What did the Tribunal hold?

The Tribunal noted that the disallowance was purely ad-hoc and not based on specific invoices or itemized disallowance. Given the increase in turnover, the corresponding increase in expenses was considered reasonable.

The assessee firm, a textile retailer, claimed significant increases in salary and electricity charges in AY 2017-18 compared to the previous year. The AO disallowed 10% of these expenses on an ad-hoc basis due to a lack of supporting documents.

What were the issues?

Whether an ad-hoc disallowance of expenses is justified without specific evidence or itemized breakdown, especially when turnover has increased.

Sri Krishna Saree, Nagapattinam vs ITO | ITAT Chennai 2022

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL

Hearing: 12.05.2022Pronounced: 25.05.2022

आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi in Appeal No. CIT(A), Tiruchirappalli – 1/10301/2019- 20 dated 27.12.2021. The assessment was framed by the ITO, Ward (1), Chennai for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 17.12.2019.

2 2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in estimating the disallowance of expenditure on adhoc basis @ 10% on salary and EB charges. For this, assessee has raised various factual grounds, which need not to be reproduced.

We have heard ld. Senior DR and gone through facts and circumstances of the case. Brief facts are that the assessee firm is a retail trader of textile business. During the course of scrutiny assessment proceedings, the AO noticed from the ledger account that the assessee has paid salary and EB charges to the extent of Rs.17,34,000/- as against salary and Rs.17,06,647/- as EB charges claimed immediately preceding year i.e., year ended 31.03.2016 at Rs.6.60 lakhs. As the assessee has not furnished any supportive documents, the AO disallowed 10% of salary and EB charges and thereby worked out the disallowance at Rs.1,73,400/- from salary and Rs.1,70,600/- from EB charges. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) simpliciter confirmed the action of AO. Aggrieved, now assessee is in appeal before the Tribunal.

We have heard ld.DR and gone through facts and circumstances of the case. We noted that the assessee in the relevant year 2016-17 i.e., financial year claimed salary and EB charges to the extent of Rs.17.34 lakhs and Rs.17.06 lakhs

3 respectively on a total turnover of Rs.5,63,46,823/-. We have also noted that in the immediate preceding year i.e., year ended 31.03.2016, the assessee has incurred salary expenses of Rs.6.60 lakhs and EB charges of Rs.2.88 lakhs as against total turnover of Rs.2,39,41,889/-. We noted that the turnover has increased more than double and consequently expenses have increased little more than doubt on both counts i.e., salary as well as EB charges. We noted that the AO has made estimated disallowance on the basis that the assessee has not furnished any separate documents like details of staff or details of electricity bills. We noted that this is purely adhoc disallowance made by AO and confirmed by CIT(A) and there is no itemized disallowance and based on specific invoice. Hence, we delete the disallowance and allow the appeal of assessee.

In the result, the appeal of the assessee is allowed.

SRI KRISHNA SAREE,NAGAPATTINAM vs. ITO WARD-(1), NAGAPATTINAM

What did the Tribunal hold?

What were the facts?

What were the issues?

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