Fuel Expense Disallowance Restricted to 5% Due to Self-Made Voucher Difficulties: ITAT Kolkata

Satwinder Singh Vs ITO (ITAT Kolkata)

The appeal before the ITAT Kolkata arose from the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for Assessment Year 2018-19, affirming the Assessing Officer’s disallowance of oil and fuel expenses claimed by the assessee engaged in the transportation business.

The assessee had filed a return declaring nil income. During scrutiny assessment under Section 143(3) read with Section 144B of the Income-tax Act, the Assessing Officer observed that bills and vouchers were not produced for certain expenses. Consequently, the Assessing Officer disallowed oil and fuel expenses amounting to ₹1,94,38,909. In addition, estimated disallowances were made in respect of depreciation on additions to fixed assets of ₹14,66,437 and 10% of trip expenses amounting to ₹4,41,472, resulting in a total disallowance of ₹2,13,46,818 under Section 37 of the Act.

In appeal, the CIT(A) sustained only the disallowance relating to oil and fuel expenses while deleting the additions on account of depreciation and trip expenses.

Before the Tribunal, the assessee contended that its average net profit from the transportation business over the surrounding assessment years remained below 1%. It was argued that sustaining the oil and fuel expense disallowance would artificially increase the net profit for Assessment Year 2018-19 to approximately 9.85%, which was impractical and inconsistent with the assessee’s normal business results. The assessee therefore requested deletion of the disallowance to maintain consistency in the assessment of its business income.

The Tribunal examined the pattern of turnover and net profit from Assessment Years 2016-17 to 2020-21. It noted that the average net profit percentage for Assessment Years 2016-17, 2017-18, 2019-20 and 2020-21 was approximately 0.754%, whereas the disallowance made by the Assessing Officer resulted in an assessed net profit of 9.852% for Assessment Year 2018-19.

The Tribunal also considered the nature of the transportation business, observing that such businesses depend on drivers and other staff for maintaining expense records and that oil and fuel bills are generally submitted manually, often supported by self-made vouchers. In these circumstances, the Tribunal accepted the assessee’s contention that sustaining the entire disallowance would lead to an unrealistic and hypothetical profit.

Applying the principles of equity and reasonableness, the Tribunal modified the order of the CIT(A) and directed the Assessing Officer to restrict the disallowance to 5% of the total oil and fuel expenses of ₹2,90,89,505, amounting to ₹14,54,475, instead of sustaining the larger disallowance.

Accordingly, the appeal was partly allowed, with the oil and fuel expense disallowance restricted to 5%.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal preferred by the assessee is against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (hereinafter referred to as the “ld. CIT(A)”], dated 27.11.2025 for the Assessment Year (AY) 2018-19.

2. The assessee has raised the issue regarding the ld. CIT(A) confirming the addition made by the Assessing Officer (In short, ‘the AO’).

3. Brief facts of the case are that assessee filed return of income on 05.10.2018, declaring total income of Rs. Nil. The case was selected for scrutiny. The statutory notices along with questionnaire were issued and served on the assessee. The assessee engaged in the business of transportation and also derived income from remuneration, interest and share of profit from partnership firm. The AO after taking into account the evidences and documents filed by assessee, recorded a finding that vouchers and bills were not produced in respect of various expenses claimed by the assessee. The AO made the disallowance in respect of oil and fuel expenses of Rs.1,94,38,909/- for which the vouchers and bill were not produced. In respect of the remaining two items, the estimated disallowance was made. One, depreciation on the addition to fixed assets Rs.14,66,437/- and two, trip expenses @10% of the total expenses which comes to Rs.4,41,472/- were disallowed. The segregate disallowance of Rs.2,13,46,818/- on account of three items of expenses u/s 37 of the Act was made and added to the total income of the assessee in the assessment framed u/s 143(3) r.w.s. 144B of the Act, darted 20.04.2021.

4. In the appellate proceedings, the ld. CIT(A) while sustaining the disallowance in respect of oil and fuel expenses, allowed the appeal by relating to the other two additions in respect of depreciation and trip expenses.

5. The ld. AR submitted before us that the ld. CIT(A) has failed to take into account the submissions of the assessee wherein the assessee submitted that the average net profit in the business of the income is below 1%. Thus, if the disallowance sustained by the ld. CIT(A) in respect of oil and fuel expenses, then the net profit would be @9.18%, which is impractical and unrealistic. The ld. AR, therefore, prayed that disallowance may be deleted, keeping in view the net profit of the assessee, so that there is a consistency in the assessment in the income of the assessee.

6. The ld. Sr. DR for the revenue heavily supported the order of ld. CIT(A).

7. We have heard rival submissions and perused the materials available on record. We find that the ld. CIT (A) sustained the disallowance made by the AO in respect of oil and fuel expenses on the ground that assessee has not produced bills and vouchers in respect of some expenses, which were disallowed by the AO and confirmed by the ld. CIT(A). We have also examined the pattern of net profit earned by the assessee from A.Y. 2016-17 to 2020­21, which is extracted below:

Satwinder Singh (AY  2018-19)

NOTE: 1

NOTE: 2

Average Net Profit percentage of AY 2016-17, 2017-18, 2019-20 & 2020-21 = 0.754%

NOTE: 3

Assessing Officer estimated Net Profit percentage for AY 2018-2019 as 9.852%.

8. We note that assessee engaged in the business of transportation and has to depend on drivers and illiterate staff to maintain the bills maintained. Normally, in the transportation business, the bills are submitted by the truck drivers manually, which are mostly self-made vouchers. Therefore, we find merit in contentions of the assessee that if the disallowance is confirmed , the net profit would be unrealistic and hypothetic as extracted above. Considering the facts and circumstances, we are of the view that the principles of equity and reasonableness would be served, we are inclined to modify the order of ld. CIT(A) and direct the AO to make disallowance @5% of the total oil and fuel expenses of Rs.2,90,89,505/-, which comes to Rs.14,54,475/-. Consequently, the appeal of the assessee is partly allowed.

9. In the result, the appeal of the assessee is partly allowed.

The order is pronounced in the open Court on 25/06/2026.