ITAT Bangalore Quashes Ad Hoc Disallowance of Coffee Processing & Agricultural Expenses
Background of the Appeal
The decision in Aslam Parveez Vs CIT (ITAT Bangalore) concerns an assessee engaged in coffee trading and agricultural operations, whose claims for processing charges and agricultural expenditure were substantially disallowed by the Assessing Officer (AO) and partly sustained by the first appellate authority.
The matter reached the Bangalore Bench of the Income Tax Appellate Tribunal through ITA No. 204/Bang/2026, where the assessee challenged the order dated 26 December 2025 passed by the National Faceless Appeal Centre (NFAC) for Assessment Year 2020-21. The impugned order had partly upheld the assessment framed under Section 143(3) of the Income Tax Act 1961 dated 22 September 2022.
The core controversy related to:
- Disallowance of ₹88,00,966 towards hulling/curing charges claimed under
Section 37(1); and - Ad hoc disallowance of 25% of agricultural expenses amounting to ₹11,23,929.
The assessee also raised some grounds on procedural aspects, including application of Rule 46A of the Income-tax Rules 1962, which however were not pressed in detail before the Tribunal.
Facts of the Case
Nature of Business and Return Filing
The assessee, an individual carrying on business in the name and style of Chikmagalur Coffee Agencies, is involved in:
- Trading in coffee beans; and
- Agricultural operations over about 122 acres of agricultural land.
The assessee filed a return of income on 16 January 2021, declaring a total income of ₹29,03,790. The case was selected for scrutiny, and after assessment under Section 143(3), the AO determined the total income at ₹1,28,91,490, thereby making total additions of ₹99,87,700.
Disallowances Made by the Assessing Officer
The AO, after examining the books and submissions, made the following key disallowances:
Hulling/Curing Charges – ₹88,00,966
- These charges were debited in the profit and loss account as business expenditure.
- The AO took a view that the assessee was primarily engaged in retail coffee trading and was not carrying out any manufacturing or processing activity.
- Based on this perception, and alleging non-furnishing of adequate details during assessment, the AO treated the expenditure as unexplained and disallowed the entire amount.
Agricultural Expenses – Ad Hoc 25% Disallowance
- Agricultural expenses claimed were ₹47,46,934.
- The AO accepted that the assessee held 122 acres of agricultural land, hence agricultural income could not be completely disregarded.
- However, he was not satisfied with the level of details furnished in support of the expenditure and therefore disallowed 25% of the agricultural expenses.
- Initially, this disallowance was computed at ₹11,86,734.
Thus, the AO made aggregate disallowances of ₹99,87,700, leading to a significant enhancement in taxable income.
Order of the First Appellate Authority (CIT(A)/NFAC)
On appeal, the assessee contested both the business and agricultural expense disallowances, while also raising some technical grounds pertaining to the appellate procedure.