Ad hoc disallowance and accounted incentive receipts cannot be sustained without defects in books or evidence of concealment.

ITAT Hyderabad notes that an ad hoc disallowance of business expenditure cannot be sustained merely for want of supporting bills or vouchers when the books of account are not found defective or rejected; the 50% disallowance was deleted. It also records that licence fee was deductible in the relevant assessment year where the licence period and challans showed the expense related to that year, so the date of payment alone could not justify disallowance. Further, incentives for displaying brands could not be treated as unaccounted business income when sales records, TDS details and return disclosures showed the amount was already accounted for; the addition was deleted.

---

---

Issues: (i) Whether 50% ad hoc disallowance of expenditure could be sustained without pointing out any defect in the books of account or rejecting them; (ii) Whether licence fee paid on 18.03.2021 was deductible in the assessment year 2022-23; (iii) Whether incentives received from parties for displaying brands were liable to be added as unaccounted business income.

Issue (i): Whether 50% ad hoc disallowance of expenditure could be sustained without pointing out any defect in the books of account or rejecting them.

Analysis: The expenditure disallowed related to day-to-day business expenses of small quantum in relation to turnover. No discrepancy in the books of account was found and the books were not rejected. A mere absence of supporting bills and vouchers, without any finding that the accounts were incorrect or unreliable, was held insufficient to justify an ad hoc disallowance.

Conclusion: The disallowance of 50% of the expenditure was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether licence fee paid on 18.03.2021 was deductible in the assessment year 2022-23.

Analysis: The licence covered the period 01.11.2019 to 31.10.2021, and the payment in question related to the period 01.04.2021 to 30.06.2021. The payment was therefore attributable to the relevant previous year for assessment year 2022-23. The disallowance based only on the date of payment, without considering the licence period and supporting challans, was held to be erroneous.

Conclusion: The licence fee deduction was allowable in the year under consideration and the addition was deleted in favour of the assessee.

Issue (iii): Whether incentives received from parties for displaying brands were liable to be added as unaccounted business income.

Analysis: The assessee produced sales registers and related evidence showing that the incentives were recorded under sales and incentives and had been offered to tax. TDS had also been reflected in the return. Since the amount was already accounted for, the further addition as undisclosed business income could not be sustained.

Conclusion: The addition of incentives as business income was deleted in favour of the assessee.

Final Conclusion: All disputed additions were found unsustainable on the facts and evidence, and the assessment was relieved of the impugned disallowances and additions.

Ratio Decidendi: An ad hoc disallowance cannot be sustained in the absence of a defect in the books of account, and a payment is deductible in the relevant year when the evidence shows that it pertains to that year and has already been accounted for.

---