Facts of the Case

  • The appeal pertains to Assessment Year 2013–14.
  • The Assessing Officer (AO) disallowed 10% of miscellaneous expenses claimed by the assessee.
  • The CIT(A) reduced this disallowance to 2%.
  • The Income Tax Appellate Tribunal (ITAT) upheld the reduced disallowance.
  • The assessee also raised an issue regarding assessment in the name of a non-existent entity (post-amalgamation), but this was not argued before the Tribunal.

Issues Involved

  1. Whether an assessment order passed in the name of a company that ceased to exist due to amalgamation is valid.
  2. Whether ad hoc disallowance of expenses (2%) sustained by CIT(A) and ITAT is legally justified.

Petitioner’s Arguments (Assessee)

  • The ad hoc disallowance was arbitrary and unjustified.
  • The assessee had produced books of accounts and documents as required by the AO.
  • Bills and vouchers were not specifically requested, hence not submitted.
  • The assessee possessed supporting material which was never examined.
  • Requested remand for proper verification of evidence.

Respondent’s Arguments (Revenue)

  • Supported the findings of the lower authorities.
  • However, agreed that remanding the matter to AO would be appropriate in the interest of justice considering the available evidence.

Court’s Findings / Order

  • The Court noted that:
    • The issue of ad hoc disallowance required proper verification of evidence.
    • The assessee should be given an opportunity to substantiate its claim.
  • With consent of both parties:
    • The impugned order was set aside.
    • The matter was remanded back to the Assessing Officer.
  • The AO was directed to:
    • Call for relevant evidence
    • Examine supporting material
    • Pass a reasoned (speaking) order

Important Clarification

  • The Court emphasized that ad hoc disallowance without proper examination of evidence is not justified.
  • Procedural fairness requires that:
    • If evidence exists, the assessee must be given an opportunity to produce it.
  • The issue of assessment in the name of a non-existent entity was not adjudicated, as it was not raised before the Tribunal.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS27092023ITA5572023_180212.pdf


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