The Cuttack bench of the Income Tax Appellate Tribunal ( ITAT ) has held that disallowance of expenditure cannot be merely on the basis of surmises and conjectures of the Assessing Officer.
In the instant case, the Assessing Officer made ad-hoc disallowance of 20% out of salary paid to employees by the firm by finding that no individual ledger account maintained and each employee have been paid by cash. He was of the view that the little evidence produced by the assessee in support under salary could not be accepted as it is not corroborated by justifiable facts supported with evidence.
On the second appeal, the assessee contended that without bringing any material on record, no disallowance can be made out of the genuine business expenditure of the assessee incurred wholly and exclusively for the purposes of the business of the assessee.
The Tribunal noted that the disallowance made by the Assessing Officer is only on the ground that in his opinion, the expenses claimed are not corroborated with justifiable facts.
“In our considered view, merely on the basis of surmises and conjectures of the Assessing Officer, no disallowance of expenditure made by him out of the genuine business expenditure of the assessee can be sustained in law without any material being brought on record to show that either the expenses are not genuine or they are inflated. We, therefore, set aside the orders of lower authorities and vacate the disallowance of Rs.2,55,080/- and allow this ground of appeal of the assessee,” the Tribunal said.
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