DCIT Vs Bright Point India Pvt. Ltd (ITAT Delhi)
Ad-hoc Disallowances without rejection of books unsustainable – ₹5.85 Cr Expense Deletion Upheld
Delhi ITAT has dismissed e Revenue’s appeal thereby upholding the relief granted by CIT(A) against ad-hoc disallowances of business expenses exceeding ₹5.85 crore. Tribunal categorically held that when books of account are neither rejected nor defects pointed out, AO cannot resort to arbitrary disallowances u/s 37(1).
Assessee engaged in wholesale trading of electronics, filed its return for AY 2017–18 declaring a business loss of ₹9.70 crore. The case was selected for scrutiny & the AO proceeded to disallow various expenses u/s 37(1) aggregating to ₹5,85,84,551/-, citing lack of supporting evidence. The disallowances covered multiple heads of expenses ranging from ₹8.68 lakh to as high as ₹3.57 crore.
CIT(A) deleted the entire disallowance after making key observations that AO did not reject books of account, no defect was pointed out in the audited statements or books & no independent inquiry was conducted to prove that the expenses were non-genuine. Assessee had consistently claimed similar expenses in earlier years, which were accepted in scrutiny assessments. Relying on the judgment of the Delhi High Court in PCIT v. R.G. Buildwell Engineers Ltd., CIT(A) held that such ad-hoc disallowances were unsustainable in law.
