Arbitrary Disallowance of Business Expenditure without Evidence of Discrepancy Unsustainable: ITAT sets aside Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) has deleted the addition of ₹3.45 Crores holding that arbitrary disallowances of business expenditure on the basis of percentages without any evidence of discrepancies are not legally valid.

The assessee Theon Pharmaceuticals Limited filed their return for Assessment Year 2023-24, declaring an income of ₹14.60 Crores. While scrutinizing the case, the Assessing Officer (AO) looked into several expenditure items like Sales Commission, Marketing & Distribution, and Logistic Expenses.

Though the assessee maintained audited books of account and provided samples of invoices it was stated that the genuineness of total expenditure could not be verified. In particular mentioning that vehicle numbers were not mentioned in transportation bills the AO made an arbitrary 30% disallowance of an expenditure amount of ₹11.52 Crores, which is ₹3.45Cr.

The assessee had stated that it was not possible to provide scanned copies of documents pertaining to every single transaction due to the bulky nature of documents.

However, the revenue department supported the view of the AO and stated that due to lack of detailed documents pertaining to every single transaction, it was impossible to verify the reasonableness and genuineness of this huge expenditure.

The Bench, which comprised Rajpal Yadav (Vice President) and Manoj Kumar Aggarwal (Accountant Member) upheld the order passed by the CIT(A). The Tribunal stated that it was not necessary to verify the documents as the AO had not made a detailed assessment and had not sent verification notices under Section 133(6).

Further, the Bench stated that it was not necessary to provide vehicle numbers pertaining to transportation expenses as it was not necessary while dealing with expenses pertaining to sales discounts and commissions. The ITAT dismissed the Revenue’s appeal as it was obvious that the expenditure had been incurred for business purposes.

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