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2020 (9) TMI 616 - AT - Income TaxAd-hoc disallowance - assessee contended that it has maintained all these records and vouchers and that the assessee’s books are statutorily audited so no ad-hoc disallowance was warranted - HELD THAT:- Assessee who would be claiming a deduction is expected to have some evidence of such expenditure incurred, as no one is expected to incur expense by any payment to another without there being any proof of it. Having said so, the AO should have item-wise examined the expenditure as claimed by the assessee and in case if he is not convinced by the genuinity of the expenditure as claimed by the assessee, then he can item-wise deny the expenditure. In this case, the AO without rejecting the books of account as required u/s. 145(3) has resorted to estimate the income by ad-hoc disallowance of expenditure claimed by the assessee and according to us if the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) of section 145 has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2) of section 145 then the AO may make an assessment in the manner provided in section 144, which allows the AO to make Best Judgment Assessment. This is not what the AO did. Thus, the AO has not followed the procedure prescribed by the statute and therefore, he violated the principle of “Rule of Law” and the action of the AO is arbitrary and therefore, the ad-hoc disallowance of 10% made by the AO cannot be allowed. - Decided in favour of assessee.
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