No Disallowance can be made without Rejecting Books of Account: ITAT Deletes ₹63.16 Lakh addition on Expenses [Read Order]
Observing that the Assessing Officer failed to reject the audited books of account, the tribunal ruled that an ad-hoc disallowance of expenses could not be sustained.
Books of Account - ITAT - taxscan
Books of Account - ITAT - taxscan
The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) set aside the confirmation of disallowance made on the expenses amounting to Rs. 63,60,231 and held that no disallowance can be made without rejecting books of account.
Axora Resources Limited (assessee) in the assessment proceedings for Assessment Year (AY) 2022-23, the Assessing Officer (AO) noted a “huge increase” in expenses compared to the previous year and requested details. These expenses amount to ₹6,36,02,311 other than foreign exchange loss.
The assessee, through a letter dated March 12, 2024, requested more time to furnish the substantial details. However, the AO proceeded to pass the assessment order six days later making an estimated ad-hoc addition of 10% of the total expenses. The disallowance which amounted to Rs. 63,60,231.
Aggrieved by AO’s order, the assessee appealed to the Commissioner of the Income Tax (appeals) [CIT(A)]. The CIT(A) simply affirmed the AO's order on the basis that supporting evidence was not furnished.
The two-member bench, comprising Duvvuru RL Reddy (Vice President) and Rajesh Kumar (Accountant Member), noted that the expenses incurred were for heads like insurance, legal and professional charges, rent, and selling expenses.
The tribunal observed that these expenses incurred by the assessee were on account of insurance ₹10.93 Lakh, legal and professional charges of ₹57.11 Lakh, rent of ₹62.39 Lakh, selling expenses ₹2.53 crore.
The Tribunal observed that the AO made the disallowance on a mere estimated basis by stating that the assessee had not furnished the bills. The tribunal observed that such adhoc disallowance was not sustainable in the eyes of law.
The tribunal observed that the books of account were duly audited. The tribunal also observed that no disallowance can be made without rejecting the books of account.
The bench held that such an ad-hoc disallowance is not sustainable in law. Citing a series of judicial decisions, the Tribunal concluded that no adhoc disallowance can be made without rejecting the books of account.
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition. The appeal of the assessee was partly allowed.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
