MAHABUBKHAN KADHERKHAN,SALEM vs. THE INCOME TAX OFFICER, WARD 1 (1), SALEM

आयकर अपीलीय अधिकरण, ‘सी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI श्री एस एस विश्वनेत्र रवि, न्याविक सदस्य एवं श्री एस. आर. रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.317/Chny/2026 ननिाारण वर्ा / Assessment Year: 2020-21 Mahabubkhan Kadherkhan The Income Tax Officer 55/45, Kadharkhan Street vs. Ward 1(1) Suramangalam Salem. Salem – 636 005. [PAN: DTVPK8228K] (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/Appellant by : Shri. Y.Sridhar, F.C.A. प्रत्यर्थी की ओर से/Respondent by : Shri. Pelli Premkuar, Sr.AR

सुनवाई की तारीख/Date of Hearing : 29.06.2026 घोर्णा की तारीख/Date of Pronouncement: 04.08.2026 आदेश /O R D E R PER S.R. RAGHUNATHA, AM : This appeal has been preferred by the Assessee against the order passed by the Learned Commissioner of Income Tax, Appeal, CIT(Appeals), National Faceless Appeal Centre, Delhi, [hereinafter referred to as “the Ld. CIT(A)”], dated 17.09.2025, arising from the assessment order dated 23.09.2021 for the Assessment Year (AY) 2020-21 passed by the Assessment Unit, National Faceless Assessment Centre, Income Tax Department, [hereinafter referred to as “the AO”], u/s. 147 r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

:-2-: ITA. No.317/Chny/2026

:-3-: ITA. No.317/Chny/2026

a district cable operator for M/s.Tamil Nadu Arasu Cable TV Corporation Limited, a Government of Tamil Nadu enterprises. He was Supervisor and in- charge for the entire Salem District and was authorized to supervise the prompt payment of monthly subscription fee from the household cable TV subscribers to M/s.Tamil Nadu Arasu Cable TV Corporation Limited. He was compensated for this work and its related expenses in the form of commission and rent for using his own dish antenna equipment by M/s.Tamil Nadu Arasu Cable TV Corporation Limited. The assessee also submitted cash book, income computation sheet, cash flow statement, bank statement held in SBI and Urban Bank Limited. On perusal of the details submitted, the assessee had claimed Rs.39,24,320/- as expenditure without any documentary evidences and asked the assessee to file the details for the same. In response, the assessee stated that all the expenses were incurred wholly and exclusively for the purpose of business carried on and none of them was of personal or capital in nature and they included electric charges, rent, audit fee, etc. However, the AO was not convinced and made an addition of Rs.18,19,049/- to the returned income by passing an order u/s.147 of the Act dated 28.02.2025 by holding as under:-

“4.6 Conclusion drawn. 1.) During the year under consideration, an amount of Rs.8,13,220/- being 50% of Other expenses claimed of Rs.16,26,441/- by the assesse in the ITR but could not submitted satisfactory response supported by documentary evidences is disallowed

2) An amount of Rs.10,05,829/-, being the 50% of various expenses claimed by the assessee in the ITR but could not submitted satisfactory response supported by documentary evidences, is disallowed.”

:-4-: ITA. No.317/Chny/2026

“The appellant has challenged the disallowance of 50% of various expenses out of the head's other expenses, power and fuel, rent expenses, travelling expenses, compensation to employees. The appellant has submitted in the grounds that salary @ Rs.82,500/- was paid to three employees for Office and salary of Rs.9,30,048/- to technical staff. The appellant further, submitted that rent was paid @ Rs.23,000/- and repairs of Rs. 1,20,567/- was made. The appellant further, submitted that Spars of Rs. 10,34,583/- was incurred and electricity Bill of Rs.2,34,908/-. I find that the appellant has not filed any bill Vouchers etc. during the assessment proceedings and also not filed any evidences during the appellate proceedings. However, looking to overall circumstances the disallowance of 50% out of the expenses is reduced to 25%. Therefore, the appellant gets a relief of Rs.9,09,525/-. The ground no. 1 to 6 are partly allowed. In the ground 7 the appellant has challenged the disallowance of Rs.1,33,581/- being 50% of depreciation. I do not find any disallowance out of depreciation. Therefore, this ground of appeal is not tenable and is dismissed.”

“1. Learned Commissioner of Income-tax (Appeals) is not justified in restricting disallowance of expenses from 50 percent made by Learned Assessing Officer to 25 percent alone on estimate, instead of deleting it entirely. 2. Learned Commissioner of Income-tax (Appeals) ought to have recognized that none of the expenses claimed were found inflated or of non-business nature. 3. Learned Commissioner of Income-tax (Appeals) ought not to have held as disallowable 25 percent of expenses incurred (list attached), while all these were wholly and exclusively incurred in the course of and for business carried on, to provide uninterrupted optimize TV signals, being an authorized cable operator for Tamilnadu Arasu Cable TV Corporation Ltd. 4. Learned Commissioner (Appeals) ought to have accepted that these expenses had necessarily to be incurred, though vouchers were not available or could not be preserved. 5. For these and other reasons, which may be stated at the time of hearing of the appeal, it is prayed that the income of Rs.14,92,050 may please be accepted deleting addition of Rs. 9,09,525 made.” 7. The ld.AR for the assessee submitted that the authorities below have erred both on facts and in law in sustaining the disallowance of 25% of the business expenditure purely on an ad hoc and estimated basis without bringing any material on record to establish that the expenditure claimed by the assessee was either bogus, excessive or not incurred for the purposes of business. The Ld. AR submitted that the assessee was functioning as an authorized District Cable Operator of M/s. Tamil Nadu Arasu Cable TV

:-5-: ITA. No.317/Chny/2026

Corporation Limited, a Government of Tamil Nadu undertaking, and was entrusted with the responsibility of supervising the collection of subscription charges from cable operators throughout Salem District and ensuring uninterrupted transmission of television signals. For rendering such services, the assessee received commission income and rental income from the Corporation. 8. It was submitted that, considering the very nature of the business carried on by the assessee, substantial expenditure had necessarily to be incurred towards salary paid to technical staff and office employees, electricity charges for operating network equipment, rent for office premises, repairs and maintenance of network infrastructure, purchase of spares, travelling expenses, communication expenses and other operational expenses. Without incurring these expenses, it would have been impossible for the assessee to discharge the contractual obligations entrusted by the Government undertaking and to earn the commission income offered to tax. 9. The Ld. AR further submitted that the AO has not doubted the business activity carried on by the assessee, nor has he disputed the commission income received from Tamil Nadu Arasu Cable TV Corporation Limited. The receipts disclosed by the assessee have been accepted as genuine. Once the business receipts are accepted, the corresponding expenditure incurred for earning such receipts cannot be disallowed merely because certain vouchers or supporting bills could not be produced, particularly when the expenditure is routine in nature and is directly relatable to the business carried on by the assessee. 10. It was further contended that neither the AO nor the ld.CIT(A) has identified even a single item of expenditure as being personal in nature, capital in nature, fictitious or inflated. The authorities have also not pointed out any specific defect in the books of account, cash book, bank statements or other records produced by the assessee. In the absence of any adverse material, resorting to an ad hoc disallowance on an estimated percentage basis is arbitrary and contrary to the settled principles of law. The Ld. AR submitted that

:-6-: ITA. No.317/Chny/2026

the AO has disallowed 50% of the expenditure merely for want of supporting vouchers, without conducting any independent enquiry or verification. The ld.CIT(A), while granting partial relief, also adopted 25% as the disallowance without assigning any scientific basis or recording any finding as to why exactly 25% of the expenditure should be disallowed. The reduction from 50% to 25% itself demonstrates that the disallowance was made only on estimate without any objective criteria. 11. It was also submitted that the assessee had furnished before the AO the cash book, cash flow statement, bank statements and computation of income, which substantially corroborate the business transactions. The expenditure claimed is fully commensurate with the scale of operations and the commission income earned by the assessee. Therefore, in the absence of any contrary evidence brought on record by the Revenue, no part of such expenditure deserves to be disallowed. 12. Accordingly, it was contended that the ld.CIT(A) was not justified in sustaining the disallowance to the extent of 25%, as the same continues to remain an estimate without any evidentiary foundation. The expenditure claimed by the assessee having been incurred wholly and exclusively for the purpose of carrying on the business, the entire disallowance sustained by the ld.CIT(A) deserves to be deleted. 13. Without prejudice to the above submissions, the Ld. AR submitted that if this Tribunal is of the view that some estimation is inevitable owing to the absence of complete vouchers, the disallowance may be restricted to a nominal amount instead of sustaining an arbitrary disallowance of 25%, so that only a reasonable estimate of possible unverifiable expenditure is brought to tax rather than disallowing a substantial portion of genuine business expenditure. 14. Per contra the ld.DR supported the orders of the authorities and submitted that the assessee has not furnished any supporting documents in respect of the expenditure claimed and hence the action of the ld.CIT(A) in

:-7-: ITA. No.317/Chny/2026

disallowing 25% of the expenditure claimed is reasonable and hence prayed for confirming the same. 15. We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record. The facts relating to the assessment, the disallowance made by the AO and the partial relief granted by the ld.CIT(A) are not in dispute. 16. The assessee is engaged in the business of operating cable television services as an authorized District Cable Operator of M/s.Tamil Nadu Arasu Cable TV Corporation Limited, a Government of Tamil Nadu undertaking. It is an undisputed fact that the assessee earned commission income and rental income from the said Corporation and the Revenue has accepted the business receipts declared by the assessee. The controversy before us is confined only to the disallowance of business expenditure claimed by the assessee. The AO disallowed 50% of the expenditure claimed under various heads such as salary, power and fuel, rent, repairs, spares, travelling and other operational expenses on the ground that the assessee failed to furnish complete supporting bills and vouchers. The ld.CIT(A), while appreciating that the disallowance made by the AO was on the higher side, reduced the same to 25% on an estimated basis. However, except observing that the assessee had not produced bills and vouchers, the ld.CIT(A) has not assigned any cogent reason or objective basis for adopting the figure of 25%. Thus, the sustenance of the disallowance continues to remain purely ad hoc and without any scientific or rational basis. 17. It is a settled principle of law that no disallowance can be made merely on surmises or conjectures. Equally, where the assessee fails to maintain complete supporting evidence for every item of expenditure, the Revenue is justified in making a reasonable estimate to safeguard the interests of the Revenue. However, such estimation should be fair, judicious and based upon the facts and circumstances of the case, and not on arbitrary percentages. 18. In the present case, we find that the Revenue has not disputed the business activity carried on by the assessee. It has also not been established

:-8-: ITA. No.317/Chny/2026

that any of the expenditure claimed is bogus, fictitious, personal in nature or capital in nature. No specific instance has been brought on record by either of the authorities below to demonstrate that any particular expenditure was not incurred for the purpose of business. The AO has neither rejected the books of account nor pointed out any inflation of expenditure. The sole basis for making the disallowance is the non-availability of complete supporting vouchers. 19. Considering the nature of the assessee's business, which involves maintenance of cable network infrastructure, deployment of technical staff, payment of electricity charges, repairs and maintenance of equipment, travelling and other recurring operational expenses, it cannot be disputed that substantial expenditure is inevitable for earning the commission income received from the Government undertaking. Once the business receipts have been accepted as genuine, the corresponding business expenditure cannot be disallowed in substantial measure merely because certain vouchers could not be produced. At the same time, we are also conscious of the fact that the assessee has admittedly failed to maintain or produce complete documentary evidence in support of the entire expenditure claimed. Therefore, some reasonable estimation to cover the possibility of unverifiable expenditure would be justified in the peculiar facts of the case. 20. Having regard to the nature and volume of the business, the turnover disclosed, the acceptance of business receipts by the Revenue, the absence of any finding regarding bogus or personal expenditure and the fact that the disallowance has been made only for want of complete supporting vouchers, we are of the considered opinion that the disallowance sustained by the ld.CIT(A) at 25% is excessive and on the higher side. At the same time, complete deletion of the disallowance would not be justified in view of the admitted deficiency in maintaining supporting evidence. Considering the totality of the facts and circumstances, in our considered view, disallowance at 10% of the expenditure claimed would meet the ends of justice and would adequately take care of the possible element of unverifiable expenditure while at the same time recognizing the genuine business requirements of the assessee. We

:-9-: ITA. No.317/Chny/2026

accordingly direct the AO to restrict the disallowance to 10% of the expenditure claimed under the respective heads, in place of the 25% sustained by the ld.CIT(A), and grant consequential relief to the assessee. Accordingly, the order of the ld.CIT(A) is modified to the above extent, and the grounds raised by the assessee are partly allowed. 21. In the result the appeal of the assessee is partly allowed.

Order pronounced in the court on 04th August, 2026 at Chennai.

Sd/- Sd/- (एस एस विश्िनेत्र रवि) (एस. आर. रघुनार्था) (S.S. VISWANETHRA RAVI) (S. R. RAGHUNATHA) न्याययक सदस्य/Judicial Member लेखा सदस्य/Accountant Member

चेन्नई/Chennai, ददनांक/Dated, the 04th August, 2026. Devadas आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभागीय प्रनतननधि/DR 5. गार्ा फाईल/GF Digitally signed by DEVADAS DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.08.06 09:20:37 +05'30'