2019 (4) TMI 1989 - AT - Income Tax

Disallowance of certain expenses on ad hoc basis - non rejection of books of account - HELD THAT - The assessment was completed u/s 143(3) - AO nowhere has rejected the books of account. He simply held that most of the payments were in cash and assessee had submitted self-made vouchers therefore he disallowed certain amounts out of the total expenditure. The Assessing Officer has not pointed out any vouchers or expenditure on which he had any doubt. The ad hoc disallowance without pin pointing any error in the books of account is not justified - Thus the issue of disallowance on ad hoc basis out of expenses is decided in favour of the assessee. Deduction u/s 35AC - AO disallowed the claim of the assessee by holding that the assessee had debited the amount under the head charity and donation and had not claimed any deduction u/s 80G - HELD THAT - The assessee had filed certified copies of receipt certified by the Assessing Officer. Similarly the assessee had filed copy of Form-58A certified by the Assessing Officer which is in the prescribed form declaring therein the amount of total donation received including receipt from the assessee. We further find that vide Notification No. S.O. 1649(E) dated 12th July 2010 the institution to whom donation was made was approved by National Committee for deduction u/s 35AC. The certification by the Assessing Officer of these documents clearly demonstrates that these documents were filed before the Assessing Officer. As regards the observation of learned CIT(A) that these evidences were not enclosed along with the return of income we find that Rule 12(2) of I.T. Rules prohibited the assessee to file any report or receipt under any provision of the Act along with the return of income - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of certain expenses on an ad hoc basis without rejection of books of account.
2. Denial of deduction u/s 35AC of the Act for a donation made by the assessee.

Issue 1: Disallowance of Expenses on Ad Hoc Basis
The appellant challenged the disallowance of certain expenses on an ad hoc basis without the rejection of books of account. The Assessing Officer disallowed amounts based on cash payments and self-made vouchers, without pinpointing any specific error in the books of account. The appellant argued that the disallowance was unjustified, citing precedents where ad hoc disallowances were deleted. The Tribunal noted that the Assessing Officer's actions lacked specific defects in vouchers or instances, making the disallowance unjustified. Citing relevant case law, the Tribunal emphasized that ad hoc disallowances without proper verification were not permissible. Consequently, the Tribunal ruled in favor of the appellant, deleting the ad hoc disallowance.

Issue 2: Denial of Deduction u/s 35AC for a Donation
Regarding the denial of deduction u/s 35AC for a donation made by the assessee, the Assessing Officer disallowed the claim stating that the assessee did not claim deduction u/s 80G, despite the donation being eligible for deduction u/s 35AC. The appellant provided certified copies of receipts and Form-58A, demonstrating compliance with the requirements. The Tribunal observed that the institution receiving the donation was approved for deduction u/s 35AC. The Tribunal highlighted that the documents were submitted to the Assessing Officer, as evidenced by certifications. Addressing the CIT(A)'s concern about the documents not being enclosed with the return of income, the Tribunal referred to Rule 12(2) of the I.T. Rules, which prohibited such enclosures. Consequently, the Tribunal ruled in favor of the assessee, allowing the deduction u/s 35AC for the donation.

In conclusion, the Appellate Tribunal ITAT Lucknow, comprising Shri A. D. Jain and Shri T. S. Kapoor, allowed both appeals filed by the assessee. The Tribunal overturned the disallowance of expenses on an ad hoc basis and upheld the deduction u/s 35AC for the donation made by the assessee. The judgment emphasized the importance of proper justification for disallowances and compliance with relevant provisions for claiming deductions, ultimately ruling in favor of the assessee in both issues.