S.M.T.TRANSPORT,MADURAI vs. DCIT, NON CORP. CIRCLE-1, MADURAI, MADURAI

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ITA 359/CHNY/2026Status: DisposedITAT Chennai11 August 2026AY 2022-239 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while some disallowance was warranted due to incomplete documentation, the 10% disallowance was excessive. The Tribunal reduced the disallowance to 2.5% of the impugned expenditure.

What were the facts?

The assessee, a logistics firm, claimed substantial expenses for lorry freight, fuel, loading, and unloading. The Assessing Officer (AO) disallowed 10% of these expenses due to a lack of complete supporting documentation. The Commissioner of Income Tax (Appeals) confirmed this disallowance.

What were the issues?

Whether the disallowance of administrative expenses made by the AO and confirmed by the CIT(A) is justified, considering the lack of complete supporting evidence for voluminous transactions.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144B,Section 44AB,Section 145(3),Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI S.S. VISWANETHRA RAVI & SHRI S. R. RAGHUNATHA

For Respondent: Shri. Pelli Prem Kumar, Sr.AR
Hearing: 01.07.2026Pronounced: 11.08.2026

आदेश /O R D E R PER S.R. RAGHUNATHA, AM : This appeal has been preferred by the Assessee against the order passed by the Learned Commissioner of Income Tax, Appeal, CIT(Appeals), National Faceless Appeal Centre, Delhi, [hereinafter referred to as “the Ld. CIT(A)”], dated 28.11.2025, arising from the assessment order dated 15.03.2024 for the Assessment Year (AY) 2022-23 passed by the Assessing Officer, Assessment Unit [hereinafter referred to as “the AO”], u/s. 143(3) r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

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2.

The brief facts of the case emanating from the records are that the assessee is a firm, carrying on the business of logistic business in transporting paddy, procured from Direct Purchasing Centre to the Civil supplies Godown. The assessee filed its return of income for the AY 2022-23 on 17.10.2022 by declaring a total income of Rs.59,42,250/-. The return of income was processed u/s.143(1) of the Act on 10.11.2022. Later, the return of income of the assessee was selected for scrutiny for verification of large other expenses claimed and high liabilities as compared to low income or receipts. During the assessment proceedings, the AO found that the assessee has claimed lorry freight and fuel expenses of rs.21,06,93,044/-, loading and unloading expenditure of Rs.3,12,92,084/- and labour and lorry rent of Rs.4,06,07,928/-. In support of the claim of the expenditure, the assessee was asked to provide the details of quantum of nature of expenses, name, PAN and address of the parties to whom the payment made specifying the details of any transaction held with the related parties, mode of payment along with supporting documentary evidences for expenses beyond Rs.1 lakh, details of TDS deducted, percentage of increase in quantum compared to last year and the ratio of expenses with that of the GP business. In response, the assessee filed the details and submitted that the assessee had entered into a contract with Tamil Nadu Civil Supplies Corporation (TNCSC) for transporting including loading and unloading of paddy, rice and wheat and delivering the same to the place as stipulated in the agreement of contract. As per the agreement with TNCSC we had been authorized to carry out the work in nine zones and handling the movement of paddy, wheat and rice to the tune of Rs.1,06,34,931 tones. Accordingly, we have spent an expenditure of Rs.2,22,44,01,316/- as administrative expenses while filing the return of income for the impugned assessment year. The major expenditure include fuel, loading and unloading and lorry freight / rent expenses. However, in support of the same, the assessee failed to submit any of the documentary evidences. In view of the above, the AO came to the conclusion that the assessee do not have any evidence to substantiate the claim of expenditure and has inflated its expenses to some extent to reduce the profit. Considering the nature of business and submission made by the

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assessee, 10% of the administrative expenses of Rs.22,44,01,316/- is estimated as bogus and disallowed an expenditure of Rs.2,84,40,132/- by making addition to the declared income by passing an order dated 15.03.2024.

3.

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A) on 12.04.2024. Before the ld.CIT(A), the assessee filed a written submission, however, no documents were filed in support of the expenditure claimed. Further, the assessee pleaded that due to huge volume of documents, the evidences in support of the expenditure claimed could not be uoloaded and only the sample ledgers were filed in response to the show cause notice issued. Further, the assessee filed the ledger account of the expenditure and stated that each payment has not exceeded Rs.10,000 per day per person. The ld.CIT(A) noticed that the documents filed before the first appellate authority is also not complete and the quantity details provided are not co- related with the vehicle-wise consumption of the fuel by showing the opening and closing stock. Therefore, the ld.CIT(A) also confirmed the disallowance made by the AO by passing an order dated 28.11.2025.

4.

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us by raising the following grounds of appeal:-

“1. The order of the CIT(A) is opposed to law on the facts and in the circumstances of the case. 2. The CIT(A) has erred in confirming the order of the Assessing Officer by dismissing the appeal of the assessee firm. 3. In this connection, it is submitted that the order of the CIT(A) is erroneous on point of law. The CIT(A) ought to have seen that the assessee during assessment proceedings has furnished the account copies for the transaction under taken by filing necessary evidences. The CIT(A) ought to have further seen that the assessee has got its accounted audited u/s 44AB and has filed Audit report and assessing officer has not rejected the books of accounts and has only made addition on estimated basis that 10% of the expenses claimed and has not pointed out the exact defects in the books of accounts claiming expenses on different heads and so the assessment order is not tenable and also the order of the CIT(A) confirming the order of the A.O. is also liable to be set aside and quashed. 4. For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of the Assessing Officer be remitted back to the file of the AO for revisiting the issue afresh and for passing a fresh order and oblige.

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5.

Without prejudice of the above contention of the assessee, it is prayed based on the above submission and also taking into account the other factors peculiar to the business of the assessee, the addition made by the Assessing Officer of Rs.2,84,40,132/- may be restricted to Rs.56,88,026/- i.e., 20% of Rs.2,84,40,132/- in the circumstances deemed fit since the assessee do not want prolonged appellate proceedings and instead concentrate on the business.” 5. The ld.AR for the assessee, assailing the action of the ld.CIT(A), submitted that the ld.CIT(A) has erred in confirming the disallowance of 10% of the administrative expenditure as erroneous both on facts as well as in law. The ld.AR argued that the ld.CIT(A) ought to have seen that the assessee during the assessment proceedings has furnished the account copies for the transaction undertaken by filing necessary evidences. Further, the ld.AR stated that the nature of business of the assessee is mostly of labour intensive as loading and unloading of the goods is carried out by the labourers and activity is purely based on the availability of workers at the time of arrival of goods by means of train or goods lorry. The labourers are affiliated to a particular Trade Union and hence the payments towards loading and unloading cannot be made by cheque payment in the place where the labourers carry out the loading and unloading work. At the same time, the ld.AR stated that the payment of labour charges for loading and unloading is made to each individual on daily basis and hence the provisions of sec.40A(3) of the Act is not applicable. This has been evidenced by showing the cash payment vouchers prepared on daily basis. Since the documents are voluminous in the form of vouchers, the same could not be uploaded. Therefore, the sample vouchers along with the ledger account have been uploaded before the authorities.

6.

The ld.AR further submitted that the ld.CIT(A) ought to have further seen that the assessee has maintained its regular books of account, which has been audited u/s.44AB of the Act and the disallowance has been confirmed without rejecting the books of account u/s.145(3) of the Act. Therefore, the ld.AR prayed for deleting the disallowance made by the authorities. Without prejudice to the above contention of the assessee, the ld.AR submitted that taking into consideration of the peculiar facts and nature of business of the assessee, the addition may be restricted to 2% of the administrative expenditure claimed by the assessee to put an end to the litigation.

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7.

Per contra, the ld. DR appearing for the Revenue strongly supported the orders passed by the authorities below and submitted that the assessee had failed to furnish satisfactory and cogent documentary evidence to substantiate the expenditure claimed. He, therefore, contended that the disallowance made by the AO and confirmed by the ld. CIT(A) was justified on the facts and circumstances of the case and prayed that the same be sustained. 8. We have heard the rival submissions of both the parties and perused the materials available on record. The solitary issue that arises for our consideration is whether the ld.CIT(A) was justified in confirming the disallowance made by the AO at 10% of the administrative expenditure claimed by the assessee on account of lorry freight/fuel expenses, loading and unloading expenses and labour/lorry rent expenses. 9. It is an undisputed fact that the assessee is engaged in the business of logistics and transportation and had undertaken transportation contracts with Tamil Nadu Civil Supplies Corporation (TNCSC) for transportation of paddy, rice and wheat from the Direct Purchase Centres to the designated Civil Supplies Godowns, including loading and unloading of such commodities. Having regard to the nature and scale of the assessee's business operations, expenditure towards lorry freight, fuel, loading and unloading charges and labour charges is undoubtedly an integral and indispensable part of carrying on such business. 10. We find that during the course of assessment proceedings, the AO called upon the assessee to substantiate the expenditure claimed by furnishing the relevant details and supporting documentary evidence. The assessee furnished ledger accounts and certain sample vouchers and explained that, considering the substantial volume of transactions and the nature of the business, it was practically difficult to upload the entire set of vouchers and supporting documents. It was further explained that loading and unloading operations are predominantly labour-intensive and payments to labourers are required to be made on a daily basis in cash depending upon the arrival and movement of goods. According to the assessee, the individual payments did not exceed the

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prescribed monetary limit and, therefore, there was no violation of section 40A(3) of the Act. At the same time, we cannot lose sight of the fact that the assessee has not produced complete documentary evidence in support of the entire expenditure claimed either before the AO or before the ld.CIT(A). The ld.CIT(A) has also recorded that the documents produced before him were incomplete and that the quantitative details furnished by the assessee could not be fully correlated with vehicle-wise fuel consumption and the corresponding opening and closing stock. Thus, although the nature of the expenditure cannot be doubted having regard to the business carried on by the assessee, the assessee has not been able to establish the entire expenditure with complete supporting evidence. 11. We also find considerable force in the contention of the ld.AR that the AO has made a blanket disallowance of 10% of the expenditure without identifying any specific item of expenditure which was found to be bogus or non-genuine. No particular voucher or transaction has been identified by the AO as false or fabricated, nor has any specific instance of inflation of expenditure been brought on record. The disallowance has essentially been made on an estimated basis on account of the assessee's inability to furnish complete supporting documentation. It is also pertinent to note that the assessee has maintained regular books of account and the accounts have been subjected to tax audit u/s.44AB of the Act. Nothing has been brought before us to demonstrate that the books of account maintained by the assessee were rejected by invoking the provisions of section 145(3) of the Act. Though the mere fact that the accounts are audited would not, by itself, absolve the assessee from the obligation of substantiating the expenditure claimed under the Act, the absence of any specific defect or instance of bogus expenditure assumes significance while determining the reasonableness of an estimated disallowance. 12. In our considered view, when the Revenue itself has not disputed that the assessee had actually carried out substantial transportation, loading and unloading activities under the contracts awarded by TNCSC, the corresponding expenditure necessarily had to be incurred for execution of such contracts.

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Therefore, the entire expenditure cannot be viewed with suspicion merely because the assessee was unable to upload or produce each and every voucher relating to the voluminous transactions undertaken during the year. 13. At the same time, since the assessee has failed to produce complete supporting evidence and reconcile the entire expenditure with the corresponding quantitative and vehicle-wise details, some disallowance is warranted to take care of possible deficiencies, unverifiable expenditure and leakage, if any. Therefore, this is not a case warranting complete deletion of the disallowance. The issue that remains is only with regard to the reasonable quantum of such disallowance. 14. The AO has estimated the disallowance at 10% of the expenditure without bringing any cogent material on record to demonstrate as to how the rate of 10% was arrived at. The ld.CIT(A) has also confirmed the same without independently establishing that such percentage bears a reasonable nexus with the deficiencies noticed in the supporting documents. An estimation, though permissible in appropriate circumstances, cannot be arbitrary or excessive and must bear a reasonable relationship with the nature of the business, volume of operations, evidence available on record and the deficiencies noticed therein. 15. Considering the totality of the facts and circumstances of the case, particularly the nature of the assessee's logistics business, the substantial volume of transportation and handling activities undertaken for TNCSC, the labour-intensive nature of loading and unloading operations, maintenance of regular books of account, tax audit of such accounts, production of ledger accounts and sample vouchers, coupled with the failure of the assessee to produce complete supporting evidence for verification, we are of the considered opinion that the disallowance sustained at 10% is on the higher side and does not commensurate with the deficiencies noticed by the authorities below. 16. Therefore, in order to meet the ends of justice and to cover the possible element of unverifiable expenditure, we deem it just and reasonable to restrict the disallowance to 2.5% of the impugned expenditure, as against 10%

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disallowed by the AO and confirmed by the ld.CIT(A). In our considered view, restriction of the disallowance to 2.5% would reasonably take care of the deficiencies in documentation noticed by the Revenue while, at the same time, avoiding an excessive and arbitrary disallowance of expenditure necessarily incurred in the course of the assessee's business. 17. Accordingly, we direct the AO to recompute the disallowance by restricting the same to 2.5% of the expenditure forming the subject matter of the impugned disallowance, in place of 10% adopted in the assessment order. The balance addition is directed to be deleted. The order of the ld.CIT(A) is modified accordingly. 18. Before parting, we make it clear that the above restriction has been made having regard to the peculiar facts and circumstances of the present case, the nature and volume of the assessee's business operations and the deficiencies in supporting documentation noticed by the authorities below and, therefore, the percentage so adopted shall not be construed as laying down any general proposition applicable to other assessment years. 19. In the result, the grounds raised by the assessee on this issue are partly allowed.

Order pronounced in the court on 11th August, 2026 at Chennai.

Sd/- Sd/- (एस एस विश्िनेत्र रवि) (एस. आर. रघुनार्था) (S.S. VISWANETHRA RAVI) (S. R. RAGHUNATHA) न्याययक सदस्य/Judicial Member लेखा सदस्य/Accountant Member

चेन्नई/Chennai, ददनांक/Dated, the 11th August, 2026. Devadas

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आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभागीय प्रनतननधि/DR 5. गार्ा फाईल/GF DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.08.12 15:29:47 +05'30'

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