Section 37(1) business expenditure disallowance reduced on estimation where both substantiation and comparables were lacking.

Under section 37(1) of the Income-tax Act, disallowance of regular business expenditure requires the assessee to show that the expense was wholly and exclusively for business purposes. Here, the assessee did not fully discharge that burden for salaries, rent, freight, and repairs and maintenance, but the Revenue also failed to cite comparable material showing the expenditure to be excessive or unreasonable. On that basis, the lower authorities' 50% disallowance was treated as excessive and was restricted on estimation to 10%, granting partial relief to the assessee.

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Issues: Whether the disallowance of 50% of the assessee's regular business expenditure, including salaries, rent, freight, and repairs and maintenance, was justified under section 37(1) of the Income-tax Act, 1961.

Analysis: The assessee did not fully discharge the burden of proving that the impugned expenditure was incurred wholly and exclusively for business purposes under section 37(1). At the same time, the Revenue did not point to comparable instances to show that the expenditure was excessive or unreasonable. In these circumstances, the disallowance made by the lower authorities was found excessive and was considered fit to be restricted on an estimation basis.

Conclusion: The disallowance was reduced from 50% to 10%, resulting in partial relief to the assessee.

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