ITAT Deletes Rs.4.95-Lakh Ad Hoc Disallowance Over Handmade Vouchers

Charu Agarwal Vs ACIT (ITAT Agra Bench)

Handmade Vouchers Cannot Invite a Machine-Made 20% Cut—Rs.4.95-Lakh Ad Hoc Disallowance Deleted

Summary:

Cold-storage expenses enter the scrutiny chamber

The assessee, Charu Agarwal, was engaged in operating a cold-storage business under the name Ramwati Sheetgrah. For AY 2017-18, she filed her return on 28.10.2017 declaring total income of Rs.47,88,710.

The return was selected for complete scrutiny under CASS & notice u/s 143(2) was issued on 13.08.2018. During assessment, the AO examined various expenses debited to the Profit & Loss Account aggregating to Rs.24,76,000.

Although the assessee furnished a reply dated 19.12.2019 along with explanations & supporting material, the AO considered the documentation inadequate. He consequently disallowed 20% of the aggregate expenditure, resulting in an addition of Rs.4,95,200.

The CIT(A) confirmed the disallowance by relying upon various judicial decisions. The assessee carried the matter to the Agra ITAT. None appeared on her behalf at the hearing, but the Tribunal proceeded to decide the appeal after hearing the Revenue & examining the material available on record.

Seven expense heads placed under one umbrella

The expenditure examined by the AO comprised building repairs of Rs.2,33,195, conveyance expenses of Rs.46,290, machinery repairs of Rs.14,86,314, salary & wages of Rs.5,07,225, sundry expenses of Rs.46,433, telephone expenses of Rs.40,839 & motor-car expenses of Rs.1,15,704.

These were distinct categories serving different operational requirements of the cold-storage business. Nevertheless, the AO subjected all seven heads to a uniform disallowance of 20%.

His reason was that the supporting bills & vouchers were allegedly handmade or unsigned, while the assessee failed to provide reasonable justification & complete documentary evidence. The expenses were therefore considered not fully verifiable.

The AO did not reject the books, hold the business itself to be non-genuine or conclude that the entire expenditure was fictitious. He merely applied a percentage reduction “to cover possible leakage of Revenue”.

Handwritten does not automatically mean non-business

On examining the assessment order, the Tribunal found that the disallowance was entirely ad hoc. Although the AO referred broadly to handmade & unsigned vouchers, he had neither identified nor reproduced any particular bill or voucher containing such a defect.

There was no expense-wise examination showing which payment lacked support, which recipient was unverifiable or which voucher did not correspond with the books. The assessment order also failed to quantify expenditure allegedly attributable to personal or non-business purposes.

In commercial activity, especially where repairs, local conveyance, wages & sundry operational expenses are involved, every supporting record may not necessarily be a computer-generated tax invoice. A handwritten voucher may require closer verification, but its physical form alone does not establish that the expenditure was fictitious or unrelated to business.

The AO was required to move beyond a general suspicion & identify a specific defect with a specific financial consequence.

Cold storage cannot run on cold suspicion

The nature of the assessee’s business was also relevant. A cold-storage establishment necessarily requires machinery maintenance, building repairs, labour, transportation, communication & other operational expenditure.

The largest component was machinery repairs of Rs.14.86 lakh, followed by salary & wages of Rs.5.07 lakh. Yet the AO did not suggest that machinery was not repaired, employees were not engaged or the cold storage functioned without incurring these costs.

Nor was there any finding that the expenditure was excessive when compared with turnover, prior years or the scale of operations. No independent enquiry was made from vendors, employees or service providers to demonstrate inflation or fabrication of expenditure.

A concern regarding documentation could justify calling for further details or disallowing a particular unsupported item. It could not, without more, justify slicing 20% from every category merely because the AO considered the records imperfect.

“Possible leakage” is not tangible evidence

The Tribunal emphasised that an addition cannot be sustained solely to cover a hypothetical or possible leakage of Revenue. Tax assessment must proceed on established facts & material, not on a precautionary percentage.

The AO did not bring on record any tangible evidence of personal expenditure, non-business use or bogus payment. No particular motor-car, telephone or conveyance expense was identified as personal. Likewise, no repair or wage payment was demonstrated to be fictitious.

Once the assessee’s business was accepted & the expenditure arose from recognised operational heads, the Revenue had to point out concrete infirmities before making a disallowance. A uniform 20% estimate across unrelated expense heads lacked both factual foundation & rational computation.

The fact that the CIT(A) cited judicial precedents could not cure the primary evidentiary gap in the assessment order. Case law cannot substitute the AO’s obligation to identify the actual defective transactions in the assessee’s records.

Deletion despite assessee’s absence

Significantly, the assessee obtained relief even though nobody appeared on her behalf before the ITAT. The Tribunal decided the issue from the assessment record itself & found the addition legally unsustainable.

This demonstrates that an appellate authority must evaluate the correctness of an addition on the available material rather than automatically confirm it because the assessee remains unrepresented.

The ITAT accordingly deleted the entire addition of Rs.4,95,200 & allowed the appeal.

The ruling does not suggest that every handwritten or unsigned voucher must be accepted unquestioningly. It establishes the narrower but important proposition that documentation concerns must be translated into specific findings, not an arbitrary percentage. The AO may question a voucher-but cannot answer that question by simply reaching for 20%.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, AGRA BENCH

This appeal is directed against impugned order both dated 23.02.2026 passed in appeal No CIT(A) 2, Agra/10678/2019-20 by the ld. Addl/JCIT(A) Faridabad (hereinafter referred to as the “CIT(A) u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2017-18 wherein ld. CIT(A) has dismissed assessee’s appeal.

1.1 None appeared on behalf of the assessee and this appeal was heard after hearing the Sr. DR and the material available on record before us.

2. Brief facts of the case: The assessee is running a cold storage in the name and style of Ramwati Sheetgrah. During the year the assessee had filed her return of income on 28.10.2017 declaring total income of Rs. 47,88,710/-. This case was selected for complete scrutiny under CASS and notice u/s 143(2) of the Act was issued on 13.08.2018. In this case, the AO made a disallowance of Rs. 4,95,200/- being 20% of the total expenditure of Rs. 24,76,000/- claimed under various heads as noted by the AO. The relevant discussion made by the AO in para no. 6 of the assessment order is reproduced as under:

“6. In compliance to the notice dated 18.12.2019 the A.R submitted reply dated 19.12.2019. The details/ explanation, documentary evidences submitted by the assessee were perused and it is noticed that the assessee has debited Profit & Loss account by various expenses under different heads such as Repair to Building Rs. 2,33,195/-, Conveyance Expenses Rs. 46,290/-, Repairs to Machinery Expanses Rs. 14,86,314/-, Salary and Wages Expenses Rs. 5,07,225/- Sundry Expenses Rs. 46,433/-, Telephone Expenses Rs. 40,839/-, Motor Car Expenses Rs. 1,15,704/-. Further it is observed that the supporting bills vouchers in respect of this expenditure were handmade/ unsigned and assessee failed to provide reasonable justification and full documentary evidence. Therefore considering the fact & circumstances of the case on account of these discrepancies the above expenses are not completely verifiable. Therefore to cover up the possible leakage of revenue 20% of the total expenditure of Rs. 24,76,000/- claimed under the above heads i.e. Rs. 4,95,200/- is here by disallowed and added back to the income of the assessee.”

3. Aggrieved, with the said order the assessee filed an appeal before the Ld. CIT A who dismissed the appeal of the assessee. In this regard, the Ld. CIT A relied upon various case laws as noted in the appellate order.

4. On perusal of the order of the AO we observe that the disallowances were made by the AO on an ad hoc basis on the ground that the supporting bills, vouchers in respect of the above expenditure were handmade/ un signed and the assessee failed to provide reasonable justification and full documentary evidences in respect of the above expenditure. However, the AO has neither identified nor brought on record any such handmade/ unsigned bill/voucher in support of the above findings. As noted above that the assessee is running a cold storage and unless some tangible evidence in respect of any non-business/personal expenditure is brought on record by the AO, no ad hoc disallowance of the business expenses claimed by the assessee can be made. Accordingly, we delete the addition of Rs. 4,95,200/-. Ground no. 1 of the appeal is allowed.

5. In the result, the appeal of the assessee is allowed.

Order pronounced in the Open Court on- 31.08.2026