Ad-Hoc 5% Expense Disallowance Held Unsustainable by ITAT

Indutch Composites Technology Private Limited Vs DCIT (ITAT Ahmedabad)

Ad-hoc 5% Disallowance Unsustainable: ITAT Deletes Disallowance of “Miscellaneous Expenses”

The Ahmedabad “C” Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal for AY 2015-16 and deleted the ad-hoc disallowance of 5% made on “Miscellaneous Expenses”.

The Tribunal found that the Assessing Officer disallowed expenses merely on the assumption that they were incurred in cash, without verifying the supporting bills, vouchers, ledgers and audited accounts produced by the assessee. It was noted that nearly 99% of the expenditure was incurred through banking channels, with TDS duly deducted wherever applicable, and the assessee’s net profit had also improved during the year.

Holding that ad-hoc disallowances without examination or specific defects are impermissible, the Tribunal set aside the orders of the lower authorities and directed deletion of the entire disallowance. The assessee’s appeal was allowed in full.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The present appeal has been preferred by the assessee against the order of Office of the Commissioner of Income Tax, Appeal, ADDL/JCIT (A)-1, Nashik, National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 04/08/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2015-16.