Adhoc expense disallowance reduced to 4% in tax assessment after insufficiency of evidence supporting a 10% cut.

Whether an adhoc disallowance of 10% on aggregate expenses was justified was examined on the basis that the assessee did not fully substantiate claims and the revenue produced no comparable or cogent evidence; because the department failed to support the 10% figure the adhoc percentage was reduced as a matter of reasonable assessment to 4%, and the assessment computations must be finalized on that basis. The reduced adhoc disallowance balances evidentiary deficits while avoiding an unsupported precedent.

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Issues: Whether the adhoc disallowance of 10% of total expenses (Employee Benefit Expenses, Power and Fuel, Repairs and Maintenance) made by the Assessing Officer is justified and what is the appropriate quantum of disallowance.

Analysis: The appeal was heard ex parte qua the assessee. Neither the assessee nor the department fully proved their respective positions: the assessee failed to establish its entire claim and the department did not produce any comparable or cogent material to justify an adhoc disallowance of 10% of total expenses. In the absence of precise evidence supporting the 10% disallowance and given the parties' submissions and record, a reduced but reasonable ad hoc percentage was considered appropriate to do substantial justice between the parties while avoiding setting a precedent.

Conclusion: The adhoc disallowance of 10% is not sustained; the total expenses are to be assessed with an adhoc disallowance of 4%. This conclusion is in favour of the assessee to the extent indicated and the Assessing Officer shall finalize computations accordingly.

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