Adhoc disallowance of estimated expenses justified in absence of substantiation – ITAT

Adhoc disallowance of estimated expenses was justified in the absence of substantiation of expenses by assessee

ABCAUS Case Law Citation:
ABCAUS 3670 (2023) (02) ITAT

Important Case Laws relied upon by parties:
Deputy Commissioner of Income Tax vs. M/s Bhawani Portfolio Pvt. Ltd.

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming adhoc disallowance at the rate of 25 per cent of miscellaneous expenses.

During the course of the assessment proceedings, the Assessing Officer (AO) observed that the assessee failed to give break-up of the miscellaneous expenses and also failed to substantiate these expenses.

As a result, the AO resorted to estimation and disallowed 25% of miscellaneous expenses.

The Tribunal opined that the AO was justified in making the adhoc disallowance of estimated expenses as held by the Hon’ble High Court.

However, the Tribunal observed that the disallowance made in the immediately preceding assessment year was about 4 % of the total miscellaneous expenses.

The Tribunal opined that for the year in question, the estimation made towards disallowance at the rate of 25% was highly excessive.   

Accordingly, the Tribunal modified the estimation at 5% of the expenses incurred instead of 25%.

As a result the ground of appeal was allowed.

Download Full Judgment Click Here >>

• Negligence of tax payer would not make exempt income taxable – ITAT
• For a notice sent by GSTN Portal no inference may be drawn as to its actual service
• Cash deposit of Rs. 250000 cr (credit) misread as crores by AO – Plea declined
• Discontinuance of business of firm will not vest ownership of firm’s property with partners
• Release of seized jewellery/gold u/s 132B within 120 days is directory not mandatory