Ad hoc Expense Disallowance and Interest Expenditure Linked to Court-Ordered Receipts Deleted:

Ad hoc Expense Disallowance and Interest Expenditure Linked to Court-Ordered Receipts Deleted The assessee, Wizcraft Entertainment Agency Private Limited, engaged in organizing and executing entertainment events, filed its return for AY 2022-23 declaring income of Rs. 23.04 crore. During scrutiny assessment, the Assessing Officer noted that against gross receipts of Rs. 248.67 crore, the assessee had claimed expenses of Rs. 238 crore. The AO observed that expenditure on advertisement, professional fees, media purchase, leave travel allowance, and bonus was higher in the 2023-24 year. The AO made an ad hoc disallowance of 10% of these expenses, aggregating to Rs. 15.77 crore. The AO disallowed Rs. 5.77 crore claimed as interest paid to M/s B. Vijaykumar & Co., holding that the loan related to an event conducted in FY 1996-97 and therefore could not be allowed in the impugned year, despite the assessee having received interest income pursuant to a High Court order during the year. The NFAC deleted both disallowances, prompting the Revenue’s appeal and the assessee’s cross-objection before the tribunal. Issue Before Tribunal: Whether ad hoc disallowance of business expenditure based solely on year-on-year comparison was justified, and whether interest expenditure paid on loans linked to income taxed in the same year could be denied. ITAT's Decision: The Tribunal upheld the deletion of both disallowances. It found that the Assessing Officer had selectively compared expense heads where expenditure was higher in AY 2022-23 while ignoring several other heads showing substantial increases in AY 2023-24. The ad hoc disallowance of 10% was held to be unsustainable. On the interest issue, the Tribunal noted that the interest income accrued and was taxed in the impugned year pursuant to a High Court order, and the corresponding interest payment to M/s B. Vijaykumar & Co. was undisputed. Therefore, the Tribunal held that the interest expense was allowable. Thus, the Revenue’s appeal was dismissed. Since the departmental appeal failed, the assessee’s cross objection was rendered academic and was also dismissed. To Read Full Judgment, Download PDF Given Below