2024 (3) TMI 1259 - AT - Income Tax

Addition being 10 percent out of various expenses - books of assessee are duly audited under section 44AB of the Act - AO while making adhoc disallowance has not rejected the books of account - HELD THAT - When books of account maintained by the assessee having been duly audited have not been rejected by the AO the adhoc disallowance made on the basis of surmises is not sustainable in view of the law laid down in case of R.G. Buildwell Engineers Ltd 2018 (10) TMI 252 - SC ORDER . CIT(A) has dully thrashed the facts by perusing the relevant documents to allow the expenses claimed by the assessee qua freight, transport, coolie and cartage, loading/unloading charges, godown expenses, other expenses, brokerage/commission on purchases etc. No doubt the relevant evidence has not been produced by the assessee before the AO hence he proceeded to make the adhoc disallowance. However now the CIT(A) during the appellate proceedings has duly perused the bills, vouchers, balance sheet, tax audit report, ledger copy and bank statement etc. qua the expenses claimed by the assessee in the light of the fact that the assessee is having turnover of Rs. 600 crores and duly audited books of accounts of the assessee have not been rejected by the AO and proceeded to delete the adhoc disallowance. Assessee has also brought on record the comparative chart of gross profit earned by it during the year under consideration vis-a-vis. preceding years which shows that trading results are comparable with the preceding years - We are of the considered view that the CIT(A) has rightly and validly deleted the disallowance made by the AO. Finding no illegality or perversity in the impugned findings returned by the CIT(A) the appeal filed by the Revenue is hereby dismissed.

Issues Involved:
The judgment involves the issue of adhoc disallowance of expenses made by the Assessing Officer (AO) and the subsequent appeal filed by the assessee challenging the order.

Summary of the judgment:
1. The appellant, M/s. Merchant Agri Global Private Limited, appealed against the order passed by the National Faceless Appeal Centre regarding the addition made by the AO of Rs. 7,85,54,891 as 10% of various expenses claimed.
2. The AO made the adhoc disallowance as the assessee failed to furnish documentary proof for major expenses claimed. The AO concluded that the expenses were not substantiated, leading to the adhoc disallowance.
3. The Ld. CIT(A) confirmed the addition, prompting the assessee to appeal before the Tribunal.
4. After hearing both parties and examining relevant documents, the Tribunal noted that the AO had not rejected the audited books of account of the assessee.
5. The Ld. CIT(A) deleted the addition based on the appellant's submissions and the fact that the books of accounts were audited and maintained properly.
6. The Tribunal cited a Supreme Court case to support the decision that adhoc disallowance without rejecting the books of account is not justified.
7. The Ld. CIT(A) thoroughly reviewed the relevant documents and allowed the expenses claimed by the assessee for various categories.
8. Despite the lack of initial evidence before the AO, the Ld. CIT(A) found the expenses to be valid after a detailed examination during the appellate proceedings.
9. The Tribunal observed that similar disallowances were allowed by the revenue in previous years, and the expenses claimed were consistent with those of earlier years.
10. Considering the comparable ratios of expenses to turnover and gross profit earned, the Tribunal upheld the Ld. CIT(A)'s decision to delete the adhoc disallowance made by the AO.
11. Finding no illegality or perversity in the Ld. CIT(A)'s decision, the Tribunal dismissed the appeal filed by the Revenue.

Order pronounced in the open court on 27.03.2024.

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