Case Law Details
Crescent Chemicals Vs ITO (ITAT Mumbai)
Introduction: The recent order of the Income Tax Appellate Tribunal (ITAT) Mumbai in the case of Crescent Chemicals Vs ITO has significant implications for the disallowance percentages of various business expenses. The appeal arises from the order of the National Faceless Appeal Centre (NFAC) Delhi/CIT(A) concerning an ad hoc disallowance amounting to Rs. 1,66,180/- for Business Promotion, Sundry Expenses, Office Maintenance Charges, and Conveyance. The ITAT’s directive to limit disallowance percentages is a crucial development in the ongoing dispute.
Detailed Analysis: The assessee, engaged in the business of chemicals, plastics, and electrical appliances, filed the return of income for A.Y 2014-15. The case underwent scrutiny under CASS, leading to the AO’s ad hoc disallowance of various expenses. The AO cited cash transactions, lack of proper bills and vouchers, and discrepancies in self-made vouchers as grounds for disallowance. The CIT(A) upheld the AO’s decision, prompting the assessee to appeal before the ITAT.
During the hearing, the Ld. AR argued that the CIT(A) overlooked crucial facts and submissions, emphasizing that similar claims were accepted in earlier years. The Ld. AR presented ledger account copies and demonstrated the percentage of expenses in comparison to turnover. The contention was that the AO’s estimation was arbitrary, and the disallowances should be reconsidered based on genuine business expenses.
The ITAT, after considering the submissions, directed the AO to limit disallowance percentages. The order highlights that the expenses were genuinely incurred for business purposes, and the disallowances were excessive. The ITAT set aside the CIT(A) order and directed the AO to restrict disallowance percentages for aggregate expenditure categories. The decision is contextualized within the overall facts, turnover, and nature of the business activities.
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