Assessee wins appeal as ad hoc expense disallowances rejected when books not found defective

The ITAT Delhi allowed the assessee's appeal regarding expense disallowances. The tribunal held that when books of accounts are not rejected by Revenue for specific defects, ad hoc disallowances cannot be made. Administrative expenses totaling Rs. 58.64 lakhs against turnover of Rs. 160.46 crores were reinstated as they were incurred wholly for business purposes. Interest on genuine unsecured loans was allowed as deduction since loans were accepted as genuine and utilized for business. Purchase differences with suppliers were resolved through proper reconciliation showing matching closing balances, confirming no adverse inference warranted.

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Issues Involved:
1. Validity of reopening u/s 147.
2. Disallowance of various expenses debited in the Profit & Loss account.
3. Disallowance of interest paid on unsecured loans.
4. Disallowance on account of difference in purchases.

Summary:

1. Validity of Reopening u/s 147:
Ground nos. 1 to 7 challenging the validity of reopening were not pressed by the assessee and hence dismissed as not pressed.

2. Disallowance of Various Expenses Debited in the Profit & Loss Account:
The assessee challenged the confirmation of disallowance of various expenses by the CIT(A). The Tribunal noted that the assessee provided detailed replies and documents justifying the expenses incurred, including month-wise details, salary paid, and unsecured loans. Despite this, the AO disallowed Rs. 58,64,773/- alleging lack of proof. The CIT(A) partially deleted the additions but confirmed Rs. 46,95,728/- by applying an ad hoc disallowance rate of 80% to certain expenses. The Tribunal found that the books of accounts were duly audited, and no specific irregularity was pointed out by the AO. Hence, the Tribunal deleted the entire disallowance of Rs. 37,03,875/- and allowed ground nos. 8 & 10.

3. Disallowance of Interest Paid on Unsecured Loans:
The AO accepted the unsecured loans as genuine and the assessee furnished confirmations from the creditors. The Tribunal found that the interest paid on these loans, considered genuine, cannot be disallowed. Thus, the Tribunal directed the AO to grant deduction for interest of Rs. 9,91,853/- and allowed ground no. 9.

4. Disallowance on Account of Difference in Purchases:
The AO disallowed Rs. 3,25,95,920/- based on differences in purchases from Thiru Arooran Sugar Ltd and Dwarikesh Sugar Industries Ltd. The assessee explained the differences through reconciliations, attributing them to accounting treatments and timing differences. The CIT(A) sustained Rs. 68,02,880/- for Thiru Arooran Sugar Ltd and Rs. 5,41,875/- for Dwarikesh Sugar Industries Ltd. The Tribunal found the reconciliation submitted by the assessee to be factually correct and deleted the disallowances of Rs. 68,02,880/- and Rs. 5,41,875/-. Hence, ground no. 11 was allowed.

Conclusion:
The appeal of the assessee was partly allowed. Order pronounced in open court on 06.05.2024.

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