General percentage disallowance cannot stand without specific lacunae identified; quashes ad hoc expense additions.

General percentage disallowances on total expenses are unsustainable where the assessee has maintained books of account and undergone a statutory tax audit and the revenue does not point to specific lacunae or contradictions in the audited records; the legal prescription requires identification of precise deficiencies in the accounts before applying ad hoc percentage additions, and absent such specific findings the percentage disallowance must be quashed, restoring the audited treatment of expenses.

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Issues: Whether additions made by assessing and appellate authorities by applying a percentage disallowance to total expenses without pointing out specific lacuna in audited books of account are sustainable.

Analysis: The issue examines whether a general percentage addition (1% of total expenses) and a subsequent partial sustenance of percentage disallowance by the appellate authority can stand where the books of account were maintained and tax audit was carried out under the relevant provisions and no specific discrepancies or contradictions with audited accounts were identified by the revenue. The analysis considers that additions made without rejecting the accounts and without recording specific deficiencies in the audited books do not meet the requirement for sustaining such additions. Reliance is placed on the principle that specific lacunae must be pointed out to justify additions where audited accounts are otherwise prima facie acceptable.

Conclusion: The disallowance arising from percentage additions is quashed and the appeal is allowed in favour of the assessee.

Ratio Decidendi: Additions based on a general percentage applied to total expenses cannot be sustained where the assessee has maintained books of account and undergone a tax audit and the revenue fails to point out specific lacunae or contradictions in the audited records.

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