Disallowance of Administrative Expenses without Rejection of Books: ITAT Quashes ₹8.13 Lakh Addition for Lack of Specific Findings [Read Order]
Referring to the Rajasthan High Court ruling in Kashiram Radhekrishan v. CIT (1985), the Bench held that such disallowance without pointing out specific discrepancies was unjustified and therefore quashed the addition
Disallowance of Administrative Expenses - Rejection of Books - ITAT - Addition for Lack - Specific Findings - taxscan
Disallowance of Administrative Expenses - Rejection of Books - ITAT - Addition for Lack - Specific Findings - taxscan
The Jodhpur Bench of Income Tax Appellate Tribunal ( ITAT ) quashed the disallowance of ₹8.13 lakh sustained by the Commissioner of Income Tax (Appeals)[CIT(A)] towards administrative expenses, observing that neither the Assessing Officer (AO) nor the CIT(A) had identified any specific defects in the audited books of account.
Sarvodaya Mining Services,appellant-assesse, through the assessee counsel, submitted a paper book comprising pages 1 to 55, which was taken on record. The counsel stated that the Assessing Officer had disallowed 1% of the total expenses of Rs.51,40,43,061/-, amounting to Rs.51,40,431/-, citing a large claim of expenses, including Rs.11,85,76,456/- under “other expenses.”
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The assessee challenged the disallowance before the CIT(A), who restricted it to 20% of administrative expenses such as telephone, motor, travelling, staff welfare, and mess expenses totaling Rs.40,67,763.71, thereby sustaining Rs.8,13,552/-. Dissatisfied with the partial relief, the assessee filed an appeal before the tribunal.
The departmental counsel supported the AO’s order and confirmed that no cross appeal had been filed by the department against the appellate order.
The two member bench comprising Anikesh Banerjee (Judicial Member) and Dr.Mitha Lal Meena (Accountant Member) noted that the AO had disallowed 1% of the total expenses without rejecting the books of account maintained under Section 145 of the Act.
The assessee had duly filed the return of income under Section 139 along with the audit report dated 26.10.2017, yet the disallowance was made without identifying any defect in the audited records.
On review, the appellate tribunal found that the CIT(A) had not pointed out any specific discrepancy and had merely sustained 20% of certain administrative expenses amounting to Rs.40,67,763/-, resulting in a disallowance of Rs.8,13,552/-.
Referring to the Rajasthan High Court ruling in Kashiram Radhekrishan v. CIT [1985] the Tribunal held that both the lower authorities had failed to establish any specific deficiency in the books of account.
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Since the assessee had undergone tax audit and maintained books under Section 44AB, and no inconsistency between the audited records and the authorities’ findings was demonstrated, the tribunal concluded that the disallowance of Rs. 8,13,552/- was unjustified and therefore quashed it.
Accordingly the appeal was allowed.
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