AO adds 100% of Freight, Legal Professional Expenses u/s 40(a)(i): ITAT orders Reconsideration after Hearing [Read Order]
The appellate authority has directed to examine the case on its actual merits and provide the taxpayer a proper opportunity to explain the freight and professional expenses.
![AO adds 100% of Freight, Legal Professional Expenses u/s 40(a)(i): ITAT orders Reconsideration after Hearing [Read Order]](https://images.taxscan.in/h-upload/2026/03/16/2129402-ao-adds-freight-legal-professional-expenses-itat-orders-reconsideration-hearing-taxscan.webp "AO adds 100% of Freight, Legal Professional Expenses u/s 40(a)(i): ITAT orders Reconsideration after Hearing [Read Order]")
The Hyderabad Bench of the Income Tax Appellate Tribunal ( ITAT ) has ordered reconsideration of addition of 100% of freight, legal profession and interest expenses underSection 40(a)(i) of Income Tax Act, 1961 after providing hearing. The tribunal condoned a delay of 42 days. For the Assessment Year 2013- 14, the Assessing Officer (AO) made disallowances totaling approximately...
The Hyderabad Bench of the Income Tax Appellate Tribunal ( ITAT ) has ordered reconsideration of addition of 100% of freight, legal profession and interest expenses underSection 40(a)(i) of Income Tax Act, 1961 after providing hearing. The tribunal condoned a delay of 42 days.
For the Assessment Year 2013- 14, the Assessing Officer (AO) made disallowances totaling approximately ₹24.30 crore under Section 40(a)(i) for freight, legal fees, and interest payments expenses.
The AO disallowed 100% of these costs, whereas the law often restricts such disallowances to a smaller percentage. The company argued that the department failed to distinguish whether these payments were made to residents or non-residents, which dictates the severity of the tax penalty.
When the appeal was filed before the the National Faceless Appeal Centre (CIT(A)), it dismissed the appeal "in limine" due to 42 days delay.
The company explained that it had become non-functional due to severe financial distress, leading to office staff misplacing the necessary assessment papers.
Even though the Managing Director submitted a sworn affidavit detailing these struggles, the CIT(A) refused to overlook the delay and rejected the appeal without looking at the massive ₹24.30 crore addition.
On the second appeal before the appellate bench, the Tribunal noted that the explanation provided constituted a "reasonable cause" for the delay, especially given the company's internal turmoil.
The bench of Manjunatha G (Accountant member) and Vijay Pal Rao (Vice President) ruled that the 42-day delay was excusable to ensure the company received its day in court.
Therefore, the ITAT set aside the previous order and sent the case back to the CIT(A) for a fresh look. The appellate authority has directed to examine the case on its actual merits and provide the taxpayer a proper opportunity to explain the freight and professional expenses.
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