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2021 (8) TMI 560 - AT - Income TaxAddition of manufacturing, selling and administrative expenses on ad hoc basis - disallowance of 10% of expenses - HELD THAT:- We note that the AO nowhere has given a finding of fact that assessee has not followed the method of accounting as mentioned u/s. 145(1) of the Act. It is also not the case of the AO that assessee has not computed the income in accordance with the accounting standard notified u/s. 145(2) - conditions for invoking section 145(3) of the Act (estimation) of income has not been fulfilled/satisfied. And since the AO has not disputed the correctness and completeness of the books of the assessee, the AO could not have estimated the income by ad hoc disallowance as done in this case. CIT(A) as well as the AO has said there was certain deficiency in verifying the expenses for non-production of supporting vouchers etc. According to us, if there is deficiency in the vouchers or the bills supporting the incurrence of an expenditure, at the most, the expenses to the extent which are not supported by the vouchers could be regarded to be non-genuine and can be disallowed by the AO. Since the AO or the Ld. CIT(A) has not rejected the books of account of the assessee they could not have estimated (ad hoc disallowance of 10%) the expenses claimed to have been incurred by the assessee. Moreover, the AO has made the ad hoc disallowance on the supposition that there might be personal expenditure - AO did not notice that the assessee is a company and not a Firm or proprietary concern etc. So, his reason for disallowance also fails - action of the AO as well as the Ld. CIT(A) making ad-hoc disallowance is per se arbitrary and whimsical, therefore, the action of the CIT(A) confirming the 10% disallowance in respect of delivery charges as well as miscellaneous charges are directed to be deleted. Therefore, the appeal of the assessee stands allowed.
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