Pyung HWA India Private Limited Vs DCIT (ITAT Chennai)
ITAT Chennai held that adhoc disallowance of expenses merely on the basis of suspicion without adequate evidence and cogent reason is not tenable in law. Accordingly, adhoc disallowance under repair and maintenance and sundry expense set aside.
Facts- During the course of assessment proceedings, the AO observed that on perusal of the financials, the sales had gone up by 5%. However, the increase in repair and maintenance expenses was disproportionate to sales, considering the increase in sales and was not reasonable for the purpose of business. Therefore, the excess of repair and maintenance amounting to Rs.83,00,088/- was disallowed. Further, the AO, considering the increase in sales, also disallowed the excess of sundry expenses amounting to Rs.23,12,388/- on an adhoc basis. CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.
Conclusion- It is a settled legal position that it is not for the department to dictate ‘what amount of expenditure’ the assessee should incur as reasonable for its business. If in the opinion of the AO an expenditure is high, then he should have called the assessee for further details and explanations before drawing any adverse inference, rather than making a disallowance on adhoc basis merely on presumption. There are ample powers with the AO to cross check the genuineness. We do not find any such effort was exercised by the AO on record. In our considered opinion the suspicion backed by no evidence cannot be a cogent reason for disallowance of impugned expenses. Further, we find that the AO has not doubted the claim of expenditure but has merely made general observation while making an adhoc disallowance of impugned expenses on an estimated basis without rejecting the books of accounts of the assessee.
