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Facts
The assessee, engaged in trading tendu leaves, filed a return declaring Rs. 1,19,16,990/-. The assessment was completed at Rs. 1,23,87,990/- after proposed additions for unsecured loans and cash expenses. The unsecured loans addition was dropped, but a 5% ad-hoc disallowance of cash expenses was made.
Held
The Tribunal held that due to the nature of the business (trading forest produce in remote areas) and the tribal recipients, cash payments are practically unavoidable. The Assessing Officer did not doubt the books of account or invoke Section 145(3). The addition was therefore considered arbitrary and lacking merit, especially since no independent inquiry was conducted by the lower authorities.
Key Issues
Whether ad-hoc disallowance of cash expenses is justified without doubting the books of account or invoking Section 145(3), considering the business exigencies?
Sections Cited
143(3), 145(3), 250(4), 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY & SHRI AVDHESH KUMAR MISHRA
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM:
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 04.09.2025 for the assessment year 2022-23 as per the grounds of appeal on record.
2. The brief facts in this case are that the assessee is an individual engaged in the business of trading of tendu leaves (forest produce) through the Forest Department Government tenders since many years. That for the relevant assessment year, the assessee had filed return of income declaring total income of amounting to Rs.1,19,16,990/- dated 23.09.2022. Subsequently, the case of the assessee was selected for complete scrutiny under CASS and statutory notices were issued. Accordingly, assessment was completed u/s.143(3) of the Income Tax Act, 1961 (for short ‘the Act’) at assessed income of Rs.1,23,87,990/-. That during the course of assessment proceedings, the A.O had issued show cause notice proposing additions on the following additions: (i) Unsecured loans received during the year- Rs.2,60,50,000/- (ii) 20% disallowance of several cash expenses debited to P & L. A/c- Rs.18,84,000/-(20% of 94,20,000/-).
Thereafter, the assessee had duly submitted the supporting documents evidencing the genuineness of Unsecured loans and the same
3 Ajay Agrawal Vs. ACIT, Circle-1(1), Raipur (C.G.) was duly accepted by the A.O and the proposed variation of Rs. 2,60,50,000/- with regard to unsecured loan was dropped. That further, in response to the proposed variation of 20% disallowance of various cash expenditure, the assessee has duly mentioned the fact that the business of Tendu leaves is mainly carried out in deep forests (tribal areas) with no banking channels available and that the recipient of these payments are tribal people and therefore, the payments can be made only through cash and self-made vouchers. During the virtual hearing also, the A.O directed the assessee to submit the documents in support of cash payments made under different heads of expenses and in response to the same, the assessee has further submitted a substantive sample of vouchers in support of the various cash expenditure. However, while concluding the assessment, the A.O made ad-hoc disallowance of 5% of various cash expenses amounting to Rs.4,71,000/- on the basis of earlier assessment precedence.
When the matter went before the First Appellate Authority, the Ld. CIT(Appeals)/NFAC restricted the disallowance amounting to Rs.94,200/- while deleting the remaining amount of Rs.3,76,800/- out of total disallowance of Rs.4,71,000/-.
We have heard the rival contentions of the parties herein, carefully considered the documents on records and analyzed the facts and 4 Ajay Agrawal Vs. ACIT, Circle-1(1), Raipur (C.G.)
circumstances in this case. Admittedly, the assessee herein deals with tendu leaves which is dense forest produce and also it is fact that the assessee gets business through Forest Department tenders. There are relevant practical difficulties in the present line of business for example in absence of banking facilities available, in order to employ the tribal for gathering and for various other process for tendu leaves only cash payments are to be made. This indigenous working culture should have been taken into account by the Department balancing the facts on one hand and applicability of the law on the other. There cannot be blanket addition for failure to comply with certain legal provision without admitting the business nature of the assessee, without considering the areas in which the assessee is working. Moreover, we observe that the A.O had neither doubted the genuineness of the books of account nor resorted to Section 145(3) of the Act. That power of the Ld. CIT(Appeals)/NFAC is co- terminus with that of the A.O who had also not conducted any independent inquiry as mandated u/s. 250(4)&(6) of the Act and simply had confirmed ad-hoc disallowance of Rs.94,200/- and at the same time accepting the genuineness of the transactions reflected in the books of account of the assessee. It is not open for the Revenue authorities to make ad-hoc disallowance over and above the transactions reflected in the books of account without resorting to Section 145(3) of the Act. Our aforesaid view is fortified by the following judicial pronouncements viz. (i) Pr. CIT,
5 Ajay Agrawal Vs. ACIT, Circle-1(1), Raipur (C.G.)
Chennai Vs. Marg Ltd., (2017) 396 ITR 580 (Madras) (ii) Anil Kumar Jain Vs. ACIT (Central, Bilaspur, & 585/RPR/2025, dated 06.01.2026; and (iii) Step Logistics Private Limited Vs. DCIT, Circle- 1(1), Raipur (C.G.), dated 19.03.2026.
In view thereof, we do not find any merit in the findings of the Ld. CIT(Appeals)/NFAC which is therefore set aside and the A.O is directed to delete the additions from the hands of the assessee while providing appeal effect of this order.
That as per above terms, appeal of the assessee is allowed. Order pronounced in the open court on 10th April, 2026.
Sd/- Sd/- AVDHESH KUMAR MISHRA PARTHA SARATHI CHAUDHURY (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 10th April, 2026. SB, Sr. PS आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
1. 1. अपीलाथ� /The Appellant. 2. ��यथ� /The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G.) 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. 5. गाड� फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy //
6 Ajay Agrawal Vs. ACIT, Circle-1(1), Raipur (C.G.) ITA No.710/RPR/2025
Senior Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.