2024 (11) TMI 967 - AT - Income Tax

Adhoc disallowance of business expenses - HELD THAT - We are in agreement with the contention of the Ld. A.R. that ad-hoc disallowances, without pointing out any specific instance and for the general reason of covering any possible revenue leakage, cannot be upheld. There have been innumerable orders of this Tribunal where such adhoc disallowances were held to be bad in law. Assessee cannot be put to pay increased tax demand only on account of presumption that there could have been possible revenue leakage, especially when the assessee has duly offered explanations regarding each and every expenditure under dispute. Both the lower authorities have not given due weightage to the explanations offered by the assessee and have rather proceeded in a hasty manner to first make the disallowances and then uphold such disallowances. Therefore, in the absence of any specific finding, ad-hoc disallowances in appeal before this Tribunal (that is as sustained by the Ld. First Appellate Authority), cannot be held to be justified. Decided in favour of assesee.

Summary

Issues:
Assessment of business expenses disallowed by the Assessing Officer without specific instances or discrepancies pointed out.

Analysis:
The appeal was filed against an order by the Commissioner of Income Tax (Appeal) regarding the assessment year 2013-14. The assessee, a registered partnership firm dealing in retail trading of Electrical goods, had filed its return of income declaring a total income of Rs. 10,00,590/-. The Assessing Officer (AO) disallowed various expenses claimed by the assessee, including wages, business promotion, commission, miscellaneous, service and maintenance, telephone, and repair to building expenses. The AO completed the assessment at a total income of Rs. 15,42,160/-.

The assessee appealed to the First Appellate Authority, which partly allowed the appeal. Subsequently, the assessee approached the Tribunal challenging the action of the NFAC. The grounds of appeal raised by the assessee included errors in disallowing business expenses, failure to consider prevailing circumstances, and not allowing full claim of certain expenses.

The Authorized Representative for the assessee argued that all relevant details were provided to the AO and that ad-hoc additions/disallowances were made without specific instances of discrepancies in the books of account. The AR contended that salary expenses were necessary and justified, and certain expenses were incurred for business purposes and had been allowed in full in the preceding year.

The Tribunal found that the disallowances were made on an ad-hoc basis without specific instances being pointed out. It held that such ad-hoc disallowances, without specific findings and for the general reason of covering possible revenue leakage, cannot be upheld. The Tribunal emphasized that explanations offered by the assessee were not given due weightage by the lower authorities, leading to unjustified disallowances. Consequently, the Tribunal set aside the order of the NFAC and directed the AO to delete all the disallowances.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the importance of specific findings and due consideration of explanations in assessing business expenses to avoid unjustified disallowances.