Estimation of Profit Bars Further Expense Disallowance – AO Cannot Blow Hot and Cold

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 CI...