2019 (12) TMI 1476 - AT - Income Tax

Tribunal rules in favor of assessee, deletes adhoc expense disallowance. Evidence required, irregularities not enough.

The Tribunal allowed the appeal, ruling in favor of the assessee and deleting the adhoc disallowance of expenses. The Tribunal emphasized that without ... Ad hoc disallowance of expenses - Deduction under section 37 - onus on assessee to prove expenditure incurred wholly and exclusively for business - Verification of vouchers and supporting evidence - Deletion of lump sum additions in absence of specific finding of bogus or non incurred expensesAd hoc disallowance of expenses - Verification of vouchers and supporting evidence - Deletion of lump sum additions in absence of specific finding of bogus or non incurred expenses - Lump sum disallowance of expenses of Rs. 2,00,000 made by the Assessing Officer and confirmed by the CIT(A). - HELD THAT: - The Assessing Officer made a composite disallowance on the basis that certain vouchers were self made, some payments were in cash and supporting bills were not fully verifiable. The Tribunal held that in the absence of any specific finding that the claimed expenditures were bogus or not incurred wholly and exclusively for business purposes, an ad hoc lump sum disallowance is not warranted. The decision applied the principle that mere irregularity or deficiency in supporting evidence does not justify blanket disallowance unless the claim is shown to be excessive or not for business. The Tribunal concurred with the Coordinate Bench's reasoning in M/s Kumar & Brothers v. ITO that where business expenditure is inevitable in the nature of the trade and there is no finding of excess or sham expenditure, ad hoc additions must be deleted. Accordingly, the adhoc disallowance was set aside for lack of specific adverse findings on the genuineness or business purpose of the expenses.Ad hoc disallowance of Rs. 2,00,000 is deleted and the addition sustained by the lower authorities is set aside.Final Conclusion: The assessee's appeal is allowed; the Assessing Officer's lump sum disallowance of expenses is deleted for want of specific findings that the expenditures were bogus or not incurred for business purposes. Issues:Admissibility of lump sum addition on various expenses.Analysis:The appeal pertains to an order by the ld. CIT(A)-3, Jaipur for the Assessment Year 2015-16 where the Assessing Officer made a lump sum addition of Rs. 2,00,000 on account of various expenses claimed by the assessee in its profit and loss account. The assessee, engaged in Civil Construction business, challenged this addition. The Assessing Officer disallowed expenses on an adhoc basis due to lack of proper vouchers and cash payments. The assessee argued that the disallowance was unjustified as no specific defects were highlighted, and the expenses were incurred wholly for business purposes. The Coordinate Bench's decision in a similar case was cited to support the argument against adhoc disallowance.The ld. DR supported the lower authorities' findings, emphasizing that the disallowance was reasonable where supporting evidence was lacking. However, the Tribunal found that without evidence of expenses being excessive or not incurred for business purposes, adhoc disallowance was not justified. Citing the Coordinate Bench's decision, the Tribunal emphasized that if expenses were for business purposes, irregularities in maintaining supporting evidence did not warrant adhoc disallowance. Consequently, the Tribunal directed the deletion of the adhoc disallowance made by the Assessing Officer.Therefore, the Tribunal allowed the appeal, ruling in favor of the assessee and deleting the adhoc disallowance of expenses.