2024 (9) TMI 283 - AT - Income Tax

ITAT allows expenses and cash deposits, rejects adhoc disallowance without specific defects under section 145(3)

SSA Projects Pvt. Ltd. Versus ACIT Circle – 5 (3) (1) G.B. Nagar Noida

ITAT Delhi ruled in favor of the assessee regarding adhoc disallowance of expenses and cash deposits during demonetization. The court found that complete ... Adhoc disallowance of expenses - Consumable expenses, Wages and Salaries, Miscellaneous and other Expenses - HELD THAT:- We find that the books of accounts were completely produced before the lower authorities by the assessee. The assessee had duly furnished the complete details of consumable expenses, works contract tax, site rent expenses, business promotion expenses, consultancy expenses, legal & professional expenses, conveyance expenses, labour charges paid, bonus/exgratia charges, repairs & maintenance , salary & wages paid before the lower authorities. The assessee had also produced the audited financials for the years ended 31.3.2014, 31.3.2015, 31.3.2016 and 31.3.2017 to enable the lower authorities to have a comparison of each of the expenditure that is sought to be disallowed. We find that all the expenses are duly comparable with that of the earlier years. No specific defects were pointed out by the ld. AO or by the ld. NFAC, Delhi on the same. Merely making a general bald statement that vouchers submitted are not verifiable, personal element of expenses cannot be ruled out , etc would not suffice. The assessee is a private limited company and the books of accounts were duly subjected to statutory and tax audit as per the provisions of the Companies Act and Income Tax Act. Admittedly, the lower authorities had not resorted to reject the book results of the assessee company by invoking the provisions of section 145(3) of the Act. no scope for making any adhoc disallowance. Decided in favour of assessee. Addition made on account of cash deposits made during the demonetization period - HELD THAT:- The entire cash book for the whole year is duly produced before the AO and learned NFAC, Delhi. Hence, it is established beyond reasonable doubt that the cash deposits made in bank account are properly explained by available cash balance with the assessee as per its cash book. Hence, there is absolutely no case for making any addition towards cash deposits - Decided in favour of assessee Issues Involved:1. Adhoc disallowance of expenses.2. Addition on account of cash deposits made during the demonetization period.Detailed Analysis:1. Adhoc Disallowance of Expenses:The assessee challenged the confirmation of the Assessing Officer's (AO) action in disallowing various expenses on an adhoc basis. The disallowed expenses included Consumable expenses (Rs. 7,32,518/-), Wages and Salaries (Rs. 25,76,638/-), Miscellaneous Expenses (Rs. 2,27,755/-), and Other Expenses (Rs. 1,49,831/-).The AO disallowed these expenses on the grounds that the assessee failed to provide supporting bills and vouchers, making the expenses unverifiable. Specifically, the AO disallowed 15% of wages and salaries, and certain other expenses, citing that the vouchers were not fully vouched and the personal element could not be ruled out.The assessee argued before the National Faceless Appeal Centre (NFAC), Delhi, that all expenses were properly recorded and supported by documentary evidence. The assessee provided month-wise employee details and comparative figures for prior years to demonstrate consistency in expenses. The NFAC, however, upheld the disallowances but directed the AO to correct the figures for certain expenses and increased the adhoc disallowance for other expenses from 10% to 15%.The Tribunal found that the assessee had produced complete books of accounts, supporting vouchers, and audited financials for multiple years. No specific defects were pointed out by the AO or NFAC. The Tribunal held that merely making general statements about unverifiable vouchers and personal elements was insufficient. Since the lower authorities did not reject the book results under section 145(3) of the Income Tax Act, adhoc disallowances were unwarranted. Therefore, the Tribunal allowed the assessee's grounds on this issue.2. Addition on Account of Cash Deposits During Demonetization:The assessee contested the addition of Rs. 39,80,500/- made by the AO for cash deposits during the demonetization period, which the AO treated as unexplained income. The AO had prepared a tabulation of cash withdrawals, deposits, and balances, concluding that the cash balance maintained by the assessee was not comparable with the preceding year and thus disbelieved the availability of cash balance.The assessee provided month-wise details of cash balances, withdrawals, deposits, and closing balances for the relevant and preceding years, arguing that the cash deposits were sourced from the available cash balance. The NFAC, Delhi, did not provide a finding on the availability of cash balance but deleted the addition by considering the opening cash balance and disallowance of expenses as sources for the deposits.The Tribunal found the NFAC's basis for deletion incorrect, noting that the assessee had sufficient cash balance to explain the deposits. The assessee's cash book, showing month-wise details of purchases and sales, was produced, and there were no cash sales. The Tribunal concluded that the cash deposits were properly explained by the available cash balance and thus allowed the assessee's ground on this issue.Conclusion:The Tribunal allowed the appeal of the assessee, concluding that the adhoc disallowances of expenses were unwarranted and the cash deposits during the demonetization period were adequately explained. The order was pronounced in the open court on 30.08.2024.