Deductibility of loading and unloading expenses upheld where adhoc 20% disallowance lacked specific evidentiary basis, appeal allowed

Ad hoc percentage disallowance of expenses based on suspicion is impermissible where claimed loading and unloading expenses were supported by vouchers and no specific discrepancies were identified; mere production of self-made vouchers does not warrant automatic rejection without evidence of falsity. The decision clarifies that a revenue authority must point to particular defects or contradictory material before making an adhoc disallowance and justify the quantum chosen. Consequently, an adhoc 20% disallowance made without specific findings or basis is unsustainable and the assessment adjustment is reversed, restoring the claimed expenditure.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether an ad hoc disallowance of 20% of loading and unloading expenses, made solely because the expenses were supported by self-made vouchers and to "take care of the possibility of inflation of expenses", is sustainable when the books of account are not rejected and no specific defect or discrepancy is identified in the supporting material.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustainability of ad hoc 20% disallowance of loading/unloading expenses supported by self-made vouchers

Legal framework (as applied by the Tribunal from the judgment's reasoning): The Tribunal proceeded on the basis that a disallowance of business expenditure must rest on concrete findings emerging from scrutiny, and cannot be sustained purely on suspicion, surmises or conjectures, particularly where the books are otherwise accepted and no specific defects are demonstrated in the vouchers/bills/evidence produced.

Interpretation and reasoning: The Tribunal noted that the assessment accepted the books of account and that the disallowance was made only on an ad hoc basis at 20%, solely because the expenses were evidenced through self-made vouchers and to address a perceived "possibility" of inflation. The Tribunal found it material that (a) it was not a case where no bills/vouchers were produced; (b) the Assessing Officer did not reject the books of account; (c) there was no finding that the expenses were not genuine or not incurred for business purposes; (d) no specific instance of discrepancy/defect in vouchers was brought on record; and (e) no basis was provided for adopting the 20% rate. The Tribunal held that suspicion, however strong, cannot substitute for proof, and that disallowance based on general observations and presumptions is unsustainable.

Conclusions: The Tribunal held the 20% ad hoc disallowance to be made on presumption and general observation without specific defects or evidentiary basis, and therefore not sustainable in law. The disallowance amounting to Rs. 12,79,633/- was deleted.

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