2018 (10) TMI 808 - HC - Income Tax

Ad-hoc disallowance of expenditure - Held that - Assessing Officer had made similar disallowances in other years. The Tribunal has held that the respondent-assessee had filed complete details of the said vendors, including their PAN, invoices raised, ledger accounts, etc. The Tribunal in these circumstances had followed earlier decision of the Coordinate Bench of the Tribunal in the case of the respondent-assessee for the Assessment Years 2006-07 and 2009-10. Accordingly, the appeal filed by the Revenue was dismissed and the appeal filed by the respondent-assessee has been allowed, directing deletion of the ad hoc disallowance of expenditure. - Decided in favour of assessee.

Summary

Issues:
1. Ad hoc disallowance of expenditure claimed on repair and maintenance of the hotel.
2. Reduction of ad hoc disallowance by the Commissioner of Income Tax (Appeals).
3. Appeal before the Tribunal challenging the ad hoc disallowance.

Analysis:

1. The appeal before the High Court concerned the ad hoc disallowance of ?1,38,00,058/-, being 50% of the total expenditure claimed on repair and maintenance of the hotel for the Assessment Year 2003-2004. The Assessing Officer reopened the assessment under Section 147 read with Section 148 of the Income Tax Act, 1961 based on a complaint and made the ad hoc disallowance as the respondent-assessee failed to produce confirmations or other vendors for the total expenditure claimed. The Commissioner of Income Tax (Appeals) later reduced the disallowance to 5% after considering the evidence of invoices and ledgers produced by the respondent-assessee.

2. The Commissioner of Income Tax (Appeals) justified the 5% disallowance by stating that while evidence established the existence of the contractors and vendors, there could still be some doubt regarding their existence. The Tribunal, in its order, referred to earlier decisions and upheld the appeal filed by the respondent-assessee, directing the deletion of the ad hoc disallowance. The Tribunal based its decision on the complete details provided by the respondent-assessee, including PAN, invoices, and ledger accounts of the vendors, similar to decisions in previous years for the same assessee.

3. The High Court, in its judgment, upheld the Tribunal's decision, stating that the findings were primarily factual and not perverse. The Court noted that a similar appeal by the Revenue for the Assessment Year 2005-06 had been dismissed earlier. Therefore, the High Court found no merit in the present appeal and dismissed it, with no order as to costs. The judgment concluded that the appeal challenging the ad hoc disallowance of expenditure on repair and maintenance of the hotel for the Assessment Year 2003-2004 was not sustainable based on the factual findings and precedents.