Facts of the Case

The assessee was subjected to scrutiny assessment, during which the Assessing Officer made substantial additions to income. These included:

  • Ad-hoc disallowance of business expenses
  • Addition relating to sundry creditors shown in the books of accounts

Issues Involved

Whether ad-hoc disallowance of expenses and addition of sundry creditors can be sustained without proper verification and detailed inquiry by the Assessing Officer.

Petitioner’s (Assessee’s) Arguments

  • The additions were made arbitrarily without thorough examination of books and supporting documents.
  • No specific defects in accounts were established.
  • Proper opportunity to substantiate claims was not effectively provided.
  • The disallowances were excessive and lacked factual foundation.

Respondent’s (Revenue’s) Arguments

  • The assessee failed to produce adequate evidence to substantiate expenses and liabilities.
  • In absence of proper verification, the Assessing Officer was justified in making additions.
  • The assessment order was based on available material and statutory powers.

Court Order / Findings (ITAT Decision)

The ITAT Allahabad Bench held:

  • The additions were made on an ad-hoc basis without comprehensive verification.
  • Proper inquiry and examination of evidence are essential before making such additions.
  • The principles of natural justice require granting the assessee adequate opportunity to substantiate claims.

Accordingly, the Tribunal:

  • Set aside the orders of the lower authorities on these issues
  • Remanded the matter to the Assessing Officer for fresh examination
  • Directed that proper verification be conducted and reasonable opportunity be given to the assessee

Important Clarification

  • Ad-hoc disallowances are not permissible without identifying specific defects in accounts.
  • Additions relating to sundry creditors must be based on concrete evidence and verification.
  • Remand orders aim to ensure fair assessment rather than grant automatic relief.

Link to download the order - https://itat.gov.in/public/files/upload/1611219427-128%20Alld%202019%20Kasim%20Hussain.pdf

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