Ad hoc expense disallowances reduced, subcontract claim deleted, partner remuneration recomputed, and section 40(a)(ia) sustained.

Documentary support, TDS compliance and banking-channel payments justified deletion of the disallowance of subcontract expenses, while the partner's salary issue required recomputation of firm profits and consequent redetermination of allowable remuneration under the partnership deed. Ad hoc disallowances of motor car expenses and direct expenses were found excessive on the facts and were restricted to 10% each for want of material proving complete unverifiability. Non-deduction of tax on chartered accountant's fee attracted section 40(a)(ia), and that disallowance was sustained. The stated ratio is that ad hoc disallowance must rest on material showing non-genuine or unverifiable expenditure, and partner remuneration must follow the finally determined business profit.

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Issues: (i) Whether the disallowance of subcontract expenses as bogus expenditure was sustainable; (ii) whether the disallowance out of salary paid to partners required recomputation of firm's profits and eligible partner's remuneration; (iii) whether the ad hoc disallowance of motor car expenses on account of personal use was justified; (iv) whether the disallowance under section 40(a)(ia) was liable to be sustained; and (v) whether the ad hoc disallowance out of direct expenses was justified.

Issue (i): Whether the disallowance of subcontract expenses as bogus expenditure was sustainable.

Analysis: The assessee had furnished TDS particulars, banking-channel payment details and supporting documents. The record showed that the requisite material was already before the authorities and the issue did not call for remand. The addition was founded on doubts regarding GST invoices and the genuineness of the payments, but the documentary evidence and TDS compliance supported the claim of business expenditure.

Conclusion: The disallowance of subcontract expenses was deleted in favour of the assessee.

Issue (ii): Whether the disallowance out of salary paid to partners required recomputation of firm's profits and eligible partner's remuneration.

Analysis: The eligible salary to partners depended upon the final profit of the firm after giving effect to the appellate findings. The matter required recomputation of profit and then determination of allowable partner's remuneration in accordance with the partnership deed.

Conclusion: The issue was remanded for recomputation and was allowed for statistical purposes in favour of the assessee.

Issue (iii): Whether the ad hoc disallowance of motor car expenses on account of personal use was justified.

Analysis: The expenditure on vehicle-related items was held to be partly liable to personal use, but the ad hoc disallowance at 25% was considered excessive in the absence of cogent material. A lower estimate was found appropriate on the facts.

Conclusion: The disallowance was restricted to 10% of motor car expenses, resulting in partial relief to the assessee.

Issue (iv): Whether the disallowance under section 40(a)(ia) was liable to be sustained.

Analysis: The assessee fairly ed that tax was not deducted on the chartered accountant's fee. The liability under the disallowance provision was therefore attracted.

Conclusion: The disallowance under section 40(a)(ia) was sustained against the assessee.

Issue (v): Whether the ad hoc disallowance out of direct expenses was justified.

Analysis: The authorities below had made a 20% ad hoc disallowance on the basis of perceived mismatch in the expense narration and supporting details. The appellate forum found the estimate excessive in the absence of material showing complete unverifiability, though some estimate was warranted.

Conclusion: The disallowance was restricted to 10% of direct expenses, granting partial relief to the assessee.

Final Conclusion: The appeal succeeded in part: one major disallowance was deleted, one issue was restored for recomputation, two ad hoc disallowances were reduced, and the section 40(a)(ia) disallowance was maintained.

Ratio Decidendi: An ad hoc disallowance must be supported by material showing unverifiable or non-genuine expenditure, and where the record contains documentary support, the estimate may be reduced or deleted; partner's remuneration must be recomputed with reference to the finally determined business profit.

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