What did the Tribunal hold?

The Tribunal found that while some disallowance was warranted due to the assessee producing self-made vouchers, the ad-hoc disallowance by the lower authorities was on the higher side. The disallowance was restricted to 5% of the expenses.

The assessee, a distributor, claimed business expenses including telephone, sales promotion, packing material, and repairs. The Assessing Officer made an ad-hoc disallowance of 10% of these expenses for lack of substantiation, which was upheld by the CIT(A).

What were the issues?

Whether an ad-hoc disallowance of business expenses is justified when the assessee provides self-made vouchers and whether the quantum of disallowance is excessive.

Shreeji Agencies vs ACIT | ITAT Mumbai 2021

Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI

Before: SHRI VIKAS AWASTHY

For Appellant: Shri Jitendra Singh

For Respondent: Shri Ajay Pratap Singh

आदेश/ ORDER

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-34, Mumbai ( in short ‘the CIT(A)’) dated 17/01/2019 for the assessment year 2013-14.

Shri Jitendra Singh, appearing on behalf of the assessee submitted that the assessee is a distributor of Hindustan Unilever Ltd. The assessee had claimed certain business expenditure viz:

(i) Telephone expenses - Rs. 1,06,346/- (ii) Sales Promotions expenses - Rs. 27,74,861/- (iii)Packing material expenses - Rs. 30,249/- (iv)Repairs and maintenance - Rs. 11,65,601/- The Assessing Officer made adhoc disallowance of 10% of the above expenses on the ground that the assessee has failed to substantiate the expenses. The assessee carried the issue in appeal before the CIT(A). The CIT(A) rejected the submissions of assessee and confirmed the addition in full. The ld.Authorized Representative of the assessee contended that the books of accounts were not rejected by the Assessing Officer. The assessee has produced all relevant material to prove the genuineness of the purchases. However, Assessing Officer and CIT(A) raised doubt over the vouchers furnished by the assessee. The ld.Authorized Representative of the assessee prayed for deleting the adhoc disallowance.

Shri Ajay Pratap Singh, representing the Department submitted that during the assessment proceedings the Assessing Officer asked the assessee to produce supporting documents to substantiate the genuineness of the purchase claim. The assessee produced self made vouchers. The evidence produced by the assessee was self created, hence, the same was rejected by the Assessing Officer and the CIT(A). The ld.Departmental Representative prayed for dismissing the appeal of assessee.

Both sides heard, orders of authorities below examined. The only dispute in the present appeal is against adhoc disallowance of expenditure Rs.4,07,706/-. Undisputedly, during the assessment proceedings, the assessee produced self made vouchers in respect of some expenditure. The Assessing Officer and the CIT(A) disbelieved the vouchers produced by the assessee by holding them to be self serving evidence. Taking into consideration entire facts I am of considered view that estimation of adhoc disallowance by lower authorities is on higher side. At the same time some disallowance is warranted as the assessee failed to produce cogent evidence to back entire expenditure. The ends of justice would be met if adhoc disallowance is restricted to 5%.

In the result, appeal by assessee is partly allowed.

Order pronounced in the open Court on Monday, the 11th day of January, 2021.

SHREEJI AGENCIES,MUMBAI vs. ACIT 23 (3), MUMBAI

What did the Tribunal hold?

What were the facts?

What were the issues?

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