AO can’t make ad hoc disallowance merely stating that some of exp. were supported by self-made vouchers: ITAT

Case Details: Kailas Chand Agrawal v. DCIT - [2022] 139 taxmann.com 462 (Raipur - Trib.)

Judiciary and Counsel Details

• • Ravish Sood, Judicial Member and Jamlappa D Battull, Accountant Member
  • G.S. Agrawal for the Appellant. 
  • G.N. Singh for the Respondent.

Facts of the Case

Assessee was an individual and proprietor of two concerns. For AY 2010-2011, a return of income was e-filed declaring a total income of Rs. 17,20,230. Return was summarily processed and subsequently selected for scrutiny through CASS.

The Assessing Officer (AO) disallowed a portion of expenditure by applying ad hoc percentile on the ground that some of the expenditures were in cash and were supported only by self-made vouchers.

The assessee filed an appeal before the CIT(A) against the order passed by AO. CIT(A) confirmed the action of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that neither of the lower tax authorities had pointed out that any part of the expenditure in question was either found to be bogus or fictitious nor was found to have not been incurred by the assessee wholly and exclusively for business.
There was no mention of rationale in arriving at the percentile of disallowance in the instant case. Further, there was no provision in the present Income Tax Statute nor it has been brought to our notice by either parties to dispute, which provide for ad-hoc disallowances.

There had been no clear findings as to the number of vouchers requiring denial of allowances with the amount of expenditure and nature of defects therein or therewith. Moreover, the department could not bring out any deprecative material on record to substantiate its conclusion as logical. Consequently, ad hoc disallowance in its entirety deserved to be vacated.

Case Review

• • V.C. Arunai Vadivelan v. Asstt. CIT [2021] 128 taxmann.com 195/282 Taxman 90 (Mad.) (para 7.5) followed.

List of Cases Referred to

• • CIT v. Ansel Land Mark Township [2015] 61 taxmann.com 45/234 Taxman 825/377 ITR 635 (Delhi) (para 6.6)
  • Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 163 Taxman 355/293 ITR 226 (SC) (para 6.6)
  • V.C. Arunai Vadivelan v. Asstt. CIT [2021] 128 taxmann.com 195/282 Taxman 90 (Mad.) (para 7.5).