2015 (9) TMI 1697 - AT - Income Tax

Ad hoc disallowance of expenses - expenses claimed by the assessee are not fully verifiable, as no vouchers have been produced in respect of few expenses for verification - HELD THAT - Ad hoc disallowance is not permissible under the law and if the Assessing Officer is not satisfied with a particular expense, he may make necessary verification and also to point out defect in the books of account, but ad hoc disallowance should not be made by making general observation. In the instant case, since ad hoc disallowance is made by making general observation, we do not find any merit in the addition made by the Assessing Officer. We accordingly delete the addition made on ad hoc basis after setting aside the order of the ld. CIT(A) - Decided in favour of assessee.

Summary

Issues:
Admissibility of ad hoc disallowance of expenses by the Assessing Officer.

Analysis:
The appeal was filed against the order of the ld. CIT(A) concerning the ad hoc disallowance of expenses amounting to Rs. 2.50 lakhs made by the Assessing Officer. The argument presented was that the Assessing Officer's action was not permissible under the law as no vouchers were produced for verification, leading to the ad hoc disallowance. It was contended that specific verification should have been conducted before disallowance instead of a general observation-based ad hoc disallowance.

Upon review of submissions and orders, the Tribunal concluded that ad hoc disallowance is not allowed under the law. The Assessing Officer should conduct necessary verifications and point out defects in the accounts instead of resorting to general ad hoc disallowance. Since the ad hoc disallowance was made based on general observation without specific verification, the Tribunal found no merit in the addition by the Assessing Officer. Consequently, the addition made on an ad hoc basis was deleted, and the order of the ld. CIT(A) was set aside, allowing the appeal of the assessee.

The Tribunal emphasized that Assessing Officers must follow proper procedures and conduct specific verifications before disallowing expenses, rather than resorting to ad hoc disallowances based on general observations. This case serves as a reminder of the importance of adhering to legal requirements and conducting thorough assessments before making any disallowances, ensuring fairness and compliance with the law in tax assessments.