A Kishore Rao and Others Vs DCIT (ITAT Bangalore)
Bangalore ITAT Deletes Ad-Hoc Transport Expense Disallowance – AO Cannot Expect ‘Perfect Vouchers’ for Every Highway Expense Across India
The Bangalore ITAT deleted the entire ad-hoc disallowance made out of transport business expenses and held that merely because complete petty vouchers were not available, huge operational expenses could not be disallowed when the transportation activity itself was accepted as genuine. The assessee, engaged in nationwide chassis transportation business, had incurred substantial expenses towards fuel, tolls, driver bata, enroute expenses, travelling and transportation charges through local agents and coordinators across the country. The AO invoked section 145(3) and disallowed 10% of such expenses on the ground that complete original bills and vouchers were not maintained. The CIT(A) reduced the disallowance to 8%.
The Tribunal observed that in the transport industry, practical business realities cannot be ignored. Expenses are incurred at multiple locations by drivers, cleaners and local coordinators and are later consolidated by agents for reimbursement. The assessee had furnished ledger accounts, reimbursement statements, sample fuel bills, driver sheets and bank statements, and all payments were admittedly made through banking channels. Importantly, neither the AO nor the CIT(A) brought any evidence to show that the money paid to agents had returned to the assessee or that the expenditure was bogus. The ITAT emphasized that “suspicion, however strong, cannot take the place of evidence.”
The ITAT further noted that the Revenue had not brought any comparable cases or profitability analysis to justify the arbitrary estimation of 10% or even 8%. On the contrary, the assessee’s NP ratio during the year was better than the average NP ratio of earlier and subsequent years. The Tribunal held that once transportation receipts and business operations were accepted as genuine, substantial disallowance of core operational expenses would lead to absurd results because transport business cannot run without fuel, toll, driver and enroute expenses.
Relying on the Supreme Court ruling in S.A. Builders, the Tribunal reiterated that the Revenue cannot sit in the “armchair of the businessman” and dictate how business should be conducted. Accordingly, the ITAT deleted the entire disallowance sustained by the CIT(A) and allowed the assessee’s appeal in full.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
