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TMI Blog2025 (4) TMI 1566X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 were not pressed, hence, these grounds stand dismissed accordingly. Grounds numbered 4, 5 and 6, being consequential and or premature; therefore, these also stand dismissed. 2.1 Vide ground Nos. 3, 3.1 to 3.4; the disallowance of Rs. 44,25,00,000/- @ 25% of various expenditure made by the Assessing Officer (hereinafter, the 'AO') is in challenge. The AO proposed the disallowance of Rs. 44,25,00,000/- in the body of the draft assessment order. However, inadvertently, he mentioned the disallowance of Rs. 3,00,00,000/- in the computation of income. The relevant para of the draft assessment order reads as under: - "7.2 The assessee has failed to submit any details in regard to above. Since the assessee failed its onus to prove the genuineness of expenses with the supporting evidences, hence, the same cannot be accepted at their face value. Therefore, I have no option but to disallow 25% of below mentioned expenses: Expense Rs. in crores Salaries, wages and bonus 16.40 Staff welfare expenses 0.20 Marketing expenses 148.00 Warehousing Charges 6.30 Service expenses 3.10 Legal & Professional Fees 0.90 Travelling Expenses 1.60 Miscellaneous Expenses 0.50 Tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uential draft assessment order was completed at income of Rs. 121,17,66,420/- making following addition/adjustment: i. Transfer Pricing Adjustment: Rs.69,24,50,000/- ii. Disallowance of expenses: Rs.3,00,00,000/- 3.1 Aggrieved with the draft assessment order, the assessee filed objections before the Hon'ble Dispute Resolution Penal (hereinafter, the 'DRP'), which disposed of the objections upholding Transfer Pricing Adjustment and deciding the second issue; i.e. disallowance of expenses, vide issuing directions (DRP direction dated 14 June, 2022) to the AO to reconsider the submissions filed before the AO and additional evidence before the DRP and verify those submissions of the assessee and decide the issue. Thereafter, the AO verified the said expenditure and passed the final assessment order on 31st July, 2022 making disallowance of Rs. 44,25,00,000/- on this score vide para 7.1 to para 7.3 of the final assessment order. Vide final assessment order, the AO completed the assessment at income of Rs. 162,42,66,420/- making following addition/adjustment: i. Transfer Pricing Adjustment (para 6): Rs.69,24,50,000/- ii. Disallowance of expenses (para 7): Rs.44,25,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: Expense type Rs. in crores Salaries, wages and bonus 16.40 Staff Welfare expenses 0.20 Marketing expenses 148.00 Warehousing Charges 6.30 Service expenses 3.10 Legal & Professional Fees 0.90 Travelling Expenses 1.60 Miscellaneous Expenses 0.50 Total 177.00 Disallowance @ 25% 44.25 7.3. Accordingly, the amount of Rs. 44,25,00,000/- is added to total income of the assessee. Penalty proceedings u/s 270A are initiated separately for misreporting of income." 4. Before us, various grounds relating to the Transfer Pricing Adjustment of Rs. 69,24,50,000/- were not pressed. Hence, those grounds as mentioned above stand dismissed. The core issue required to be decided by us is only the disallowance of expenses of Rs. 44,25,00,000/-. 5. The Ld. Counsel submitted the voluminous paper book containing documents, submission, etc. submitted before the AO not only prior to the draft assessment order but thereafter also as per the DRP directions. The gist of submission is as under: TABLE-A S. No. Particulars INR Crores Details Submitted 1. Amount disallowed in draft assessment order 3 Point no. 2, 6, 7 and 8 in Table B below equivalent to 3.2 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein the withholding tax/TDS not done. iii. The finding of the AO in para 7.2 of the final assessment order that the assessee had failed to submit any details in regard to above (employee cost of Rs. 16.40 Crores and Marketing expenses of Rs. 148.00 Crores) after categorical finding in the draft order as highlighted above was factually incorrect as these details were also filed before the DRP who had also given categorical finding on this score in para 4.11.1 to 4.11.3. iv. The AO had not brought any other facts in the final assessment order than those mentioned in the draft assessment order. v. The AO had not given any basis of working of the disallowance @ 25% of expenses of Rs. 177.00 Crores. The disallowance was made on adhoc basis. vi. The AO had not given any reasoning and or justification for the disallowance for each head of expenses. Such disallowance had been made on ad-hoc basis. In the first instance, there was no merit in such disallowance of the expenses, as the assessee books of accounts had not been rejected. Further, the AO had failed to point out the exact expenses which were not verifiable. vii. There was no adverse observation the audit report in Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendently examine the additional evidence filed by the assessee before the DRP is held to have no merit. 8. here, in the present case, the AO has adopted an ad-hoc percentage of 25% to make a disallowance out of certain expenses aggregating to Rs. 177.00 Crores. The AO has not given any rational basis for the same except holding that the assessee has not filed details of employee cost of Rs. 16.40 Crores and Marketing expenses of Rs. 148.00 Crores. however, the facts are contrary as evident from the Paper book and statement at Bar by the Ld. Counsel that the assessee has submitted these details much time ahead of the draft assessment order. In view of the consistent position taken by various benches of the Tribunal on the issue of the disallowability of expenses on ad-hoc basis without rejecting the books of accounts. In the present case the AO has not specify any shortcoming/discrepancy in the bills, vouchers, etc. in the expenses aggregating to Rs. 177.00 Crores. The books of accounts have not been rejected by the AO. 9. It is hereby held that the AO has not pointed out that any part of the expenditure in question is either found to be bogus or fictitious nor is found to have n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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