Percentage-based disallowance of employee benefit expenses and...

Percentage-based disallowance of employee benefit expenses and labour charges cannot rest on suspected inflation without verification. Taxpayers must establish the genuineness and business purpose of the expenses, and any disallowance must be confined to expenditure found unsupported, non-genuine or unrelated to business. For deemed rental income, actual occupation and business use of properties during the relevant year require verification before applying the business-use exclusion under section 22. If business use is not established, annual value must be computed after considering relevant fair-rental-value material. Where a negative cash balance is attributed to labour expenses wrongly posted through cash without recording the corresponding liability, the trial balance requires reconciliation with the corrected books and supporting records before considering an addition under section 69C.