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Facts
The assessee, a logistics company, filed its return of income for AY 2013-14 declaring Rs. 1.05 crore. During assessment, the AO disallowed 5% of total expenses (Rs. 10,13,306) incurred in cash, citing self-made vouchers. The CIT(A) upheld this disallowance.
Held
The Tribunal found that the lower authorities made ad-hoc disallowances based on general observations without specific defects in bills or vouchers. Considering that similar disallowances were deleted in a prior AY and the nature of the assessee's business requiring cash expenses, the Tribunal reduced the disallowance to 2% of total expenses.
Key Issues
Whether the ad-hoc disallowance of cash expenses by the AO and CIT(A) without pointing out specific defects is justified, especially when similar disallowances were deleted in a previous year.
Sections Cited
250, 254(1)
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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order ofld. CIT(A) dated 30.03.2025 for A.Y. 2013-14. The assessee has raised following grounds of appeal:
“1. The ld. CIT(A) has erred in law and in facts in passing order u/s 250 of the Act and partly confirming the addition made by the ld. AO.
2. The ld. CIT(A) has erred in law and in facts in passing the order u/s 250 of the Act without complying with the principles of natural justice.
3. The ld. CIT(A) has erred in law and in facts in confirming the disallowance of Rs. 10,13,306/- made by Ld. Assessing Officer on ad-hoc basis.
4. The appellant craves leave to add to amend, alter or delete all or any of the foregoing grounds of appeal.”
Brief facts of the case are that assessee is a company, engaged in the business of Custom clearance and in logistic business. The assessee filed its return of income for AY 2013-14 on 24.09.2013 declaring income of Rs. 1.05 crore. Case was selected for scrutiny. During assessment, the assessing officer noted that assessee has debited expenses of Rs. 2.02 crore. On verification of certain bills of expenses, the assessing officer was of the view that expenses were incurred in cash and were supported self-made vouchers.
The assessing officer disallowed 5.00% of total expenses. The assessing officer worked out of disallowance of Rs. 10,13,306/-. Aggrieved by the order of assessing officer, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detailed written submission. The assessee stated that through books of accounts are audited. Expenses were recorded in the books which are supported with proper ledger. The ld. CIT(A) on considering the submission of assessee confirmed the action of assessing officer and held that assessee failed to provide corroborating documentary evidence or independent confirmation. The cash expenses are unverifiable.
Further, aggrieved the assessee is filed present appeal before Tribunal.
We have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee submits that assessee company is in the business of customs clearance and related support services. During the relevant financial year, the assessee made miscellaneous expenses loading and unloading expenses, examination fees and SB processing fees.
Such expenses were collected from various clients. Majority of expenses were incurred in cash. The ld. AR of the assessee by referring page no. 11 of PB, which contains the details of entire expenses incurred by the assessee submits that all the expenses incurred by assessee are supported by bills and vouchers. The assessee issued receipts to its clients on receipts or non- receipts basis. The ld. AR of assessee also carried us through various bills showing details of expenses based on receipt and non-receipt. The ld. AR of the assessee submits that similar ad-hock disallowance @ 20% of expenses were made in AY 2010-11, however, on further appeal before ld. CIT(A) similar ad hoc disallowance was deleted in order dated 02.09.2016. No further appeal is filed by revenue. The ld. AR submits that there is no basis of such ad-hoc disallowances. The disallowances based merely on suspicious without pointing out any specific defects in the bills or vouchers. The ld. AR of the assessee submits that no such disallowance is justified.
On the other hand, the ld. Sr. DR for the revenue supported the order of lower authorities. The ld. Sr. DR submits that majority of expenses claimed by assessee was incurred in cash. The assessee is relying upon self-serving vouchers of such expenses. The assessee has debited huge expenses of Rs. 2.02 crore. The assessing officer is very reasonable in making disallowance only @ 5%. On the contention that similar disallowances in AY 2010-11 were deleted, the ld Sr DR for the revenue submits that each year is separate and independent and expenses has to be examined on the basis of evidences.
The assessee does not deserve any relief.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. The assessing officer made disallowance of 5.00 % of total expenses by holding that bills of several expenses were verified and find that cash payment is supported by self-made vouchers. The assessing officer made disallowance of 5.00 % of total expenses. The ld. CIT(A) upheld the action of assessing officer by holding that assessee failed to provide corroborative document and independent confirmation. Before us, the ld. AR of the assessee vehemently argued that their books of accounts are audited. The nature of business of assessee require cash expenses for cargo handling transport and services, examination fees, loading and unloading expenses. On careful consideration of facts of the case, we find that the lower authorities made ad-hoc disallowance by general observation without specific bills or vouchers. We find that assessee has shown return of income of Rs. 1.05 crore. We further find that similar ad- hoc disallowance was made in AY 2010-11, however, on further appeal, the entire disallowance was deleted. Thus, considering overall facts and circumstances of the case, in our view to avoid the possibility of revenue leakage, the disallowance @ 2.00% of total expenses would be sufficient to meet the end of justice, thus, the assessee is allowed part relief. In the result, the grounds of appeal raised by the assessee are partly allowed.
In the result, the appeal of assesseeis partly allowed.
Order pronounced in the open Court on 23/06/2025.