CHANDRAMANOHAR DISTRIBUTORS PRIVATE LIMITED,SHAHJAHANPUR vs. ITO-1(4) SHAHJAHANPUR-1, SHAHJAHANPUR

ITA 516/LKW/2026Status: DisposedITAT Lucknow21 September 2026AY 2018-197 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the disallowance of Rs.7,32,067/- made by the AO and confirmed by the NFAC was an ad-hoc disallowance. The AO had randomly disallowed 25% of the total expenses of Rs.29,28,270/- without any rationale or justification. The Tribunal noted that if an assessee fails to substantiate expenses, the AO should ideally disallow the entire expenditure, but a partial disallowance of 25% without any basis cannot be sustained. The Tribunal emphasized that expenses incurred wholly and exclusively for business purposes are allowable under section 37(1) of the Act. Disallowances cannot be made based on general observations, surmises, or absence of third-party bills without positive material proving the expenditure is bogus, inflated, or non-genuine. Suspicion cannot replace concrete evidence. Therefore, the ad-hoc disallowance was directed to be deleted in its entirety. The Tribunal did not explicitly address the grounds related to principles of natural justice and opportunity of being heard, as the core issue of the disallowance was decided on merits.

What were the facts?

The assessee, Chandramanohar Distributors Private Limited, is challenging an order dated 17.04.2026 passed by the National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year 2018-19. The assessee, engaged in wholesale trading, filed a return declaring Rs.3,27,000/- income. During scrutiny, the Assessing Officer (AO) noted a significant increase in 'other expenses' to Rs.40,12,540/-, including SIM activation, sales promotion, and vehicle running expenses, all incurred in cash. Despite opportunities, the assessee failed to provide supporting bills and vouchers. The AO disallowed 25% of these expenses, amounting to Rs.7,32,067/-, deeming them excessive and unreasonable. The assessment was completed under section 143(3) read with sections 143(3A) and 143(3B), increasing the total income to Rs.10,59,067/-. Penalty proceedings under section 270A were also initiated. The assessee's appeal to the NFAC was dismissed, confirming the AO's order.

What were the issues?

1. Whether the Ld. Commissioner of Income Tax (Appeal) erred in law and on facts in passing an order that was illegal, improper, and against the principles of natural justice, by not providing adequate opportunity of being heard and not considering written submissions? (Mixed question of law and fact) 2. Whether the Ld. Commissioner of Income Tax (Appeal) erred in law and on facts in upholding the addition of Rs.7,32,067/- to the business income, considering it as excessive and unreasonable? Assessee's contentions: The assessee argued that its books were duly audited, and the AO made an ad-hoc disallowance of 25% of expenses without assigning any specific reason or deficiency. The assessee contended that such arbitrary disallowances are not permissible under law without concrete findings or evidence to the contrary. The assessee prayed for the deletion of the ad-hoc disallowance. Revenue's contentions: The Revenue relied on the orders of the authorities below, submitting that the assessee failed to discharge its onus by not submitting complete bills and documents, and therefore, the appeal should be dismissed.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 143(3),Section 143(3A),Section 143(3B),Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW

Before: SHRI. SUDHANSHU SRIVASTAVA

For Appellant: Ms. Shweta, C.A
For Respondent: Smt. Pratibha Singh, D.R

This appeal has been preferred by the Assessee against the order dated 17.04.2026, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2018-19. 2.0 The brief facts of the case are that the assessee was a Private Limited Company engaged in wholesale trading of general merchandise and mobile recharging, etc. The assessee filed its return of income for the year under consideration on 03.10.2018 declaring a total income of Rs.3,27,000/-. The case of the assessee was selected for complete scrutiny under Computer- Assisted Scrutiny Selection (CASS).

ITA No.516/LKW/2026 2.1 During the course of assessment proceedings, the Assessing Officer (AO) noticed from the profit and loss account of the assessee company that the a

The order continues below.

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