2022 (6) TMI 933 - AT - Income Tax

Disallowance of expenditure pertaining to salary wages, job work and other expenses - Addition made on incomplete bills and vouchers - HELD THAT - There is no dispute with regard to the fact that the three items of the expenses have been disallowed on estimate basis. The basis of such disallowances is said to be incompleteness of the bills and vouchers. However, the Assessing Officer has not pointed out as to which bills and vouchers were found to be wanting. See TRIPAT KAUR 2012 (9) TMI 1012 - ITAT DELHI . As in the present case also the assessing authority has disallowed the expenses purely on the basis of estimation without specifying the instances where the vouchers were found to be incomplete or missing. Therefore, respectfully following the binding precedence, we direct the Assessing Officer to delete the addition. Grounds of appeal are allowed.

Summary

Issues:
- Appeal against sustaining the addition of Rs. 5 lakh on account of ad hoc disallowance of expenditure pertaining to salary & wages, job work, and other expenses.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income-tax (Appeals) regarding the assessment year 2017-18. The appellant raised multiple grounds challenging the assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The primary contention was that the assessment order was against the facts and law of the case, made in a hurried manner without affording a reasonable opportunity to the appellant, and based on conjecture and surmise.

2. The main issue in the appeal focused on the sustaining of the addition of Rs. 5 lakh made by the Assessing Officer on an ad hoc basis for various expenses. The appellant, a partnership firm, argued that the expenses were disallowed without proper basis or evidence, and the increase in net profit with reference to turnover supported their claim. The appellant maintained that complete details of expenses were provided, and no bogus expenditure was claimed, emphasizing the maintenance of audited books of account.

3. The Tribunal noted that the expenses were disallowed on an estimate basis without specifying incomplete or missing vouchers. Relying on precedent, the Tribunal directed the Assessing Officer to delete the addition, emphasizing that estimated additions without a basis cannot be sustained. The Tribunal found the facts similar to previous cases where disallowances based on estimation were not justified, and hence, allowed the appeal in favor of the assessee.

4. The Tribunal's decision was based on the principle that ad hoc disallowances without specific instances of incomplete vouchers or evidence are not permissible under the law. Citing relevant case law, the Tribunal emphasized the importance of concrete evidence and proper justification for disallowing expenses. The Tribunal's ruling focused on upholding the principles of natural justice and ensuring that assessments are made based on factual evidence rather than conjectures or presumptions.

5. In conclusion, the Tribunal allowed the appeal, directing the deletion of the addition of Rs. 5 lakh made on an ad hoc basis. The decision emphasized the importance of providing concrete evidence and specific justifications for disallowing expenses, highlighting the need for assessments to be based on factual accuracy and adherence to legal principles.

This detailed analysis covers the issues raised in the appeal and provides a comprehensive overview of the Tribunal's decision and the legal reasoning behind it.