AI Drafter 
TaxTMI 
TaxTMI 
2025 (8) TMI 1795
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....rmitted under the provisions of the Act as these are ad hoc disallowance without pointing out any defect in the audited financial statements when the incurrence of expenses is not doubted and payments made for these purchases and expenses are through proper banking channel, duly accounted for in the books of account with compliance of all the statutory requirements in these respect. According to the assessee, the ad hoc additions are made on presumptions and therefore do not warrant any addition. 2. Brief facts of the case are that assessee is engaged in the business of trading aquatic animal feed and related products, trading of farm raised shrimps which is purchased from various shrimp farmers and sold to processing house that freeze and export the shrimps. Assessee also runs retail stores by the name Seafood Mart by Cambay Tiger. Assessee filed its return of income on 16.02.2018 reporting a total income of Rs. 1,54,18,710/-. Assessment was completed u/s. 143(3), wherein the ad hoc disallowances were made as under: A. Ad hoc disallowance of Rs. 9,23,78,676/- at the rate of 5% of the total purchases of Rs. 184,75,73,529/-. B. Ad hoc disallowances of Rs. 28,07,....
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....th PAN (Page 107). The same was submitted during the assessment proceeding but not considered by ld. Assessing officer. iii) Purchases with no PAN Rs. 3,96,25,023/- Enclosed the list as annexure (Page 108 to 109) wherein the PAN are stated. We are hereby enclosing the sample invoices (Page 110 to 497) for your goodself ref. iv) Others Purchase less than Rs. 1 lac Rs. 69,87,284/- Enclosed the list as annexure (Page 498 to 504) wherein the party-wise PAN and Address are stated Total in Rs. 184,75,73,529/- 3.3. Reference was also made to the tax audit report placed on record whereby quantitative details of principal items of goods traded by the assessee were furnished including the opening stock, purchases made during the year, sales made during the year, closing stock and the shortages, if any. Assessee has maintained all the documents in respect of its trading transactions, details of which were furnished including sample invoices forming part of the paper book. In respect of purchases at serial no. 3 and 4 in the table above, assessee furnished further details including sample invoices for certain parties for which PAN was ....
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....imit on which TDS is to be deducted or the nature of expenses are in the form of purchases or in the nature of reimbursements. b) In certain cases, though the payment is more than the threshold limit it has simply furnished NA without mentioning the reason. a) The comments made in submission as "NA" refers to not applicable cases and pertains to expenses incurred for purchase wherein TDS provisions are not applicable. Complete details are available including the nature of expenses under the suitable heads. c) In certain cases the assessee has incurred the said expenditure through credit cards. a) It is an accepted mean of making payment where a credit card is used by an assessee or his employee. In turn the credit cards are paid by regular banking channel. Since the credit card payments are numerous, making a mention of location of expenses is cumbersome, although full details will be available in the bills of credit card issuers. d) Also it has incurred certain expenditure in cash. a) The total business promotion expenses incurred in cash is Rs. 1,72,920, compared to Rs. 1,62,26,927 being total business promotion expenses; being just 1.07% of total Business Promo....
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.... of vouchers are approximately 185. d) Not a single expense is incurred in cash in excess of the prescribed limit of Rs. 20,000 3. Office Expenses Expenses Incurred: Rs. 36,55,945/- Expenses Disallowed: - Rs. 182797/- a) No proper address, PAN and the purpose of expenditure has been mentioned. a) Addresses and PAN are not given for expense incurred by the employees (Where Company's address is considered as the address of the party. b) Complete details are available with us and will be provided additionally. 4. Repairs and Maintenance Expenses Expenses Incurred: - Rs. 48,55,699/- Expenses Disallowed: Rs. 242785/- a) Complete address, PAN, place of repair, etc. has not been mentioned. . a) The place of repair is an additional information and no such information was called for in the notice b) Addresses and PAN are not given for expense incurred by the employees (Where Company's address is considered as the address of the party. c) Complete details are available with us and will be provided additionally. b) All the expenditure is below the threshold limit which appears to be incurred in cash. a) We have prepared additional details wher....
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....ntention of the assessee is that payments for the purchases are made through banking channel and that ld. AO has not rejected the books of accounts which have been duly subjected to audit and no defect or discrepancy has been pointed out by the auditor in the books of accounts so maintained by the assessee. All the required disclosures have been made in the audit report by the tax auditor. Similar submissions are made by the assessee in respect of each of the expenses for which ad hoc disallowance is made where nothing specific has been pointed out which led to the approach adopted by the ld. AO. In respect of these expenses, assessee also submitted that there is no violation of the provisions contained in section 40A(3) where the payments are made in excess of the threshold limit by making payment in cash. 6. Per contra, ld. DR asserted that the order of ld. AO be sustained where the disallowance has been made by adopting 5% of the purchases and certain expenses, since assessee failed to produce relevant evidences to justify said expenditure. According to him, assessing officer was justified in making the said ad hoc disallowance and ought to be sustained instead of relief gran....
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....n for disallowance, it is sine qua non that the Assessing Officer has to come to a conclusion that the books of accounts maintained by the assessee are incorrect, incomplete or unreliable and reject the same before proceeding to make his own assessment on ad hoc basis/on a best estimate basis. Section 144 of the Act provides for the manner in which best judgment assessment has to be completed. From the provisions contained in section 144, it is noted that the Assessing Officer derives authority to make additions on the basis of estimates, only upon fulfilment of conditions mentioned in section 145(3). It is only when the Assessing Officer is satisfied about the existence of irregularities in the books of accounts as contained in section 145(3) that it can proceed to make a best judgment assessment as provided under section 144. In the present case, there is neither rejection of books of accounts maintained by the assessee, nor it is a case where any defect or specific deficiencies are pointed out by the authorities below in respect of the disallowances made. Submissions made by the assessee in the course of assessment proceedings are uncontroverted. 7.4. Nothing has been disprov....