2019 (12) TMI 1476 - AT - Income Tax

Addition on account of Labour Charges, Repair and maintenance expenses, printing and stationery, office exp. vehicle fuel and maintenance exp. and vehicle repairing exp - AO has recorded a finding that on examination of bills and vouchers of expenses, it was noticed that the assessee did not maintain proper and complete vouchers of these expenses and some of the payments were made in cash - as noticed by the Assessing officer that some of the vouchers of these expenses are self made and without supporting bills and not verifiable fully, therefore, he has made a lumpsum disallowance - HELD THAT - In the absence of any specific findings that the claim of the expenditure are either bogus or not been incurred wholly and exclusively for the purposes of business, there is no basis for making any adhoc disallowance of expenses and the same cannot be sustained in the eyes of law. We find that similar issue has been examined by the Coordinate Bench in case of M/s Kumar Brothers vs. ITO. 2019 (9) TMI 1514 - ITAT JAIPUR If certain claim of expenditure is not found to be incurred wholly and exclusively for the business purpose of the assessee then the same is liable to be disallowed. However, if the expenditure incurred by the assessee is found for the business purpose of the assessee then due to certain irregularity in maintaining the supporting evidence an ad hoc disallowance is not called for. Without specifying the instance of the expenditure, which is either excessive or found not incurred for the business of the assessee, the action of the A.O. in making ad hoc disallowance and confirmed by the ld. CIT(A) is not justified. Hence, ad hoc disallowance is deleted - adhoc disallowance of expenses so made by the Assessing Officer is hereby directed to be deleted - Appeal filed by the assessee is allowed.

Summary

Issues:
Admissibility of lump sum addition on various expenses.

Analysis:
The appeal pertains to an order by the ld. CIT(A)-3, Jaipur for the Assessment Year 2015-16 where the Assessing Officer made a lump sum addition of ?2,00,000 on account of various expenses claimed by the assessee in its profit and loss account. The assessee, engaged in Civil Construction business, challenged this addition. The Assessing Officer disallowed expenses on an adhoc basis due to lack of proper vouchers and cash payments. The assessee argued that the disallowance was unjustified as no specific defects were highlighted, and the expenses were incurred wholly for business purposes. The Coordinate Bench's decision in a similar case was cited to support the argument against adhoc disallowance.

The ld. DR supported the lower authorities' findings, emphasizing that the disallowance was reasonable where supporting evidence was lacking. However, the Tribunal found that without evidence of expenses being excessive or not incurred for business purposes, adhoc disallowance was not justified. Citing the Coordinate Bench's decision, the Tribunal emphasized that if expenses were for business purposes, irregularities in maintaining supporting evidence did not warrant adhoc disallowance. Consequently, the Tribunal directed the deletion of the adhoc disallowance made by the Assessing Officer.

Therefore, the Tribunal allowed the appeal, ruling in favor of the assessee and deleting the adhoc disallowance of expenses.