ITAT Ahmedabad: Ad Hoc Disallowance Deleted, Warranty Provision Remanded, Delayed PF Deposit Disallowed — Anupam Industries Ltd. vs ACIT

Overview of the Dispute

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) recently pronounced a comprehensive ruling in a batch of cross-appeals filed by both the assessee and the Revenue, spanning three different Assessment Years — AY 2022-23, AY 2014-15, and AY 2017-18. The case involved Anupam Industries Ltd., a manufacturer of industrial cranes, and raised several contested issues including blanket expenditure disallowances, the deductibility of warranty provisions, delayed employee provident fund remittances, and the tax treatment of CENVAT duty reversals. The order was pronounced on 17 November 2025.

The Tribunal delivered distinct rulings on each Assessment Year, producing outcomes that were partly favourable to the assessee and partly adverse, while also dismissing the Revenue's appeal in its entirety.

Assessment Year 2022-23: Blanket 10% Disallowance Set Aside

Background and Assessment

Anupam Industries Ltd. filed its return of income for AY 2022-23 on 29.09.2022, declaring a loss of Rs. 10,56,35,105/-. During scrutiny proceedings under Section 143(3) read with Section 144B, the Assessing Officer (AO) observed that the assessee had claimed aggregate expenditure of Rs. 5,593.99 lakhs under several major heads:

  • Raw material cost: Rs. 3,294.58 lakhs
  • Manufacturing and direct expenses: Rs. 552.16 lakhs
  • Employee costs and benefits: Rs. 916.72 lakhs
  • Administrative and general expenses: Rs. 656.68 lakhs
  • Selling and distribution expenses: Rs. 173.86 lakhs

The AO initially proposed a disallowance of 30% of this expenditure, citing the alleged absence of adequate documentary support. After considering the assessee's responses — which were largely in the form of a comparative year-on-year financial analysis — the AO moderated the disallowance to 10%, resulting in an addition of Rs. 5,59,39,900/-. The returned loss was consequently reduced to Rs. 5,18,07,905/-, and interest under Section 234A, Section 234B, Section 234C, and Section 234D was charged as a consequential measure.

CIT(A)'s Findings

Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee presented detailed financial data demonstrating that operational income had surged from Rs. 31.64 crores in FY 2020-21 to Rs. 47.28 crores in FY 2021-22 — a growth of nearly 50% — while expenditure rose only modestly from Rs. 40.62 crores to Rs. 50.21 crores, representing an increase of approximately 24%. The assessee also flagged that the prior year's figures were skewed by a one-time exceptional income of Rs. 1,501.58 lakhs, rendering direct year-on-year comparisons unreliable.

The CIT(A), however, rejected this analysis. It pointed out that total receipts had increased by merely Rs. 79.63 lakhs (from Rs. 4,665.88 lakhs to Rs. 4,745.51 lakhs), whereas total expenditure had climbed by Rs. 958.98 lakhs — a disproportionate rise that, in its view, was unexplained without supporting documentation. Since the assessee had not produced vouchers, bills, or primary documentary evidence before either the AO or in appellate proceedings, the CIT(A) upheld the addition of Rs. 5,59,39,900/-.

ITAT's Analysis and Decision

The Tribunal took a markedly different view. It accepted the assessee's argument that operational income had grown significantly and that expenditure increases were broadly proportionate to business expansion. Crucially, it noted the following critical legal deficiencies in the AO's approach:

Neither the AO nor the CIT(A) had invoked Section 145(3) of the Income-tax Act, 1961 to reject the books of account. Equally, no specific item of expenditure was identified as bogus, fictitious, or incapable of verification.

The Tribunal reiterated the well-settled legal proposition that an ad hoc or estimated disallowance cannot be sustained where the books of account are duly audited and no concrete defect has been identified in any specific expenditure entry. The Tribunal placed reliance on the following judicial precedents:

  • Principal Commissioner of Income Tax v. R.G. Buildwell Engineers Ltd. [2018] 99 taxmann.com 284 (SC) / [2018] 259 Taxman 370 (SC) [01-10-2018]: In this case, a 10% disallowance of construction-related expenses was deleted by the High Court on the ground that the books had not been rejected under Section 145(3) and the expenses had been consistently allowed in prior scrutiny assessments. The Supreme Court declined to interfere with this view.

  • Principal Commissioner of Income-tax v. Remfry and Sagar [2025] 179 taxmann.com 623 (Delhi) [15-10-2025]: The Delhi High Court held that a 5% ad hoc disallowance on travelling and entertainment expenses, made without identifying any specific discrepancy or personal element in the books, was legally unsustainable and liable to be deleted.