Case Law Details
Aslam Parveez Vs CIT (ITAT Bangalore)
Bangalore ITAT Deletes Disallowance of ₹99.24 Lakh – Genuine Business Expenses Cannot Be Rejected on Ad Hoc Basis When Supported by Evidence
The Bangalore ITAT held that hulling/curing charges incurred by a coffee trader for processing raw coffee beans into marketable coffee were wholly and exclusively for business purposes and allowable under section 37(1). The Tribunal observed that the assessee had produced ledger extracts, invoices and bank statements, establishing the genuineness of the expenditure. Since the assessee outsourced coffee processing on a job-work basis due to the absence of its own curing facility, the expenditure could not be treated as unexplained merely because the Assessing Officer doubted the nature of the business. Accordingly, the disallowance of ₹88,00,966 was deleted.
The Tribunal also deleted the 25% ad hoc disallowance of agricultural expenses amounting to ₹11,23,929. It noted that the assessee had furnished complete details of diesel, fertiliser and pesticide expenses, labour, transportation, agricultural loan interest, along with supporting bills, vouchers, bank statements and cash records. The Revenue had not identified any specific unsupported expenditure. The ITAT held that ad hoc disallowances are unsustainable where proper documentary evidence is available, and directed the Assessing Officer to delete the addition. The appeal was partly allowed, with the substantive additions deleted while unargued procedural grounds were dismissed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA No. 204/Bang/2026 is filed by Shri Aslam Parveez, proprietor of Chikmagalur Coffee Agencies, against the appellate order dated 26 December 2025 passed by the National Faceless Appeal Centre for Assessment Year 2020-21. By that order, the appeal against the assessment order passed under section 143(3) of the Income-tax Act, 1961 on 22 September 2022 was partly allowed.
2. The assessee is aggrieved by the order of the first appellate authority in sustaining the disallowance of ₹88,00,966 claimed under section 37(1) as hulling/curing charges, treating the expenditure as unexplained, despite the assessee producing ledger extracts, invoices and bank statements to show that the expenditure was incurred wholly and exclusively for business purposes.
3. The assessee is also aggrieved by the ad hoc 25 % disallowance of agricultural expenses,of Rs. 1123929/- originally claimed at ₹47,46,934, despite furnishing expense-wise details and supporting evidence for diesel, fertilisers and pesticides, labour, transportation, bank interest, and other charges. The assessee has further raised grounds alleging procedural lapses in the appellate proceedings.
4. Briefly, the assessee, an individual, filed his return of income on 16 January 2021 declaring total income of ₹29,03,790. The return was selected for scrutiny, and the assessment was completed on 22 September 2022 at total income of ₹1,28,91,490 after making additions aggregating to ₹99,87,700. The assessee preferred an appeal before the learned CIT(A)/NFAC, who granted partial relief. Being dissatisfied with the relief granted, the assessee is in further appeal before us.
5. During assessment proceedings, the Assessing Officer noted that the assessee owned 122 acres of agricultural land and, therefore, agricultural income could not be denied. However, he observed that the assessee was engaged in the retail sale of coffee through Chikmagalur Coffee Agencies and, in his view, was not involved in any manufacturing activity. On this basis, hulling/curing charges of ₹88,00,966 debited in the profit and loss account were disallowed. The Assessing Officer also noted that the assessee had sold coffee beans and other agricultural produce and, as details of agricultural expenses of ₹47,46,934 were not furnished to his satisfaction, he disallowed 25% thereof, amounting to ₹11,86,734. Thus, total disallowances of ₹99,87,700 were made.
6. The assessee challenged both disallowances before the learned CIT(A)/NFAC. The first appellate authority confirmed the disallowance of ₹88,00,966 on the ground that sufficient opportunities had been granted during assessment proceedings, but the assessee had not produced the required details. As regards agricultural expenses, the disallowance was restricted to 25% of ₹44,95,718 after granting relief in respect of bank interest. Accordingly, the appeal was partly allowed.
7. Before us, the learned Authorised Representative submitted that the assessee had filed a detailed paper book before the learned CIT(A)/NFAC and had furnished complete details of the expenditure of ₹88,00,966. It was explained that the assessee purchases raw coffee beans from planters and gets them processed to make them marketable, including dehusking, cleaning, hulling, and grading. Since the assessee has no curing facility, the work is carried out on a job-work basis before the processed coffee is sold to buyers or export houses. It was therefore submitted that the hulling/curing charges are genuine business expenses and are allowable under section 37(1). It was further submitted that the assessee is engaged in wholesale coffee trading and that the accounts are audited. With respect to agricultural expenses, the assessee submitted details of diesel, fertilisers and pesticides, interest on agricultural loan, labour, and transportation expenses, along with supporting vouchers, bills and bank statements. The learned Authorised Representative contended that, once complete evidence was produced, the disallowances made by the Assessing Officer and sustained by the learned CIT(A)/NFAC deserved to be deleted.
8. The learned Departmental Representative supported the orders of the lower authorities and submitted that, as the assessee had failed to furnish the required details before the Assessing Officer, the disallowances were justified.
9. We have considered the rival submissions and perused the orders of the lower authorities. The assessee produced ledger extracts, invoices and bank statements in support of the hulling/curing charges. The nature of the assessee’s business includes purchase of raw coffee beans, processing them through dehusking, cleaning, hulling and grading, and thereafter selling the processed coffee. These expenses were therefore incurred wholly and exclusively for the purposes of business and cannot be treated as unexplained. Accordingly, we direct the Assessing Officer to delete the disallowance of ₹88,00,966. Ground No. 1 is allowed.
10. As regards the agricultural expenses, the Assessing Officer had made an ad hoc disallowance of 25% of the expenses on the ground that complete details were not available. However, before the appellate authorities and before us, the assessee furnished details of diesel expenses of ₹2,19,391, fertiliser and pesticide expenses of ₹15,48,675, interest on agricultural loan, and labour and transportation expenses of ₹26,69,683, along with supporting bills, vouchers, bank statements and cash details. Most payments were made through banking channels, and the remaining entries were recorded in the regular books of account. When complete details and supporting evidence were available, an ad hoc disallowance of 25% was not justified. It is not the Revenue’s case that any specific item remained unsupported. We therefore direct the Assessing Officer to delete the disallowance of ₹11,23,929. Ground No. 3 is allowed.
11. Ground No. 2, relating to procedural lapses, was not separately argued and is therefore dismissed. Ground No. 4, concerning non-application of rule 46A of the Income-tax Rules, 1962 and non-admission of additional evidence, was also not separately argued and is dismissed. Grounds Nos. 1, 5 and 6, being general in nature, are dismissed.
12. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 24th June, 2026.
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