No ad hoc disallowance without pointing out any deficiency in books of account or vouchers – ITAT

No ad hoc disallowance without pointing out any deficiency in the books of account or vouchers. ITAT deletes the addition

ABCAUS Case Law Citation:
ABCAUS 2508 (2018) 09 ITAT

Important Case Laws Cited/relied upon by the parties:
Commissioner of Excess Profits Tax vs. S.R.V.G. Press Co. [1961] 42 ITR 219 (SC)

CIT vs. S.S.P. (P) Ltd. 2011 202 Taxman 386

This appeal was filed by the assessee against the order of CIT(A) against confirmation of ad hoc disallowance out of depreciation on vehicle, conveyance expenses and vehicle repairs, freight & forwarding charges, general expenses, computer repairs, salary and travelling expenses.

The assessee contended that the assessment order had been passed u/s 143(3) of the Income Tax Act, 1961 (the Act) and books of account had been accepted as these had not been rejected.

It was submitted that the only reason for making ad hoc disallowance was that the assessee had made certain expenses in cash and also the doubt of the Assessing Officer that the assessee might have used the car for his personal purposes. However, nowhere in the assessment order the Assessing Officer had pointed out any deficiency in any of the vouchers or books of account.

It was submitted that the nature of expenses itself suggest that these has to be necessarily incurred in cash as the payments included payments to labourers for freight & cartage and routine daily expenses like tea expenses of staff, cleaning expenses, general wear and tear expenses etc. It was submitted that these expenses were meant for business purposes only having commercial expediency and nowhere commercial expediency had been disputed.

The Tribunal observed that the assessment was completed u/s 143(3) of the Act. The Assessing Officer himself noted in his order that the assessee was maintaining books of account and had got his accounts audited. Nowhere in the assessment order the Assessing Officer pointed out any deficiency in the vouchers except his observations that since the payments were made in cash and were supported by hand made vouchers, therefore, they were not open for 100% verification.

It was further noted that disallowance out of car expenses including depreciation was made by holding that the assessee must have utilized the car for personal purposes.

The ITAT opined that such type of disallowances, without pointing out any defect in the books of account, was not sustainable in law especially in view of the fact where the nature of such expenses suggest that these can be incurred in cash only. The expenses incurred by the assessee were small expenses and incurred in cash.

Following the above law laid by the Hon’ble Supreme Court and the Hon’ble High Courts and keeping in view the facts and circumstances of the case, the Tribunal allowed the appeal filed by the assessee.

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