Adhoc Disallowance Without Complete Verification Unsustainable: ITAT Deletes ₹22 Lakh Addition for...

The Income Tax Appellate Tribunal (ITAT) has ruled that an ad-hoc disallowance without complete verification is unsustainable, leading to the deletion of a ₹22 lakh addition made for cash purchases from unregistered dealers (URD). The tax authorities had likely made the addition on an arbitrary basis, suspecting the genuineness of cash purchases from URDs. However, the ITAT emphasized that mere cash transactions or purchases from URDs do not automatically warrant an ad-hoc disallowance. A thorough investigation and complete verification of the transactions are required before making such additions. If the Assessing Officer fails to conduct a proper inquiry or provide concrete evidence of non-genuineness, ad-hoc disallowances cannot be sustained. This ruling provides significant relief to businesses making cash purchases, particularly from unorganized sectors, and reinforces the principle that tax additions must be based on solid evidence and proper verification, not just arbitrary presumptions.