Revenue's appeal dismissed as adhoc disallowance unsustainable without rejecting audited books under section 44AB

ITAT Mumbai dismissed Revenue's appeal challenging CIT(A)'s deletion of 10% adhoc disallowance on various expenses. AO made disallowance without rejecting audited books of account maintained under section 44AB. CIT(A) examined bills, vouchers, balance sheet, tax audit report, and bank statements for assessee with Rs. 600 crores turnover, finding expenses legitimate and comparable with previous years' trading results. ITAT held adhoc disallowance unsustainable when audited books not rejected, following R.G. Buildwell Engineers Ltd SC precedent. CIT(A)'s decision upheld as valid.

---

---

Issues Involved:
The judgment involves the issue of adhoc disallowance of expenses made by the Assessing Officer (AO) and the subsequent appeal filed by the assessee challenging the order.

Summary of the judgment:
1. The appellant, M/s. Merchant Agri Global Private Limited, appealed against the order passed by the National Faceless Appeal Centre regarding the addition made by the AO of Rs. 7,85,54,891 as 10% of various expenses claimed.
2. The AO made the adhoc disallowance as the assessee failed to furnish documentary proof for major expenses claimed. The AO concluded that the expenses were not substantiated, leading to the adhoc disallowance.
3. The Ld. CIT(A) confirmed the addition, prompting the assessee to appeal before the Tribunal.
4. After hearing both parties and examining relevant documents, the Tribunal noted that the AO had not rejected the audited books of account of the assessee.
5. The Ld. CIT(A) deleted the addition based on the appellant's submissions and the fact that the books of accounts were audited and maintained properly.
6. The Tribunal cited a Supreme Court case to support the decision that adhoc disallowance without rejecting the books of account is not justified.
7. The Ld. CIT(A) thoroughly reviewed the relevant documents and allowed the expenses claimed by the assessee for various categories.
8. Despite the lack of initial evidence before the AO, the Ld. CIT(A) found the expenses to be valid after a detailed examination during the appellate proceedings.
9. The Tribunal observed that similar disallowances were allowed by the revenue in previous years, and the expenses claimed were consistent with those of earlier years.
10. Considering the comparable ratios of expenses to turnover and gross profit earned, the Tribunal upheld the Ld. CIT(A)'s decision to delete the adhoc disallowance made by the AO.
11. Finding no illegality or perversity in the Ld. CIT(A)'s decision, the Tribunal dismissed the appeal filed by the Revenue.

Order pronounced in the open court on 27.03.2024.

---