Ad-hoc disallowances without rejection of books and without pinpointing specific defects are unsustainable: ITAT Delhi
The Income Tax Appellate Tribunal, Delhi Bench, has deleted the disallowance of ₹44.25 crores made by the Assessing Officer (AO).
The AO had disallowed 25% of various items of expenditure aggregating to ₹177 crores, including salaries, marketing expenses, warehousing charges, service expenses, and legal fees, alleging lack of supporting evidence. Notably, the draft assessment order initially proposed a disallowance of only ₹3 crores, which was subsequently enhanced to ₹44.25 crores without fresh verification or rationale.
Before the Tribunal, it was demonstrated that:
The Assessee had submitted voluminous evidence regarding all expenditures during the assessment proceedings and before the DRP.
The AO neither rejected the Assessee’s books of accounts under Section 145 nor specified any discrepancies in bills, vouchers, or entries.
No adverse findings were recorded in the tax audit report under Section 44AB.
There was no basis or methodology disclosed for applying a 25% disallowance on an ad-hoc basis.
The Tribunal held that:
Ad-hoc disallowances without rejection of books and without pinpointing specific defects are unsustainable.
The Revenue failed to substantiate any logical rationale for enhancing the disallowance from ₹3 crores to ₹44.25 crores.
Mere dissatisfaction with the documentation submitted cannot substitute for evidence-based findings.
Accordingly, the Tribunal deleted the entire disallowance of ₹44.25 crores.
The copy of the order is as under:
