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Facts
For A.Y. 2015-16, the AO made an ad-hoc disallowance of 20% on truck rent expenses (Rs. 1,40,80,033/- out of Rs. 7,04,00,166/-) and added Rs. 1,02,93,061/- for unpaid motor rent for a transportation firm. The CIT(A) confirmed these additions, despite the assessee submitting details and arguing against the ad-hoc nature and alleged double disallowance of unpaid motor rent. The assessee contended that in a prior year (A.Y. 2012-13/2013-14), the disallowance for similar expenses was restricted to 2%.
Held
The tribunal found that the Revenue could not justify the 20% ad-hoc disallowance, noting no change in business nature from A.Y. 2013-14 when only a 2% disallowance was made. It directed the AO to restrict the disallowance on truck rent expenses to 2% (Rs. 7,04,00,166/-) and to re-verify the unpaid motor truck rent after providing another opportunity of hearing to the assessee.
Key Issues
The key legal issues were the validity of an ad-hoc 20% disallowance on truck rent expenses, the alleged double disallowance of unpaid motor truck rent, and the violation of natural justice by ignoring assessee's submissions.
Sections Cited
143(3), 234A, 234B, 234C, 234D, 133(6), 40A(3), 37(1)
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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: DR. BRR Kumar, Vice President And Shri T. R. Senthil Kumar, Judicial Member ITA No: 1642/Ahd/2025 Assessment Year: 2015-16 Sundaram Roadlines Income Tax Officer 208, Atlantis Enclave, Ward-3(3)(5), Opp. Maruti Row House Vs Ahmedabad Subash Chowk, Gurukul Road, Memnagar, Ahmedabad-380052 PAN: ABNFS4536K (Appellant) (Respondent) Assessee Represented: Shri Tushar Hemani, Sr. Adv. Revenue Represented: Shri Nitin Kulkarni, Sr.D.R. Date of hearing : 25-02-2026 Date of pronouncement : 11-03-2026 आदेश/ORDER PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER
This appeal is filed by the Assessee as against the appellate order dated 23-06-2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2015-16.
Brief facts of the case are that the assessee is a firm engaged in the business of transportation of goods. The assessee is awarded tender from various companies from pickup of goods from one place to put the same in destination places as per terms for IFFCO Ltd., GNFC Ltd., KRIBHCO Ltd. etc. For the A.Y. 2015-16, the assessee filed its return of income on 07.09.2015 declaring total income of Rs.13,01,830/-. The return was taken for scrutiny assessment and the AO made ad-hoc disallowance of 20% on the Truck expenses amounting to Rs.1,40,80,033/- being the Truck Rent Expenses amounting to Rs.7,04,00,166/-. The AO also made addition of Rs.1,02,93,061/- being the unpaid motor rent and demanded tax thereon.
Aggrieved against the assessment order, the assessee filed an appeal before the Ld. CIT(A), wherein the assessee filed various details relating to the Truck expenses and unpaid truck rent. The Ld. CIT(A) called for a remand report from the AO and thereby confirmed the addition made by the AO.
Aggrieved against the appellate order, the assessee is in appeal before us raising the following grounds of appeal:
“1. The Ld. CIT(A) has erred in law and on facts of the in upholding an ad hoc disallowance of Rs. 1,20,21,421/- out of the total disallowance of Rs.1,40,80,033/-, being 20% of the total truck rent expenses amounting to Rs.7,04,00,166/- as made by the Ld. AO. While doing so, the Ld. CIT(A) removed oversight of Rs.20,58,612/- being 20% of unpaid truck rent expenses of Rs.1,02,93,061/-, which were already fully disallowed separately and formed part of the total truck rent expenses.
2. The Ld. CIT(A) has erred in law and on facts of the in upholding disallowance as made by Ld. AO of unpaid truck rent expenses amounting Rs. 1,02,93,061/-.
3. The Ld. CIT(A) and Ld. AO have passed the order without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. Their action is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
4. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C/D of the Act.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
5. Ld. Sr. Counsel Shri Tushar Hemani appearing for the assessee submitted that the truck rent expenses amounting to Rs.7,04,00,166/- was claimed as a deduction while computing the income. Most of these expenses were paid in cash and the unpaid motor truck rent as on 31.03.2015 pertaining to the month of March, namely, Rs.1,02,93,061/-. The AO made ad-hoc disallowance of 20% of the total truck rent expenditure, which includes the unpaid motor truck rent expenses, thus has resulted in double disallowance of the unpaid motor truck rent expenses. Ld. Sr. Counsel also submitted that the AO issued the show cause notice dated 08.12.2017 asking for supporting evidence of truck rent expenses and unpaid motor rent expenses, however passed the assessment order on 20.12.2017. Therefore, the assessee submitted the sample details of expenses before the Ld. CIT(A) who has called for remand report from the AO, however, the AO again stated that these documents were not produced at the time of original assessment, thereby, Ld. CIT(A) confirmed the additions. Ld. Sr. Counsel also brought our attention that in assessee’s own case for the earlier Assessment Year 2012-13 on identical disallowance of truck rent expenses, the AO restricted the disallowance to 2% only while passing a detailed speaking assessment order u/s.143(3) of the Act vide order dated 21.12.2018. Therefore, the disallowance be restricted to 2% in the present assessment year also, since the ad-hoc disallowance made by the AO is without any comparative basis, no rejection of books of accounts, without calling for information u/s.133(6) of the Act, no violation of Section 40A(3) and Section 37(1) of the Act. Ld. Sr. Counsel in support of his arguments, relied upon the following case laws:
➤ Principal Commissioner of Income Tax vs. R.G. Buildwell Engineers Ltd. [2018] 99 taxmann.com 284 (SC)/[2018] 259 Taxman 370 (SC) [01-10-2018] ➤ Principal Commissioner of Income-tax, (Central)-1 vs. Forum Sales (P.) Ltd. [2024] 160 taxmann.com 93 (Delhi)/[2024] 298 Taxman 533 (Delhi)/[2024] 468 ITR 392 (Delhi) [01-03-2024] ➤ West Coast Fine Foods (India) Pvt Ltd vs. DCIT 13(3)(2), Mumbai (ITA No. 893/MUM/2024)-ITAT Mumbai
Per contra, Ld. Sr. DR appearing for the Revenue supported the orders passed by the lower authorities and requested to confirm the addition.
We have given our thoughtful consideration and perused the materials available on record including the paper book and case laws filed by the assessee. The assessee during the course of assessment proceedings filed its reply vide letter dated 20.12.2017, wherein break up for unpaid motor rent, sample invoices of transportation income, truck rent expenses, sample of certificate of registration of trucks rented were furnished by the assessee. However, the same were not verified and cross checked by calling for details from various parties by the AO, however, made ad hoc disallowance @20% without making any comparative cases. Whereas, in the assessee’s own case for the A.Y. 2013-14, the AO made disallowance of 2% of the truck rent expenses by speaking order as follows:
“11. It is pertinent to mention here that in the line of transportation business huge cash payments were involved on day-to-day basis as goods were to be transported from one place to another. The assessee had to Incur cash expenses for meeting with the diesel, labour, truck repair, etc. on regular basis and for that assessee had to withdraw cash from bank accounts. But the point here to mention is that assessee is supposed to maintain complete books of accounts with supporting documentary evidence to substantiate its claim of expenses incurred in cash while carrying out its business activities. As already mentioned in the show cause issued, the assessee was requested to furnish entire cash book maintained showing the cash withdrawal and exact utilization of the cash withdrawn on particular date/month. The assessee was not in a position to explain the cash withdrawal from bank in a particular day and entry in the cash book and the utilization of the same in carrying out his business activities. Therefore, considering the details and relevant documents furnished by the assessee during the course of assessment proceedings, it is conclusively proved that the assessee was not in a position to adduce complete evidence in respect of huge cash expenditure incurred in the form truck rent expenses of Rs.6,17,43,640/- and expenses of Rs.1,31,37,774/- claimed under the head ‘Labour Expense-GSFC Jamnagar’.
Having considered all the details and relevant evidence furnished by the assessee, during the course of assessment proceedings for A.Y.2013-14, in respect of the above two expenditures Incurred in cash and looking to the nature of the business of the assessee, it would be proper and appropriate to disallow 2% (two percentage) of the truck rent expenses of Rs.6,17,43,640/- and expenses Rs.1,31,37,774/- claimed under the head 'Labour Expense-GSFC, Jamnagar amounting to Rs.
12,34,873/- and Rs.2,62,755/-, respectively, totaling Rs.14,97,628/- is disallowed and added to the total Income of the assessee.”
The Revenue could not place on record any distinguishable facts in making the ad hoc disallowance @20% and without making any enquiry and also rejecting of the books of accounts. Further, there is no change in the nature of business with that of the earlier assessment year 2013-14. Therefore, we direct the AO to make disallowance @2% on the Truck Rent Expenses of Rs.7,04,00,166/- and also verify the unpaid motor truck rent by giving one more opportunity of hearing to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.