Ad hoc expense disallowances and survey cash additions need factual support; employee statements alone cannot sustain the addition.

Ad hoc disallowances for telephone and car-related expenses were held to require a factual basis, as mere suspicion of personal use was insufficient; the telephone disallowance was therefore restricted and the car expense and depreciation disallowance was reduced to one-seventh. For excess cash found during survey, an addition based only on an employee's statement was rejected because the assessee was not examined and the explanation of household savings was plausible on preponderance of probabilities. The addition was deleted, and the assessee obtained relief on all substantive issues, though the appeal was only partly allowed overall.

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Issues: (i) Whether the disallowance out of telephone expenses was excessive; (ii) whether the disallowance out of petrol expenses and motor car depreciation on account of personal use was excessive; and (iii) whether the addition made on account of excess cash found during survey was sustainable.

Issue (i): Whether the disallowance out of telephone expenses was excessive.

Analysis: The disallowance was made on an ad hoc basis without any specific instance of personal use being established. At the same time, some element of personal use could not be ruled out, particularly where the telephone was installed at residence. Considering the business volume and the surrounding circumstances, the disallowance was found to be on the higher side.

Conclusion: The disallowance out of telephone expenses was restricted, and the assessee succeeded on this issue to that extent.

Issue (ii): Whether the disallowance out of petrol expenses and motor car depreciation on account of personal use was excessive.

Analysis: The authorities had applied a disallowance of one-fourth towards personal user of the car expenses and depreciation. On evaluation of the record, that estimate was considered excessive, and a lower estimate was held to be more appropriate in the facts of the case.

Conclusion: The disallowance was restricted to one-seventh of the car expenses and car depreciation, in favour of the assessee.

Issue (iii): Whether the addition made on account of excess cash found during survey was sustainable.

Analysis: The excess cash was found separately during survey, but the addition was based only on an employee's statement. The assessee was not examined before the addition was made, and the explanation that the amount represented household savings was found to be plausible on the principle of preponderance of probabilities. An admission by an employee behind the back of the assessee was held insufficient to sustain the addition.

Conclusion: The addition of excess cash was deleted, and the assessee succeeded on this issue.

Final Conclusion: The assessee obtained relief on all three substantive issues, with the disallowances and addition either reduced or deleted, resulting in a partial allowance of the appeal.

Ratio Decidendi: An ad hoc disallowance or addition cannot be sustained without adequate factual basis; an employee's statement alone does not bind the assessee for making an addition, and the matter must be judged on preponderance of probabilities.

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