| The Tax Publishers2019 TaxPub(DT) 7490 (Del-Trib) INCOME TAX ACT, 1961
Section 37(1)
Where addition was only on the basis of presumption and assumption that decrease in sales amounts to decrease in expenses hence merely on the basis of conjecture, the ad hoc addition cannot be made without any tangible reason to do so.
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Business expenditure - Allowability - Ad hoc disallowance of business expenses on ground that decrease in sales amounts to decrease in expenses -
AO made disallowance of Rs. 3,73,50,300 on ad hoc basis on account of various expenses incurred during the year. AO disallowed expenses on the assumption that expenses increased/decreased in proportion to sales. AO had observed in his order that sales figure had been reduced by 5.62% i.e., from Rs. 3,20,49,20,000 in financial year 2014-15 to Rs. 3,02,90,97,000 in financial year 2015-16. On the same basis, the AO compared expense of financial year 2015-16 vis-a-vis the financial year 2014-15. The reasons for the increase in the expenses as pointed out by the AO were arbitrary and unjustified having regard to the business of the assessee. AO as well as the CIT(A) did not point out any specific expenses which do not clarify the expressions under section 37(1). AO made the disallowance in the absence of any tangible material on record. Held: It was pertinent to note that books of account produced by the assessee during the course of assessment proceeding were never doubted and were not rejected. Addition was only on the basis of presumption and assumption that decrease in sales amounts to decrease in expenses. The ledger accounts were very much produced before the AO and the same was before the CIT(A). Merely on the basis of conjecture, the ad hoc addition cannot be made without any tangible reason to do so.
REFERRED : Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) : 1954 TaxPub(DT) 123 (SC), Lalchand Bhagat Ambica Ram v. CIT (1959) 37 ITR 288 (SC) : 1959 TaxPub(DT) 181 (SC), CIT v. Ms. Shehnaz Hussain (2004) 267 ITR 572 (Del) : 2004 TaxPub(DT) 0798 (Del-HC), J.J. Enterprises v. CIT (2002) 254 ITR 216 (SC) : 2002 TaxPub(DT) 676 (SC), Vichitra Constructions (P) Ltd. v. Asstt. CIT (ITA No. 5047/Del/2015, dt. 27-5-2019) : 2019 TaxPub(DT) 4798 (Del-Trib).
FAVOUR : In assessee's favour.
A.Y. : 2016-17
INCOME TAX ACT, 1961
Section 68
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