Ad hoc disallowance of wages expenditure rejected where audited records and prior assessment results supported genuineness.

An ad hoc 10% disallowance of wages expenditure was deleted because it was made on estimate without comparable material or evidence that the claim was not genuine. The audited books, the consistency of the declared profit with an earlier survey-based assessment, and the absence of support for a blanket rejection of the wage claim showed that insufficiency of vouchers alone did not justify disallowance. The record also indicated that the expenditure was not unreasonable on the facts, including by reference to labour-charge tolerance in works-contract taxation.

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Issues: Whether the ad hoc disallowance of 10% of the wages expenditure was justified.

Analysis: The assessee's wage claim was rejected on an estimate without comparable material or evidence showing that the expenditure was not genuine. The books were audited, the profit declared was consistent with the result accepted in an earlier survey-based assessment, and the record did not support a blanket disallowance merely because vouchers were considered insufficient. Reference was also made to the labour-charge tolerance recognized in works-contract taxation to show that the expenditure claimed was not unreasonable on the facts.

Conclusion: The ad hoc disallowance of 10% of wages was not justified and was deleted.

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