2023 (4) TMI 1156 - AT - Income Tax

Disallowance of expenses on ad-hoc basis - HELD THAT - Neither the lower tax authorities pointing out any such vouchers, the genuineness of expenditure therein claim to have been incurred by the wholly and exclusively for the purpose of its business did not provide any sustainability to the orders of the authorities below. It was not the case of revenue that any part of expenditure in question was not either found to be bogus or fictitious nor was found to have not been incurred by the assessee wholly and exclusively for the purpose of his business. In the present case the assessee has successfully demonstrated that his turnover during relevant financial period was more and the quantum of disallowance is very small in comparison to the turnover. Therefore when the assessee has successfully demonstrated that the expense has been incurred wholly and exclusively for the purpose of business of assessee and the AO has not point out any specific defect or deficiency therein then the disallowance cannot be made on ad-hoc basis without any specific allegation merely on the basis of general remarks and observations - See SHRI KAILAS CHAND AGRAWAL case 2022 (4) TMI 671 - ITAT RAIPUR as followed - Decided in favour of assessee.

Summary

Issues:
Ad-hoc disallowances made by the Assessing Officer without specific evidence or rationale.

Issue 1: Ad-hoc Disallowances
The appeal challenged the ad-hoc disallowances totaling Rs. 5,90,048 made by the Assessing Officer under various heads of expenses without specific evidence or consideration of the submissions by the assessee. The counsel for the assessee relied on a previous ITAT Raipur Bench order, emphasizing the lack of clear findings on vouchers or material defects to justify the disallowances. It was argued that no adverse material was presented to question the genuineness of the expenses claimed for business purposes. The Revenue, represented by the Senior DR, supported the lower authorities' decisions. The ITAT Delhi noted the precedent set by the ITAT Raipur regarding arbitrary ad-hoc disallowances. The ITAT Raipur had emphasized the need for specific evidence and rationale for disallowances, especially when expenses were debited to the profit & loss account and claimed as per Section 37(1) of the Income Tax Act. The ITAT Delhi found that the lower tax authorities failed to provide any concrete basis for the disallowances, and there was no provision authorizing such ad-hoc disallowances in the Income Tax Statute. The ITAT Delhi also referred to a Madras High Court judgment regarding the necessity of specific reasons for disallowances. Consequently, the ITAT Delhi vacated the ad-hoc disallowance entirely, citing the lack of specific infirmities in the assessee's claims and the disproportionate nature of the disallowance compared to the turnover. The ITAT Delhi directed the Assessing Officer to delete the entire disallowance, following the precedent set by the ITAT Raipur.

In conclusion, the ITAT Delhi, in the case against the order of the Ld. CIT(A) for Assessment Year 2016-17, ruled in favor of the assessee, highlighting the lack of specific evidence or rationale for the ad-hoc disallowances made by the Assessing Officer. The ITAT Delhi emphasized the need for concrete findings and justifications for disallowances, as per legal provisions and precedents. The decision underscored the importance of substantiating disallowances with valid material and reasoning, ultimately leading to the direction to delete the entire disallowance in favor of the assessee.