Penchalaiah Dasari Vs ITO (ITAT Hyderabad)
The ITAT Hyderabad examined a case where the Assessing Officer made ad-hoc disallowance of salaries, disallowed the entire commission expenditure, and simultaneously estimated net profit. The Tribunal held that such a dual approach is legally untenable. Once the books of account are rejected and income is estimated, the AO cannot rely on the same rejected books to make further disallowances of individual expenses. Even though section 145 was not expressly invoked, the conduct of the AO clearly showed rejection of books and resort to estimation. The CIT(A) erred in sustaining the disallowance of salary and commission while deleting the profit estimation. Relying on binding precedents in Indwell Constructions v. CIT (AP HC) and Prasant Oil Mill v. ITO (Guj HC), the ITAT deleted the disallowance of salaries amounting to ₹53.71 lakh and commission of ₹15.00 lakh. However, the estimation of net profit addition of ₹6.47 lakh was upheld. The appeal was accordingly partly allowed in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Shri Penchalaiah Dasari (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 11.02.2025 for the Assessment Year 2018-19.
