Ad hoc disallowances based on suspicion or unserved notices cannot be fully upheld if arbitrary, but cannot be summarily rejected if the assessee fails to provide sufficient evidence. In such cases, a reasonable estimated disallowance may be applied to meet the ends of justice.

ORDER

PER AMITABH SHUKLA, AM,

The captioned appeal has been preferred by the Revenue against order dated 29.08.2024 of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, New Delhi, [hereinafter referred to as ‘ld. CIT(A)’] arising out of assessment order dated 31.03.2015 passed u/s 143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2012-13. The word ‘Act’ herein this order would mean Income Tax Act, 1961.

The assessee has raised following grounds of appeal:-

i. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 75,00,000/- on account of disallowance out of advertisement expenses?

ii. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting addition of Rs. 98,00,000/- on account of disallowance out of truck freight expenses?

iii. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 48,00,000/- on account of disallowance out of crossing charges paid to branches?

iv. Whether on the facts and circumstances of the case, the Ld CIT(A) erred in deleting the addition of Rs. 8,00,000/- on account of disallowance out of printing and stationery?

The appellant Revenue has principally contested through grounds of appeal nos.1 to 4, the deletion of disallowances of expenses made by the learned Assessing Officer, claimed by the assessee under respective heads of expenditure. Thus, ground of appeal no.1 pertains to disallowance of advertisement expenses of Rs.75 lakhs, ground of appeal no.2 pertains to disallowance of truck freight expenses of Rs.98 lakhs (the correct amount should be Rs.96,50,000/- which was made by the ld. AO in his order dated 31.03.2015 as evident from para-13 on page-14 of the assessment order as well as page-7 of the appellate order), ground of appeal no.3 pertains to disallowance of crossing charges expenses of Rs.48 lakhs and ground of appeal no.4 pertains to disallowance of printing and stationary expenses of Rs.8 lakhs.

As per brief factual matrix of the case, the assessee company is in the business of transportation of goods through its fleet of owned as well as hired trucks. During the year under consideration, the assessee had filed Return of Income on 28.09.2012 declaring income of Rs.11,42,89,545/-. During the course of assessment proceedings, the ld. AO had queried the assessee, which were responded through clarification/explanations as per para-1 of the assessment order, Books of Accounts were produced by the assessee and which were examined on text check basis. The ld. AO noted that the gross profit and the net profit of the assessee had fallen from 21% and 5.06% in the immediately preceding assessment year to 19.65% and 4.27% respectively in the present year. Thus, in real terms the assessee had declared net profit of Rs.11,71,12,915/- on gross receipts of Rs.274,47,75,603/-. The fall in net profit was attributable to increase in truck freight expenses, in turn attributable to rising fuel costs, etc. The ld. AO noted that there was a fall in diesel and lubricant expenses as also that the freight charges paid could not have been impacted fall in net profit given the fact that the assessee was using hired trucks also. The ld. AO also noted abrupt increase in advertisement, printing and stationary expenses. The ld. AO confronted the assessee to file details of hired trucks, truck wise details, etc., which were not appropriately complied. The AO conducted his own enquiry in respect of impugned expenses which were not fully complied in as some parties were either untraceable or query letters remained unserved. The ld. AO consequently concluded that the results of his enquiries alluded towards an element of claimed expenses being unverified, lacking commercial expediency and excessive and hence proceeded to make additions on the basis of his surmises.

Before the ld. CIT(A), the assessee reiterated the arguments