MACKLY CLOTHING PRIVATE LIMITED,DINDIGUL vs. COMMISSIONER OF INCOME TAX APPEALS, NATIONAL FACELESS ASSESSMENT CENTRE (NFAC)

ITA 1861/CHNY/2026Status: DisposedITAT Chennai07 October 2026AY 2019-208 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the issue relating to purchase expenditure could not be decided solely on the invoice date. The assessee's claim that goods were shipped on 02.04.2018 and the Bill of Entry was dated 05.04.2018, supported by documents, required factual verification by the AO. The Tribunal noted that if the purchase was wrongly accounted for in an earlier year, the closing stock would also need adjustment, impacting the profit and loss account. Therefore, the AO was directed to verify the entire transaction, including shipment date, Bill of Lading, Bill of Entry, accounting, and closing stock, to determine the correct year of recognition. Regarding employee compensation, travelling, and business promotion expenses, the Tribunal found the disallowances to be largely ad hoc and without specific findings identifying non-genuine or personal expenses. While acknowledging the assessee's failure to provide complete evidence earlier, the Tribunal restored these issues to the AO for fresh verification, directing the assessee to furnish all relevant documents. The AO was instructed not to make ad hoc disallowances without specific material and to allow genuine expenses incurred wholly and exclusively for business purposes. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, Mackly Clothing Private Limited, is in appeal before the Income Tax Appellate Tribunal (ITAT) against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 31.12.2025. The CIT(A) had confirmed the assessment order dated 27.02.2024 passed by the Assessing Officer (AO) under Section 147 of the Income-tax Act, 1961, for Assessment Year 2019-20. The AO had re-opened the assessment based on information regarding export bills totalling Rs.18,20,927/-. The assessee, who had not filed a return of income, subsequently filed a return admitting a business loss. During assessment, the AO disallowed purchases (Rs.8,60,057/-), compensation to employees (Rs.70,000/-), travelling expenses (Rs.47,328/-), and business promotion expenses (Rs.49,813/-). The assessee's appeal before the CIT(A) was dismissed for non-submission of documentary evidence.

What were the issues?

1. Whether the disallowance of purchase expenses is justified, considering the assessee's contention that the purchase invoice dated 27.03.2018 pertains to Financial Year 2017-18, while the goods were shipped on 02.04.2018 and accounted for in FY 2018-19 (AY 2019-20)? (Question of mixed law and fact, turning on Section 147 and accounting principles). 2. Whether the disallowances of employee compensation (Rs.70,000/-), travelling expenses (Rs.47,328/-), and business promotion expenses (Rs.49,813/-) are arbitrary and without basis? (Question of mixed law and fact, turning on Section 147). Assessee's arguments: The assessee argued that the purchase should be recognized in FY 2018-19 as ownership transferred on shipment on 02.04.2018, supported by Bill of Lading and Bill of Entry dates. The AO erred by using the invoice date of 27.03.2018 (AY 2018-19). The disallowances on employee compensation, travelling, and business promotion expenses were arbitrary and lacked justification. The assessee relied on the FOB method of recognition and submitted supporting documents. Revenue's arguments: The Revenue contended that the assessee failed to file the return of income and did not provide complete details to the AO or CIT(A), thus supporting the orders of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 139

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI S. R. RAGHUNATHA

Hearing: 13.08.2026Pronounced: 07.10.2026

PER S. R. RAGHUNATHA, AM : The present appeal has been preferred by the Assessee against the order dated 31.12.2025 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”], arising from the assessment order dated 10.10.2023 passed by the Assessing Officer, National Faceless Assessment Centre [hereinafter referred to as “the AO”], u/s.147 of the Income-tax Act,

The order continues below.

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