NEW CHALAI AGENCIES,TRIVANDRUM vs. ACIT, CIRCLE 1(2), TRIVANDRUM

O R D E R PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. Addl/JCIT(A)-9, Mumbai dated 7.6.2024 vide DIN & Order No. ITBA/APLS/250/2024-25/1065462554(1) for the AY 2017-18 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).

3. The assessee is a partnership firm engaged in the business of dealing in paints. The return of income for A.Y. 2017-18 was e-filed on 30/11/2017 declaring income at Rs. 1,13,65,030/-. Thereafter the case was selected for Complete Scrutiny under CASS. Accordingly, the Notice u/s. 143(2) of the Act was issued on 21/09/2018 and duly served upon the assessee electronically. Thereafter notices were issued u/s. 142(1) of the Act calling for details were also sent & served. The assessee submitted responses to notice u/s 142(1) of the Act. The AO observed that the assessee had claimed loading and unloading charges to the tune of Rs. 47,60,371/- and Rs. 16,37,794/- respectively. Since these expenses New Chalai Agencies, Trivandrum Page 3 of 5 were supported by self-made vouchers, in order to take care of the possible inflation of expenses, the AO disallowed 20% of the expenses which comes to Rs. 12,79,633/- and added back to the total income.

4. Aggrieved by the assessment order dated 06/12/2019 passed by the AO, the assessee preferred an appeal before the ld. Addl/JCIT(A).

New Chalai Agencies, Trivandrum Page 4 of 5 9. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the AO has passed the assessment order u/s. 143(3) of the Act for the AY 2017-18 on 06/12/2019 by accepting the books of accounts and only after scrutinizing the submissions as made during the course of the assessment proceedings. The AO has made the adhoc disallowance of 20% only on the ground that the expenses were supported by self made vouchers & in order to take care of the possibility of inflation of expenses. It is also not in dispute that the AO while making adhoc disallowance has not rejected the books of account. It is also not in dispute that these expenses are not incurred wholly & exclusively for the business purposes but the AO only in order to take care of the possibility of inflation of expenses, disallowed 20% on adhoc basis. Further we are of the opinion that the adhoc disallowance of 20% as made by the AO on the basis of suspicion, surmises & conjectures is not sustainable. It is not a case that no bills & vouchers were produced during the course of the assessment proceedings. The only contention of the AO is that the self made vouchers were produced in respect of loading and unloading expenses. Further we are also of the view that the AO has not brought material on record of any specific instance of discrepancy in the vouchers produced by the assessee in support of the claim of expenditure. We are of the considered opinion that suspicion however strong cannot take the place of proof. Further we are also of the opinion that the AO has not given any basis of considering 20% for disallowing on adhoc basis.

9.1 In view of the above facts and discussion the ad-hoc disallowance made by the AO out of loading & unloading expenses is held to be made on presumption only. The AO has made this disallowance based on general observation without pointing out any specific evidences/submissions produced before him. The AO has New Chalai Agencies, Trivandrum Page 5 of 5 made ad-hoc disallowance of Rs. 12,79,633/- in order to take care of the possibility of inflation of expenses. There is no specific defect pointed out by the AO in the vouchers/bills produced or evidences produced. There is no finding of the AO that these expenses are not genuine. He has made the disallowance based on general observation which is not sustainable. In view of the above facts the adhoc disallowance of expenses made by the AO of Rs. 12,79,633/- is not sustainable in the eyes of law and same is hereby deleted.