principal Commissioner of Income Tax vs. R.G. Buildwell Engineers Ltd. (2018) 99 taxmann.com 284 (SC) that when books of account maintained by the assessee having been duly audited have not been rejected by the AO the ad-hoc disallowance made based on surmises is not sustainable.
The Bench further observed that “No doubt the relevant evidence has not been produced by the assessee before the AO hence he proceeded to make the adhoc disallowance. However now the Ld. CIT(A) during the appellate proceedings has duly perused the bills, vouchers, balance sheet, tax audit report, ledger copy and bank statement etc. qua the expenses claimed by the assessee in the light of the fact that the assessee is having turnover of Rs.600 crores and duly audited books of accounts of the assessee have not been rejected by the AO and proceeded to delete the adhoc disallowance.”
Therefore, on finding no illegality in the order of CIT(A), ITAT dismissed the revenue's appeal.
Counsel for Appellant/Department: H.M Bhatt
Counsel for Respondent/Taxpayer: Vimal Punmiya
Case Title: ACIT verses Merchant Agri Global Private Limited
Case Number: ITA No.1493/M/2023
