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Facts
The Assessing Officer (AO) made an ad-hoc disallowance of 5% of the expenses claimed under the head 'Other Expenses' by the assessee, stating the expenditure was incurred in cash and not verifiable. The Commissioner of Income Tax (Appeals) confirmed this addition.
Held
The Tribunal held that the AO's observation that the expenditure was in cash was factually incorrect, as almost 99% of it was incurred through banking channels and TDS was deducted where applicable. The Tribunal found the ad-hoc disallowance without proper verification to be unjustified.
Key Issues
Validity of ad-hoc disallowance of expenses without proper verification, and whether expenses were incurred in cash.
Sections Cited
250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: Shri Sanjay Garg & Annapurna Gupta
Year : 2015-16 Indutch Composites The Dy. CIT बनाम/ Technology Private Limited Circle-1(1)(1) v/s. Plot No.187/P/1B-1 GIDC Vadodara – 390 007 Waghodia, Next to Munjal Auto Industries Ltd. Vaghodia, Vadodara – 391 760 "थायी लेखा सं./PAN: AACCI 2331 P (अपीलाथ(/ Appellant) ()* यथ(/ Respondent) Assessee by : Shri Nishit Shah, AR Revenue by : Shri Abhijit Sr.DR सुनवाई की तारीख/Date of Hearing : 27/01/2026 घोषणा की तारीख /Date of Pronouncement: 29/01/2026 आदेश/O R D E R
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of Office of the Commissioner of Income Tax, Appeal, ADDL/JCIT (A)-1, Nashik, National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 04/08/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2015-16. Indutch Composites Technology Pvt.Ltd. vs. DCIT Asst.Year : 2015-16
The assessee, in this appeal, is aggrieved by the action of the lower authorities on account in making disallowance of 5% of the expenditure claimed by the assessee under the head “Other Expenses” on adhoc basis. The assessee claimed total expenditure of Rs.5,34,58,482/- out of which the Assessing Officer (AO) allowed expenditure relating to fuel, rent, rates and taxes and payment to auditors. However, he disallowed 5% of the expenses claimed under the head “Miscellaneous Expenditure” details of which are as under: “Miscellaneous Expenditure Annual Maintenance Charges 12,079.00 0.00 Custom Clearing Charges 128,766.00 128,106.00 Fabrication Expenses 1,536,404.00 690,845.00 Factory Expenses, 1,001,725.00 563,683.00 Freight & Forwarding Charges 2,050,708.00 1,053,981.00 Labour Hiring Charges 10,190,755.00 2,967,827.00 Testing Charges – Material 19,956.00 40,816.00 Calibration Expenses 59,619.00 5,450.00 Consultancy Charges 1,140,250.00 622,617.00 Electricity Expenses-Office 31,896.00 4,270.00 Foreign Exchange Loss 22,974.00 0.00 Hiring Charges 225,000.00 370,098.00 Incentive Expenses 399,839.00 433,619.00 ISO Expenses 82,389.00 0.00 Conveyance Expenses 1,489,894.00 673,737.00 Courier Charges 75,631.00 24,776.00 Job Work Charges 13,467,472.00 7,607,367.00 Legal Expenses 112.510.00 71.400.00 Membership Fees 3,933.00 7,118.00 Miscellaneous Expenditure 71,613.00 60,241.00 Office Expense 194,186.00 231,883.00 Packing Expenses 73,109.00 17,145.00 Service Tax/TDS Interest & Charges 108,450.00 0.00 Printing & Stationery 204,407.00 79,175.00 Repairing & Maintenance Expenses 93,913.00 174,776.00 Repairing Expense of Vehicle 129,781.00 27,463.00 Security Services 775,656.00 686,526.00 Indutch Composites Technology Pvt.Ltd. vs. DCIT Asst.Year : 2015-16 3 Software Maintenance Expenses 0.00 12,500.00 Sales Promotion Expenses 302,700.00 47,391.00 Telephone Expenses 238,041.00 130,051.00 Travelling Expenses 1,636,612.00 1,530,038.00 Vehicle Hire Charges 184.300.00 860.914.00 Preliminary and pre-operative expenses w/off 354,907.00 354,907.00”
2.1. The AO made the disallowance @ 5% out of the above expenditure on adhoc basis, observing that the assessee had incurred this expenditure in cash and, therefore, the same is not verifiable.
In appeal, the Ld. CIT(A) confirmed the addition, so made by the Assessing Officer (AO).
Before us, the Ld. Counsel for the assessee has submitted that the observation of the AO that the expenditure under the head “Miscellaneous Expenditure” were made in cash, was factually incorrect, rather almost 99% of the above stated expenditure under the head “Miscellaneous Expenditure” were incurred through banking channel and the TDS was duly deducted thereupon, wherever applicable. He has submitted that the AO, without verification of the details and evidences submitted by the assessee in the shape of bills and vouchers, ledger and audited financial report, simply disallowed the 5% of these expenditure on adhoc basis without assigning any justifiable reason. He has further submitted that even the net profit rate of the assessee for the year under consideration has increased considerably and there was no reason for the lower authorities to make/confirm the aforesaid disallowance.
The Ld. DR, on the other hand, has relied upon the findings of the lower authorities. Indutch Composites Technology Pvt.Ltd. vs. DCIT Asst.Year : 2015-16
Considering the rival submissions and also the details and nature of the expenses and also the fact that the assessee had incurred the said expenditure through banking channel and further considering that the AO had made the disallowance on adhoc basis without making any effort to verify the aforesaid expenditure, the said disallowance, in our view, is not justified. Therefore, the impugned disallowance and corresponding addition made by the AO is not sustainable and the same is, accordingly, ordered to be deleted.
In the result, the appeal of the assessee stands allowed.