“High-Pitched” assessment by AO in ‘non-adversarial’ tax regime: ITAT  revises disallowance considering amount and lack of evidence [Read Order]

Gauhati Bench of Income Tax Appellate Tribunal ( ITAT ) allowed the decision made by the Assessing Officer (AO) to sustain the disallowance of expenses made by the AO under various heads of expenses on the grounds of no proper evidence.

Brief facts of the case are that the assessee is a partnership firm, engaged in construction business. Income of Rs.1,21,98,600 declared in e-return filed for the AY 2017-18.

Further the case was selected for scrutiny through Computer Assisted Scrutiny Selection(CASS) for high ratio of refund to Tax Deduction at Source (TDS), large value claim of refund and large increase in capital in a year. Valid notices under section 143(2) & 142(1) of the Income Tax Act were issued.

The Revenue has challenged the findings of the Commissioner of Income Tax (Appeals) [CIT(A)] deleting the various disallowances made by the Assessing Officer (AO).

One of the issues raised was  the disallowance of Rs. 3,62,37,711 towards various expenses claimed by the assessee.

The bench observed that the Assessing Officer (AO) made the said disallowance since the assessee failed to file necessary evidence in the course of the hearing.

Furthermore, the AO also observed that it cannot be denied that major expenses were incurred in cash. In this regard at the same time full reliance cannot be placed without any documents i.e bills/vouchers etc.

AO made the disallowance @ 3.5% of the material consumed for construction work, 3% of the expenses incurred labour charges, 3% of stores and spares expenses and 10% of other direct expenses and travel and conveyance highlighted the tribunal.

However, the CIT(A) deleted the said disallowance observing that a high-pitched assessment has been concluded by the AO in the present ‘non-adversarial tax regime’. 

The authorities of Sanjay Garg (Judicial Member) and Manish Borad (Accountant Member) took note of the fact that neither a deficiency nor a specific defect had been identified by the AO in the assessee’s audited books. Therefore, these exclusions are made due to conjectures and assumptions, which are categorically not permitted.

The ITAT in the instant case concluded that no proper documents to support such claim were filed by the assessee before the AO and looking at the quantum of expenses and lack of sufficient evidence filed before the lower authorities.

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