Unsupported estimate-based disallowance of business expenses fails where records show business use and no specific defect is found.

Supporting records for business promotion, petrol, and tour and travel expenses showed business purpose; a percentage-based disallowance under section 37(1) was unsustainable where the Revenue identified no specific defect, no bogus element, and no personal use, and did not reject the books of account. The assessee discharged the primary onus, the expenditure level was commensurate with turnover and operations, and the estimate-based disallowance was deleted.

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Issues: Whether the ad hoc disallowance of business promotion expenses, petrol expenses and tour and travel expenses was sustainable under section 37(1) of the Income-tax Act, 1961.

Analysis: The assessee produced ledger accounts, invoices and supporting records for the disputed expenditure and explained that the outgoings were incurred for business purposes. The authorities below made a percentage-based disallowance without pointing out any specific defect, without bringing incriminating material to show personal use, and without rejecting the books of account. The scale of expenditure was also found to be commensurate with the turnover and business operations. In these circumstances, the assessee was held to have discharged the primary onus and the estimate-based disallowance was found unsustainable.

Conclusion: The ad hoc disallowance was deleted and the expenditure was allowed as business expenditure.

Ratio Decidendi: An estimate-based disallowance of business expenditure under section 37(1) cannot survive where the assessee has produced supporting evidence and the Revenue fails to identify any specific defect, bogus element, or personal use, and the books of account are not rejected.

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