Sheo Bhagwan Goel Vs ACIT (ITAT Raipur)
Introduction: The Income Tax Appellate Tribunal (ITAT) Raipur ruled on the case of Sheo Bhagwan Goel vs. ACIT, challenging an ad-hoc disallowance. The contentious issue was the arbitrary addition of Rs 1,70,000, based on a disproportionate increase in freight charges. The lower tax authorities contended that some expenses lacked third-party evidence, relying on self-made vouchers. The appellant argued against the legality of this disallowance, emphasizing the absence of specific details and reasons.
Detailed Analysis: Upon scrutinizing the assessment records, it became evident that neither the assessing officer nor the first appellate authority provided specific details or reasons for the ad-hoc disallowance. The expenditure’s genuineness, claimed for business purposes, lacked proper scrutiny. The circular reasoning employed by the tax authorities highlighted a lack of concrete findings, leading to an arbitrary decision-making process.
No statutory provision was identified authorizing such ad-hoc disallowances. The tribunal found no clear evidence or rationale for the chosen percentile of disallowance. The absence of specific infirmities in the assessee’s claim and the lack of deprecative material further weakened the grounds for the disallowance.
Conclusion: The ITAT Raipur concluded that the ad-hoc disallowance was unjustified. Section 37(1) of the Income Tax Act allows for expenditure deduction, subject to explicit conditions. The burden of proof rests on the assessee, which, if discharged, shifts to the revenue to substantiate disallowances. In this case, the assessing officer failed to consider the period of operation, ignored relevant details, and made disallowances based on conjecture.
The tribunal emphasized that an ad-hoc disallowance without specific reasons and without challenging the genuineness of individual vouchers is legally untenable. Citing relevant legal precedents, the tribunal set aside the lower authorities’ decision and directed the assessing officer to delete the ad-hoc disallowance entirely.
This landmark case highlights the importance of a thorough examination of expenses, adherence to statutory provisions, and the necessity for specific reasons in disallowance decisions.
Solitary basis for making arbitrary addition and sustaining the ad-hoc disallowance by the lower tax authorities was that, the some of the aforementioned expenditure were supported only by self-made vouchers in the absence of third-party evidence. The counsel for the assessee opposed the same proposing that, without specifying the vouchers, amounts and reasons the disallowance was unlawful and should not sustained. Per contra, the Ld DR supported the order of the authority below citing the equi-reasons thereof.
Our careful consideration of assessment records and the records of appellate proceedings it transpired that, neither of the lower tax authorities had pointed any such vouchers, the genuineness of the expenditure therein claimed to have been incurred by the assessee wholly and exclusively for the purpose of its business did not inspire any confidence, nor it was the case of the revenue that any part of the expenditure in question was either found to be bogus or fictitious, nor was found to have not been incurred by the assessee wholly and exclusively for the purpose of his business. Indeed, it showcased an exercise of running around the circle by both the lower tax authorities while dealing with the present case.
We neither could come across any provision in the present Income Tax Statute, nor it has been brought to our notice by either parties to dispute, which subscribes vis-à-vis authorises the tax authorities to arrive at this logic of subscribing ad-hoc disallowances. Evidently, there has been no clear findings as to number of vouchers requiring denial of allowances with the amount of expenditure and nature of defects therein or therewith, moreover department could not bring out any deprecative material on record to substantiate its conclusion as logical. We couldn’t also see remotely there is any mention of rationale in arriving at and applying the percentile of disallowance in the present case, consequently we find substantial force in the claim of the assessee that devoid of any specific infirmity qua the assessee’s claim for deduction of the aforementioned expenditure by the lower tax authorities, and for the reason, the ad-hoc disallowance carried out in a most arbitrary manner could by no means be held to be justified.
