Disallowance of expenses - need for tax authorities to have a practical understanding of the nature of business operations

Court Overturns Tax Authority's Disallowance of Business Expenses Due to Lack of Documentation for 2017-18 Assessment Year.

The case involves an appeal by a taxpayer against the disallowance of certain business expenses by the Income Tax Authority for the assessment year 2017-18. The disputed expenses, totaling Rs. 33,962,041, included business establishment, conveyance, guest house maintenance, and communication expenses. The Assessing Officer disallowed 30% of these expenses due to inadequate documentation. The court, however, found the disallowance unjustified, noting the competitive nature of the taxpayer's mobile phone distribution business and the impracticality of maintaining perfect documentation. The court allowed the appeal, emphasizing the need for tax authorities to understand business operations and not rely on ad hoc disallowances.