DY. COMMISSIONER OF INCOME TAX DEHRADUN, DEHRADUN vs. BAKER HUGHES ASIA PACIFIC PTE. LTD., MAHARASHTRA

PER SATBEER SINGH GODARA, JM: This Revenue’s appeal for assessment year 2019-20, arises against the Commissioner of Income Tax (Appeals) [in short, the “CIT(A)”], Noida’s-2, order dated 30.07.2025 having DIN and order no. ITBA/APL/S/250/2025-26/1079086318(1), dated 30.07.2025, involving proceedings under section 143(3) r.w.s.

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144C of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused. 2. Suffice to say, the Revenue’s sole substantive ground raised in the instant appeal seeks to reverse the CIT(A)’s action accepting the assessee’s corresponding substantive grounds directed against the Assessing Officer’s assessment findings dated 26.11.2021 disallowing its various expenses on ad-hoc basis @ 20% to 50% vide following detailed discussion. “5. Appellate findings: 5.1 Ground Nos. 1, 2 & 3 5.1.1 Vide these grounds of appeal, the appellant has contended that on the facts and circumstances of the case, the AO has erred in making ad hoc disallowance to the extent of 20% of the expenditure on stores and consumables of Rs. 160,129,645/- i.e Rs. 32,025,929/- , ad hoc disallowance to the extent of 50% of the expenditure on Employees benefit expenses of Rs. 3,352,383/- i.e Rs. 1,676,191/- and ad hoc disallowance of the entire expenditure on training i.e Rs. 127,019/-. 5.1.2 Since the contention in all these three grounds is similar, all the three grounds are being adjudicated upon together for the sake of convenience and to avoid repetition. In its reply, the appellant has submitted that during the course of assessment proceedings, the appellant filed the audit report wherein an independent auditor certified both the correctness of the method of accounting followed and the sufficiency of the internal controls for the valuation of inventory. It has further been submitted that the AO, without bringing out any fault in the financial statements of the appellant, proceeded to make ad hoc disallowance. The appellant has contended that the very basis of the assessment is conjectures and surmises and thus, the assessment deserves to be quashed. The appellant has argued that the AO has not pointed out any specific instance of inflated, non-genuine, or unverifiable expenditure whereas the expenditure claimed was supported by a detailed ledger and invoices submitted during assessment proceedings. The appellant has pointed that the Revenue 2 | P a g e

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cannot step into the shoes of the taxpayer to decide how the business should be run. 5.1.3 The appellant has placed reliance on the following judicial precedents: • State of Punjab and Others v. Amritsar Beverages Ltd. &Ors[20], • Sadhu Singh v. Gurudwara Sahib Narike[21] [22] • CIT v. Dhanrajgiri Raja Narasingiri • CIT v. Chandulal Keshavlal& Co.[23], 5.1.4 I have carefully gone through the facts of the case, submissions of the appellant and case laws relied upon by the appellant. It is evident from the assessment order that the AO has accepted the financial statements furnished by the appellant during the course of assessment proceedings. The AO has categorically noted on page 3 of the assessment order that “In the light of the CBDT Circular No. 14(XL35), the financial statements of the assessee are accepted and assessment be completed on its basis” The AO has vide the assessment order made ad-hoc disallowances of certain expenses. In respect of stores and consumables, the AO has only referred to the submission of the appellant that “there was no major activity carried out and no invoice was raised” and concluded that as inventories appear to be undervalued and the profit appears to be low, expenses in respect of stores and consumables would be very less. In respect of employee benefit expenses, the AO has simply mentioned that the appellant had failed to prove as to why the employees were required for undertaking sale contract. In respect of training expenses, the AO has noted that the appellant has failed to prove as to why training was needed for undertaking sale contract. It is matter of fact that the AO in the assessment order has not pointed out that any part of the expenditure in question is either bogus, non- genuine or fictitious nor it has been at any place brought on record that the expenses incurred by the appellant are not wholly and exclusively for the purpose of business; especially in view of the fact that the AO has not rejected the financial statements of the appellant. There are no clear findings as to the number of bills and vouchers requiring denial of allowance with the amount of expenditure and nature of defect therein or therewith. The AO has failed to mention any rationale in arriving at the percentage of disallowance. It is an established fact that the AO cannot step into the shoes of the 3 | P a g e

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appellant and decide as to what expense should be incurred and what not and how the business should be run. It is the prerogative of the assessee to decide as to how the business should be run in order to earn profit. Without establishing any specific defect, the AO cannot disallow the expenses just on the basis that the taxpayer has failed to prove the need for incurring such expenses./ The case laws quoted by the appellant as above, affirm the aforesaid view. 5.1.5 In view of the above discussion, ad-hoc disallowances of Rs. 3,20,25,929/-, Rs. 33,52,383/- and Rs. 1,27,019/- totaling to Rs. 3,38,29,139/- in respect of stores and consumables, employee benefit expenses and training expenses respectively made by the AO are held to be not sustainable. Consequently, addition made on account of such disallowances is deleted. The grounds of appeal are allowed in favor of the appellant.” 3. It is in this factual backdrop that the learned departmental representative vehemently argues in support of the Revenue’s substantive grounds raised herein that the Assessing Officer had rightly invoked the impugned ad-hoc disallowance of the assessee’s expenses claims in issue on account of its failure in substantiating the same during the course of scrutiny assessment. We note in this factual backdrop that the assessee’s financial statements stood duly accepted as noticed in the CIT(A)’s lower appellate discussion. And also that the Assessing Officer nowhere quoted any specific default on its part so as to conclude that the corresponding supportive evidence had remained uncompleted and unproved; as the case may be. We thus find no reason to interfere with the learned CIT(A)’s detailed discussion deleting the impugned

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disallowance made by the Assessing Officer in the assessee’s hands. Rejected accordingly. 4. This Revenue’s appeal is dismissed. Order pronounced in the open court on 10th April, 2026 Sd/- Sd/- (MANISH AGARWAL) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 10th April, 2026. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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