ITAT quashes Disallowance on Tanker Expenses due to Lack of Justification by AO [Read Order]

The Raipur Bench of Income Tax Appellate Tribunal (ITAT) quashed the disallowance of ₹2,19,981 on tanker expenses, citing a lack of justification by the Assessing Officer (AO).

Rajnandgaon Petrol Service,appellant-assessee,filed its income tax return for A.Y. 2017-18 on March 12, 2018, declaring an income of Rs. 17,25,670/-. The case was taken up for scrutiny under section 143(2) of the Act.

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During the assessment, the AO noted that the assessee had claimed Rs. 44,64,558/- as merchant share and tanker transport expenses but failed to provide sufficient supporting documents. The AO disallowed 15% of these expenses, amounting to Rs. 6,69,683/-, on an ad-hoc basis. As a result, the assessed income was revised to Rs. 23,95,353/- through an order under section 143(3) dated December 21, 2019.

The assessee appealed against the disallowance before the Additional/Joint Commissioner of Income Tax (Appeals)[ADDL/JCIT(A)]. The Commissioner of Income Tax (Appeals)[CIT(A)] allowed the merchant share expense of Rs. 64,940/- but reduced the disallowance on tanker expenses from 15% to 5%, adding Rs. 2,19,981/-.

The CIT(A) accepted that the merchant share expense was a regular payment under a Bharat Petroleum Corporation Limited (BPCL) program but found the lack of supporting documents for tanker expenses unjustified. Considering the facts, a 5% disallowance was deemed reasonable.

Dissatisfied with the order, the assessee appealed to the Tribunal.

A single member bench comprising Ravish Sood (Judicial Member) considered the assessee’s written submissions dated January 13, 2025, and proceeded with the appeal after hearing the Departmental Representative and reviewing the lower authorities’ orders and available records.

The assessee argued that disallowance could not be made on a presumptive basis and cited multiple judicial rulings in support. The ITAT noted that the assessee had failed to provide supporting bills and vouchers for tanker expenses of Rs. 43,99,618/-, justifying scrutiny by the Assessing Officer (AO). However, it found that the AO’s ad-hoc disallowance of 15% (Rs. 6,69,683/-) and the CIT(A)’s reduction to 5% (Rs. 2,19,981/-) lacked a logical basis.

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The appellate tribunal observed that the AO did not cite specific unverifiable expenses or irregularities and had arbitrarily disallowed a portion of the claim. The assessee had made payments through banking channels, reported them in Form 26AS, and demonstrated improved GP/NP ratios. It also noted that similar claims in previous years had been accepted by the department.

Citing relevant judicial precedents, the ITAT held that a deduction under Section 37 of the Act could only be disallowed if found bogus, capital in nature, personal, or prohibited by law. As the AO failed to establish any of these conditions, the bench ruled that the disallowance was unjustified and vacated the addition of Rs. 2,19,981/-.

In short,the appeal filed by the assessee was allowed.

To Read the full text of the Order CLICK HERE

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