Aadarsh Laddha Vs ITO (ITAT Kolkata)
Ad-hoc Expense Disallowance Can’t Survive Without Proof of Illegality: Kolkata ITAT Deletes 20%–50% Cuts on Self-Made Vouchers
Suspicion Is Not Proof: Ad-hoc Disallowance on Self-Made Vouchers Struck Down- No Penalty, No Prohibition—Section 37 Disallowance Fails
20%–50% Cuts Without Evidence Don’t Pass Judicial Scrutiny- Books May Be Basic, But Additions Can’t Be Arbitrary
Kolkata ITAT ‘SMC’ Bench in Aadarsh Laddha (L/H of Late Kailash Chand Laddha) Vs. ITO, [ITA No. 1013/KOL/2025, AY 2016-17, order dated 31.12.2025] allowed Assessee’s appeal and deleted multiple ad-hoc disallowances of business expenditure made merely on suspicion. AO had disallowed 20% to 50% of various expenses such as staff salary & incentives, conveyance, advertisement, travelling, telephone, data processing, car maintenance, postage and salary payments on ground that Assessee produced only self-made vouchers and not formal registers or third-party bills, thereby inflating assessed income from ₹10.55 lakh to ₹28.48 lakh. Tribunal held that mere absence of salary register or reliance on self-made vouchers cannot automatically justify ad-hoc disallowance unless Revenue brings material to show expenses were bogus or prohibited by law. Relying on Mumbai ITAT decision in HDFC Ergo General Insurance Co. Ltd. and noting absence of any penal action by competent authority under relevant law, Tribunal observed that Explanation 1 to s.37(1) could not be invoked in absence of proof that expenditure was an offence or prohibited by law. In absence of concrete evidence of inflation or illegality, entire ad-hoc disallowances were held unsustainable and deleted. Appeal was allowed in full
FULL TEXT OF THE ORDER OF ITAT KOLKATA
