Adhoc Disallowances Without Book Rejection Under Section 145(3) Are Unsustainable, TDS Non-Deduction Upheld

The ITAT RAIPUR held that disallowances made on an adhoc, presumptive basis without rejecting the assessee's books under section 145(3) were arbitrary and unsustainable. Estimated additions on unexplained expenditure (s. 69C), unexplained investments (s. 69), and other expenses lacked any plausible basis and were deleted. The tribunal noted similar expenses were accepted in the preceding year, reinforcing the absence of justification for disallowances. However, the disallowance under section 40(a)(ia) for non-deduction of TDS on interest payments was upheld due to the assessee's failure to produce the required accountant's certificate. The appeal was partly allowed, deleting the estimated disallowances but sustaining the TDS-related disallowance.

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ISSUES:

Whether disallowances and additions made on an adhoc/estimated basis by the Assessing Officer without rejection of books of accounts under section 145(3) of the Income Tax Act, 1961 are permissible.Whether the principle of natural justice was violated by the Commissioner of Income Tax (Appeals) in passing an ex-parte order without providing sufficient opportunity of being heard.Whether the adhoc disallowance of expenses related to Purchase of raw material, Hamali Expenses, Transporting expenses, and Wages is justified.Whether disallowance under section 40(a)(ia) for non-deduction of tax at source on interest payments to NBFCs without confirming payment of tax by the recipient is valid.Whether addition under section 69C on 10% of outstanding Sundry Creditors as unexplained expenditure is justified.Whether addition under section 69 on 10% of loans and advances to suppliers as unexplained investment is justified.Whether adhoc disallowance of salary expenses paid to truck drivers, helpers, supervisors, clerks, and mechanics on an estimated basis is valid.

RULINGS / HOLDINGS:

Disallowances and additions made on estimated basis without rejection of books of accounts under section 145(3) are "arbitrary, presumptive" and "not permissible under the law"; such additions are liable to be deleted.The appeal against the ex-parte order on grounds of violation of natural justice was raised but no specific ruling on this ground is recorded in the judgment due to absence of opposing party and reliance on written submissions.The adhoc disallowance of Rs. 1,84,55,604/- relating to Purchase, Hamali, Transporting, and Wages expenses is unjustified as the books were not rejected and the expense proportions declined compared to the preceding year; thus, the disallowance is liable to be deleted.The disallowance of Rs. 1,89,557/- under section 40(a)(ia) for non-deduction of TDS on interest paid to NBFCs is upheld due to failure to furnish the prescribed accountant's certificate.The addition of Rs. 45,62,243/- under section 69C on 10% of sundry creditors is not justified as no payment was made and the balances were outstanding; hence, section 69C is not triggered and the addition is liable to be vacated.The addition of Rs. 70,39,496/- under section 69 on 10% of loans and advances to suppliers as unexplained investment is arbitrary and liable to be deleted for lack of proper basis and rejection of books.The adhoc disallowance of Rs. 33,35,270/- on salary expenses paid to truck employees is arbitrary and unjustified without supporting evidence, and is liable to be deleted.

RATIONALE:

The legal framework primarily involves provisions of the Income Tax Act, 1961, specifically sections 40(a)(ia), 69, 69C, 143(3), 145(3), and 250.The Tribunal relied on precedents emphasizing that best judgment assessments and estimations are permissible only after rejection of books of accounts under section 145(3), and that estimation without basis or defect in books is arbitrary and perverse.Precedents cited include judgments holding that low profit or absence of evidence of defect in books cannot justify estimated disallowances, and that unexplained expenditure additions under section 69C require actual expenditure/payment, not mere outstanding balances.The Tribunal applied comparative analysis of expense proportions between the assessment year and preceding year to demonstrate absence of any basis for disallowance.The Tribunal noted absence of any material or reason recorded by the Assessing Officer to justify estimated disallowances and additions, underscoring the requirement of "plausible reason" and "reasonable and fair estimations" in best judgment assessments.The upheld disallowance under section 40(a)(ia) was based on the assessee's failure to produce the prescribed accountant's certificate, a mandatory compliance requirement.No dissent or doctrinal shift was noted; the decision follows established principles restricting estimation powers in assessments and reinforcing procedural fairness and evidentiary standards.

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