BABAJI SHIVRAM & CARRIERS PRIVATE LIMITED,MUMBAI vs. ACIT-2(1)(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 04.04.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.

The only issue raised by the assessee is against the confirmation of adhoc disallowance of Rs.11,59,343/- by Ld. CIT(A) as made by the AO on account of staff welfare expenses, conveyance expenses, general expenses and office maintenance expenses.

The facts in brief are that the AO during the assessment proceedings observed that assessee has claimed expenses under various heads such as staff welfare expenses of Rs.29,53,204/-, conveyance expenses Rs.39,20,370/-, general expenses Rs.27,45,532/- and office maintenance expenses Rs.19,74,323/- aggregating to Rs.1,15,93,429/-. The AO observed that in the earlier year also the disallowance under these heads was made to the tune of 10% and accordingly show cause was noticed to the assessee as to why the same disallowance should not be made in the current year which was replied by the assessee by submitting that the said expenditure was incurred in the ordinary course of business and duly vouched by the auditors of the assessee. However, the AO observed that most of these vouchers were self made and were incurred in cash and thus made an adhoc disallowance @ 10% which comes to Rs.115,93,43/-.

In the appellate proceedings, the Ld. CIT(A) held these disallowances @ 10% to be reasonable for the reason that all these expenses were booked on the basis of self made vouchers and payments were made in cash.

After hearing both the parties and perusing the material on record, we observe that the authorities below have made adhoc disallowances of expenses incurred under the various heads to the extent of 10% of the total claim of the assessee. The only reasons attributed by the authorities are that these expenses were incurred in cash and booked on the basis of self made vouchers. In our opinion, the disallowance was purely made on the basis of presumptions and surmises and adhoc in nature

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