Disallowance of Business Expenses by AO: A Glaring Instance of Unfair Logic

The intricate realm of Income Tax often perplexes even the greatest minds, as exemplified by Einstein’s retreat from its complexities. Despite its legal and logical intricacies, one glaring instance of unfairness emerges: the disallowance of business expenses by Assessing Officers (A.Os). This article delves into the rationale, or lack thereof, behind such actions and the repercussions faced by taxpayers.

1. Income Tax is indisputably not only in a legal perspective but also for logical ends the most complex subject in the world, which is the solitary reason that even baffled the Great Einstein, who preferred to leave this subject in the hands of philosophers. Yes, he was absolutely true, and such an opinion rendered by him is proportionate to the magnanimous personality like his for all ages.
2. For example, in many assessments of business files, it is conventional for the assessing authorities to disallow the business expenses mostly on the ground of assesses’ inability to prove the genuineness of said expenses, and they proceed to disallow the expenses either on a percentage basis or the entire expenses. In case of estimated disallowance of expenses, it may be partly acceptable depending upon the assesses’ incapacity to prove the expenses by the documents to the satisfaction of A.O.
3. Although many judicial decisions have not approved such a manner of baseless estimation by holding that either the A.O has to disallow the entire expenses or allow them completely. But in many cases, it is found that A.Os tend to disallow the entire expenses or a substantial portion of expenses.
4. Now the question is by what logic A.O resorts to such grave action? The normal answer is the inability of the assessee to prove the genuineness of said expenses by cogent evidence. But now another question is when the A.O has not disputed the source of returned income and tax paid thereon before passing the assessment order then on what logic does he have the power to believe that the assessee has not incurred any expenses for earning the said business turnover? Is it logically possible to incur business turnover and income without any expenses by the assessee? The answer is not required to be given, but such grave illogical approaches by the assessing authorities are very common.
5. Maybe the assessee has a definite onus to prove the genuineness of expenses claimed in the profit and loss account, but it is often found that just for the shortage of some evidence or non-receipt of replies from the person u/s 133(6) issued by the A.O often lands the assessee in the big burden of blanket disallowance of expenses.
6. It is the same case of wielding the perverse sword of illogical attitude by the department as often found in cash deposits from sales cases where sales are not disputed nor the tax paid by the assessee, but cash deposits from sales are disallowed as bogus. Here too logic is if the sales receipts are taxed fully and paid by the assessee then how come the same amount be added back again?
7. Similarly, the question is can any business be carried on without incurring any expenses? If we go by the department logic then the answer is affirmative.

Conclusion

The disallowance of business expenses by A.Os reflects a flawed logic that overlooks the fundamental principles of business operations. Assessing authorities must adopt a more reasonable approach, considering the inherent expenses associated with generating income. Blanket disallowances based on arbitrary estimations or insufficient evidence only serve to unjustly burden taxpayers. It’s imperative for the tax system to evolve towards a fairer and more logical framework, one that upholds the principles of justice and equity for all taxpayers.