Tribunal directs deletion of arbitrary expense disallowance, emphasizes need for specific disallowances.

The Tribunal partly allowed the appeal, directing deletion of the addition made by the Assessing Officer regarding the disallowance of expenses. The Tribunal found the estimation by the AO, based on self-made debit vouchers without rejecting the books of accounts, to be arbitrary and unsustainable. It emphasized the need for specific disallowances for unsupported expenses rather than ad hoc percentage-based disallowances. The Tribunal set aside the CIT(A)'s order restricting expenses at 5% as it was also deemed arbitrary. Other grounds of appeal were dismissed.

---

---

Issues:
1. Disallowance of expenditure by Assessing Officer
2. Appeal against the order of Ld. CIT(A) restricting the disallowance
3. Estimation of disallowance based on self-made debit vouchers
4. Jurisdiction of Assessing Officer to make estimation without rejecting books of accounts

Analysis:

1. The primary issue in this case revolves around the disallowance of expenditure by the Assessing Officer (AO) based on the suspicion that the assessee might be inflating expenses. The AO disallowed 10% of the expenses claimed by the assessee, amounting to &8377; 88,618, due to the payment being made through self-made debit vouchers.

2. The assessee appealed against the order of the Ld. CIT(A) who restricted the disallowance to 5% of the total expenses. The main contention of the assessee was against the arbitrary nature of the disallowance and the lack of proper justification for the percentage-based estimation.

3. The Tribunal noted that the AO did not reject the books of accounts under section 145(3) or pass an order under section 144 of the Act before making the estimation. The AO's decision to estimate the disallowance based on suspicion without concrete evidence or proper justification was deemed arbitrary and unsustainable.

4. The Tribunal emphasized that if expenses claimed lack nexus to the business, have deficiencies in vouchers, or lack supporting bills, the AO can disallow specific items rather than resorting to ad hoc percentage-based disallowance. The Tribunal set aside the Ld. CIT(A)'s order of restricting the expenses claimed at 5% as it was also considered an ad hoc disallowance.

5. Consequently, the Tribunal partly allowed the appeal of the assessee, directing the deletion of the addition made by the AO. The other general grounds of appeal were dismissed, and the order was pronounced in the open court on 20th February 2019.

---