Tax Expenses Dispute: Arbitrary 25% Disallowance Rejected Due to Lack of Rational Justification and Proper Evidence Evaluation

The ITAT addressed a tax assessment dispute involving disallowance of expenses. The Assessing Officer (AO) arbitrarily disallowed 25% of certain expenses without providing rational justification, despite the assessee submitting comprehensive documentary evidence. The Tribunal found that the AO failed to follow Dispute Resolution Panel (DRP) directions, did not identify specific discrepancies in bills or vouchers, and made an ad-hoc disallowance without rejecting the books of accounts. The books were not found to contain bogus or fictitious expenses, and no rationale was provided for the percentage reduction. Consequently, the ITAT deleted the 25% disallowance, allowing the assessee's appeal and emphasizing the need for substantive reasoning in expense disallowance. .....

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