Disproportionate increase in expenses in relation to turnover not a reason for disallowance – ITAT

Disproportionate increase in expenses in relation to turnover can not be reason in itself for making adhoc disallowance without cogent material – ITAT

Disproportionate increase in expenses

ABCAUS Case Law Citation:
ABCAUS 2076 (2017) (09) ITAT

Assessment Year :  2012-13

Brief Facts of the Case:
The Petitioner assessee had claimed certain expenses. On being called upon to explain the reason for increase in expenses as compared from the previous year’s figure the assessee submitted that there was increase in the turnover as well.

The Assessing Officer (AO) rejected the assessee’s contention on the ground that the turnover increased only by 110% as against the increase in the particular expenses to the tune of 300%. Considering these facts, he made a disallowance at 20% of the said expenses, which resulted into an addition.

 No relief was allowed in the first appeal. Aggrieved against sustenance of disallowance, the assessee was before the Tribunal.

Observations made by the Tribunal:
The ITAT observed that as contended by the assessee, the actual incurring of Sampling expenses to the extent claimed in the Profit & Loss Account had not been controverted by the authorities with any cogent material.

The ITAT opined that simply because such expenses had increased disproportionately in relation to the increase in the turnover, could not be a reason in itself for making disallowance of part of the expenses on ad hoc basis.

The ITAT observed that no worthwhile reason had been assigned by the authorities for making and sustaining disallowance @ 20% on particular expenses incurred by the assessee.

The order was set aside with direction to allow deduction of expenses as claimed by the assessee.

Disproportionate increase in expenses

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