Disallowance cannot be Made on Ad-Hoc Basis Without Any Specific Allegation Merely on the basis of General Remarks and Observations: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, held that disallowance cannot be made on dd-hoc basis without any specific allegation, merely on the basis of general remarks and observations.

The aforesaid observation was made by the Delhi ITAT, when an appeal was filed before it by the assessee, as against the order dated 24.06.2019, of the CIT(A), New Delhi, relating to Assessment Year 2016-17.

The grounds of the assessee’s appeal being that, having regard to the facts and circumstances of the case, the CIT(A) has erred in law and on facts, in confirming the action of the AO, in making adhoc disallowances under various heads, and that too without appreciating/considering the submissions of the assessee and in violation of principles of natural justice, Shri Somil Agarwal, Advocate and  Shri Deepesh Garg, Advocate, the counsels for the assessee, by placing reliance on the order of ITAT Raipur Bench dated 01.04.2022 in the case of Shri Kailas Chand Agarwal vs. DCIT , for A.Y. 2010-11,submitted that there has been no clear finding as to the numbers of vouchers requiring denials of allowances with the amount of expenditure, the nature of defects therein or therewith, and moreover that the department could not bring out any depreciative material on record to substantiate it conclusion as logical.

With the AR vehemently pointing out that neither the Assessing Officer nor the  CIT(A) has brought on record, any positive adverse material against the assessee ,to controvert the genuineness of expenditure therein claimed to have been incurred by the assessee wholly and exclusively for the purpose of its business, he added that the same did not inspire any confidence, nor it is a case of revenue that any part of expenditure in question was either found to be bogus for fictitious, nor was found to have not been incurred by the assessee wholly and exclusively for the purpose of his business.

Further placing his submissions, the AR added that the addition made by the AO and confirmed by the CIT(A), therefore cannot be held as valid and sustainable and hence that the issue is covered in favour of the assessee by the said order of coordinate Bench of Raipur, while on the other hand, Shri Abhishek Kumar, the Sr. DR, supported the orders of the authorities below.

Hearing the opposing contentions of either sides, perusing the materials available on record, and thereby relying upon the coordinate Bench decision of the ITAT, Raipur, in the case of Shri Kailas Chand Agarwal vs. DCIT, the Delhi ITAT observed:

 “In view of above identical and similar facts are existing in the present case wherein neither the lower tax authorities pointing out any such vouchers, the genuineness of expenditure therein claim to have been incurred by the wholly and exclusively for the purpose of its business did not provide any sustainability to the orders of the authorities below. It was not the case of revenue that any part of expenditure in question was not either found to be bogus or fictitious nor was found to have not been incurred by the assessee wholly and exclusively for the purpose of his business.”

“At the same time, we observed that the total disallowance made by the assessee on four heads is aggregating to Rs. 5,90,048/- and the assessee under took gross turnover of Rs. 111,31,85,086/- against the claim of certain expenses including said amount of disallowance. As has been held by the coordinate Bench of ITAT Raipur that in para 7.4 of the order that the department could not bring out any depreciative material on record to substantiate to its conclusion as logical. In the present case the assessee has successfully demonstrated that his turnover during relevant financial period was Rs. 111,31,85,086/- and the quantum of disallowance is very small in comparison to the turnover.”, the ITAT Bench added

Thus, allowing the assessee’s appeal, the ITAT Panel comprising of Shamim Yahya, the Accountant Member, along with Chandra Mohan Garg, the Judicial Member, held:

“When the assessee has successfully demonstrated that the expense has been incurred wholly and exclusively for the purpose of business of assessee and the Assessing Officer has not point out any specific defect or deficiency therein then the disallowance cannot be made on ad-hoc basis without any specific allegation merely on the basis of general remarks and observations. Therefore, respectfully following the order of coordinate Bench of Raipur in the case of Shri Kailas Chand Agarwal (supra) the grounds of assessee are allowed and AO is directed to delete the entire disallowances.”

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