2021 (2) TMI 501 - HC - Income Tax

Disallowance of expenditure on account of the weighing and unloading charges - some of the vouchers were hand made and some vouchers were not available so 20% of the expenses was disallowed and added back to the returned income - HELD THAT - Assessee had produced the books of accounts, ledgers, purchase and sales registers, stock registers, bills, vouchers for expenses claimed including purchase bills, freight bills as called for by the Assessing Officer. This is admitted by the Assessing Officer in the assessment order. Admittedly, the assessee's case was selected for scrutiny under section 143(3) of the Act. If such is the fact situation, the Assessing Officer was bound to scrutinize the documents produced and frame an assessement by granting/refusing eligible/ineligible deduction. We find that the AO has made observation that the vouchers are self made/hand written and some vouchers are not produced. This in our opinion appears to be a vague statement. This finding has been recorded by the Assessing Officer with regard to the amount claimed by the assessee as expenses towards transport charges. Given the nature of the industry, we can take judicial notice of the fact that always computer generated vouchers may not be issued by the transporters unless they are an organization owning a large fleet. If the Assessing Officer had any doubt with regard to the genuinity of any one of the vouchers produced he could have drawn sample vouchers and called upon the assessee to establish its genuineness. Without doing so, making an adhoc disallowance by not specifically assigning any reason to a voucher or bunch of vouchers is not legally tenable. Thus it is not a case where there is no record available with the assessee to justify their claim and had the Assessing Officer taken a little effort to examine the correctness of the vouchers, in all probabilities the assessee might have not been before us by way of this appeal. Thus, we are convinced that the assessement requires to be re-done after a thorough verification - Decided in favour of assessee.

Summary

Issues:
1. Adhoc disallowance of expenses under section 143(3) of the Income Tax Act, 1961.
2. Justification for disallowing expenses incurred through proper banking channels.
3. Correctness of re-estimating adhoc disallowance without considering complete details.

Analysis:
1. The appellant, a trading business proprietor, filed an appeal against the Income Tax Appellate Tribunal's order for the assessment year 2014-15. The substantial questions of law raised included the Assessing Officer's power to make adhoc disallowances despite audited financial statements' availability. The Tribunal had estimated the disallowances without proper consideration of all relevant details provided by the assessee.

2. During the assessment, the Assessing Officer disallowed portions of business promotion, weighing and unloading, and transport charges expenses. The disallowances were made based on the lack of submission of specific details and vouchers by the assessee. The CIT(A) partially upheld these disallowances, leading to the appeal before the Tribunal. The Tribunal granted partial relief but still sustained certain additions, prompting the assessee to file a petition citing the Assessing Officer's scrutiny of furnished documents and the absence of defects.

3. The High Court noted that the assessee had submitted all relevant documents and vouchers as requested during the assessment. The Assessing Officer's vague observation regarding self-made vouchers and non-production of some vouchers for transport charges was deemed insufficient to justify adhoc disallowances. The Court emphasized that the Assessing Officer should have taken steps to verify the genuineness of vouchers before making disallowances. The Court also considered the assessee's past assessment records and service tax payments as evidence supporting the genuineness of the expenses claimed.

4. Consequently, the Court allowed the tax case appeal, answering the substantial questions of law in favor of the appellant. The matter was remanded to the Assessing Officer for fresh consideration, emphasizing the need for a thorough verification of all documents to ensure a fair assessment process.