Going Concern Presumption upheld: routine business expenses and ad-hoc disallowances require cogent evidence to be rejected.

Going-concern presumption applied: absent cogent evidence of business cessation, salary payments, ordinary operating expenses and audit fees claimed by the taxpayer were held allowable; the Assessing Officer's recharacterisation of salaries as personal expenses, an ad-hoc 50% disallowance of general expenses, and disallowance of audit fees for alleged inconsistency with cash-basis accounting were rejected for lack of material and absence of application of mind, with comparative-year acceptance and unchanged accounting method supporting the deductions. Effect: impugned additions and disallowances deleted and the taxpayer's appeal allowed.

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Issues: (i) Whether salary expenses of Rs. 31,29,560/- disallowed by the Assessing Officer as personal expenses can be sustained; (ii) Whether the ad-hoc disallowance of 50% of expenses amounting to Rs. 12,46,536/- as not wholly and exclusively for business is sustainable; (iii) Whether audit fees of Rs. 1,70,000/- disallowed on account of alleged inconsistency with cash system of accounting can be sustained.

Issue (i): Whether salary expenses of Rs. 31,29,560/- were rightly treated as personal expenses.

Analysis: The Tribunal examined the facts that the assessee maintained his business setup, performed contractually agreed deliveries extending beyond nominal agreement expiry, received commission for the delivery, and produced comparative year records showing accepted similar expenses previously. The Tribunal applied the accounting principle of going concern and required cogent evidence to conclude business had been wound up; in absence of such evidence the AO's conclusion converting salary expenses to personal expenses was found to be based on assumptions without adequate material.

Conclusion: In favour of assessee.

Issue (ii): Whether the ad-hoc 50% disallowance of expenses amounting to Rs. 12,46,536/- was justified.

Analysis: The Tribunal noted that the expenses were of ordinary heads previously accepted, books were maintained on cash basis with no change in accounting method, and there was a demonstrable decline in expenses consistent with reduced business activity rather than cessation. The AO's ad-hoc percentage disallowance lacked application of mind and was not supported by specific inconsistent evidence.

Conclusion: In favour of assessee.

Issue (iii): Whether audit fees of Rs. 1,70,000/- could be disallowed on the ground of alleged contradiction with cash system of accounting.

Analysis: The Tribunal found the AO's reason for disallowance-presence of receivables/payables despite cash system-to be an assumption not supported by cogent evidence; invoices and auditors' entries were not properly considered and the disallowance was therefore unsustainable.

Conclusion: In favour of assessee.

Final Conclusion: The impugned additions and disallowances made by the Assessing Officer and upheld by the First Appellate Authority are deleted and the appeal of the assessee is allowed, resulting in reversal of the disputed disallowances.

Ratio Decidendi: In the absence of cogent direct evidence of business cessation, the going concern presumption prevails and routine business expenses accepted in earlier years cannot be disallowed merely by assumption; ad-hoc disallowances require specific supporting material and cannot be sustained when accounting method and comparative evidence support the claimed deductions.

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