INCOME TAX ACT, 1961

Section 145

Accounting method - 10% Ad hoc disallowance - Bogus expenditure - AO had not followed the procedure prescribed by the statute

AO noted that assessee had incurred an expenses and all these expenses were incurred in cash and supported by self-made debit vouchers. Therefore, AO issued show cause notice to the assessee mentioning as to why 10% of the expenses should not be disallowed. AO held that assessee was asked to provide party-wise details of coolie and cartage expenses which he failed to provide. Consequently, the genuineness of the transaction could not be established. Merely because of non-disallowance in the past was no ground for non-addition in this case. Thereafter, AO disallowed 10% of the claim made by assessee. Held: AO without rejecting the books of account as required under section 145(3) has resorted to estimate the income by ad hoc disallowance of expenditure claimed by assessee and if AO is not satisfied about the correctness or completeness of the accounts of assessee, or where the method of accounting provided in sub-section (1) of section 145 has not been regularly followed by the assessee, or income was not computed in accordance with the standards notified under sub-section (2) of section 145, then AO might make an assessment in the manner provided in section 144, which allows AO to make Best Judgment Assessment. This was not what the AO did. Thus, AO had not followed the procedure prescribed by statute and therefore, he violated the principle of “Rule of Law” and accordingly, ad hoc disallowance of 10% made by AO could not be allowed.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2015-16

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