Reimbursement claims for conveyance, LTA, and cash rent

Reimbursement claims for conveyance, LTA, and cash rent payment additions were remanded for proper verification and enquiry.

Issue

Whether the disallowance of claimed conveyance and food allowance reimbursements should be remanded to the Assessing Officer for verification of fuel and telephone expenses incurred by the assessee and reimbursed by the employer.
Whether the disallowance of Leave Travel Allowance (LTA) under Section 10(5) should be remanded to the Assessing Officer to examine documentary evidence including air tickets and boarding passes.
Whether Section 69A can be invoked for cash rent payments when the transactions are already part of the record, and whether the source of such payments requires fresh enquiry by the Assessing Officer.

Facts

Conveyance & Food Allowance: The assessee claimed deductions/exemptions for conveyance and food allowance as reimbursements for official duties (AY 2021-22). The Assessing Officer (AO) disallowed the claim citing lack of documentary proof and noting that these were reimbursements rather than part of salary, without verifying the underlying fuel and telephone bills.
Leave Travel Allowance: The AO treated the assessee’s LTA claim as unverified and fictitious, which was subsequently confirmed by the CIT(A). Before the ITAT, the assessee produced air tickets and boarding passes, which the Revenue argued were not submitted during initial assessment proceedings.
Cash Payment of House Rent: The assessee made cash rent payments. The AO treated the source as unexplained and made additions under Section 69A read with Section 115BBE. The assessee explained that the source of cash was a refund from a colleague regarding an aborted land transaction, backed by an affidavit and bank statements. The AO did not conduct an independent enquiry with the third party.

Decision

Conveyance & Food Allowance Remand: Held, yes. The issue is remanded to the AO to re-examine the claim after verifying the underlying expense receipts and employer reimbursement details submitted by the assessee.
LTA Document Verification Remand: Held, yes. Since the supporting air tickets and boarding passes were not verified by the AO, the matter is remanded for fresh verification of these documents.
Section 69A Inapplicability & Rent Remand: Held, yes. Section 69A applies only if money, bullion, or valuable items are found in the assessee’s possession and are not recorded in the books of account. As the rent payments were duly part of the record, the mandatory prerequisite of Section 69A was not satisfied, making the addition and high-rate tax under Section 115BBE non-exigible. On merits, the AO is directed to conduct a proper inquiry into the colleague’s affidavit and bank records to decide the issue afresh as per law.

Key Takeaways

Scope of Section 69A: Section 69A cannot be invoked for recorded transactions; unrecorded possession of assets or money is a strict precondition for applying Section 69A and Section 115BBE.
Duty of Inquiry on AO: An Assessing Officer cannot summarily reject an assessee’s explanation regarding sources of cash without conducting independent verification or third-party enquiries when supporting affidavits and bank records are furnished.
Remand for Technical Omissions: Legitimate tax exemptions (like LTA or official reimbursements) should be remanded for re-verification rather than outright disallowance when documentary evidence (such as boarding passes) is presented during appellate proceedings.

IN THE ITAT HYDERABAD BENCH ‘SMC’

Subba Rayudu Kalikiri

Income-tax Officer

VIJAY PAL RAO, Vice President

IT Appeal Nos.1279 & 1331 (HYD) of 2026
[Assessment year 2021-2022]

AUGUST 5, 2026

S. Gopi Krishna, CA for the Appellant. B. Laxmi Kanth, Sr. AR for the Respondent.

ORDER

1. These two appeals by the Assessee are directed against the two separate Orders dated 11.02.2026 and 12.02.2026 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, arising from the assessment order passed u/sec.143(3) and penalty order passed u/sec.271AAC(1) of the Income Tax Act [in short “the Act”], 1961 respectively, for the assessment year 2021-2022.

2. In quantum appeal ITA.No.1279/Hyd./2026 the assessee has raised the following grounds of appeal:

“On the facts and in the circumstances of the case and in law, the learned CIT APPEAL NFAC has erred in confirming the assessment order passed under section 143 r.w.s. 144B of the Income Tax Act, 1961 by the National Faceless Assessment Centre NFAC, which is bad in law, contrary to the settled principles of assessment, and violates the principles of natural justice

On the facts and in the circumstances of the case and in law, the CIT APPEAL has gravely erred in confirming the addition of Rs.9,96,000 under section 69A of the IT Act, 1961 without proper reviewing the material submitted before the Honble CIT APPEAL

On the facts and in the circumstances of the case and in law, the CIT APPEAL has erred in confirming the disallowance of LTA exemption without proper verifying the records submitted.”

2.1. The assessee has also raised additional grounds as under:

3. The assessee is an individual and filed his return of income for the year under consideration on 30.08.2021 declaring total income of Rs.14,06,110/-. During the scrutiny assessment, the Assessing Officer has made various additions as under:

3.1. Thus, the Assessing Officer has made additions on account of HRA, performance duty, food allowance, Leave Travelling Allowance, NPS, disallowance of claim of deduction u/sec.80E, education loan and on account of rent paid in cash. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.

4. Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that the assessee does not wish to press the addition made by the Assessing Officer on account of HRA, NPS, performance duty, and deduction u/sec.80E. Therefore, the same may be dismissed as not pressed. The learned DR has raised no serious objection if these additions are confirmed as the assessee has not pressed the same. Accordingly, these additions made by the Assessing Officer are confirmed as not pressed.

5. As regards the conveyance and food allowance, the learned Authorised Representative of the Assessee has submitted that the Assessing Officer has made the addition by disallowing the same for want of supporting evidence. The learned Authorised Representative of the Assessee has submitted that the assessee has incurred the expenditure on fuel expenses and details of which are placed at Page nos.154 and 155 of the paper book. Thus, the learned Authorised Representative of the Assessee has submitted that all the payments were made by the assessee through the Card or UPI and telephone expenses are also paid through UPI therefore, the said payment of Rs.19,602/- and Rs.26,678/-are in respect of fuel expenses i.e., conveyance charges and telephone expenses incurred by the assessee while performing his duty. The reimbursement of the same cannot be assessed as income of the assessee. Thus, he has submitted that without considering these details, the Assessing Officer has disallowed the claim of the assessee.

6. On the other hand, the learned DR has submitted that the assessee has failed to substantiate the claim by producing any documentary evidence before the Assessing Officer. He has relied upon the Orders of the authorities below.

7. I have considered the rival submissions and gone through the Orders of the authorities below. The Assessing Officer has disallowed the claim of the assessee by giving the reasons that the assessee has failed to submit the documentary evidence and has also admitted himself that the above expenditure claimed under the Head is not part of the salary rather it is reimbursement. From the details, it appears that the expenses were incurred on fuel and telephone bills which are claimed as reimbursement and therefore, the Assessing Officer ought to have verified the expenses incurred by the assessee and the reimbursement of the same by the company. Accordingly, in the facts and circumstances of the case, this issue is remanded to record of the Assessing Officer for reconsideration of the same after verification and examination of the details and evidence as provided by the assessee.

8. As regards the leave travel allowance, the Assessing Officer has disallowed the claim of the assessee on the ground that the claim of the assessee is not verifiable and found to be bogus and fictitious.

9. Before the Tribunal, the learned Authorised Representative of the Assessee has referred to the air tickets and boarding pass placed at page nos.76 to 81 of the paper book and submitted that this is also supported by the documentary evidence of the air tickets and boarding pass and therefore, this claim of the assessee cannot be held to be bogus or fictitious. The learned Authorised Representative of the Assessee has submitted that the Assessing Officer has made this addition without considering the relevant facts.

10. On the other hand, the learned DR has submitted that the assessee failed to file any documentary evidence to substantiate the claim of leave travel concession allowance. Thus, he has submitted that the documentary evidence now referred by the assessee requires proper verification and examination.

11. I have considered the rival submissions as well as relevant material on record. The Assessing Officer has disallowed this claim of the assessee by giving the reasons as under:

12. The assessee has filed the relevant documentary evidence in the shape of air tickets and boarding pass in support of its claim placed at page nos.76 to 81 of the paper book therefore, the disallowance made by the Assessing Officer without verification and examination of these records needs to be reconsidered. Accordingly, in the facts and circumstances of the case, this issue is remanded to the record of the Assessing Officer for fresh adjudication after verification and examination of the evidence in the shape of air tickets and boarding pass filed by the assessee. Needless to say, the assessee be given an appropriate opportunity of being heard before passing the order.

13. The addition made on account of cash payment of rent.

14. The Assessing Officer noted that the assessee has paid rent of Rs.9,96,000/- in cash however, the assessee failed to submit any supporting evidence to explain the source of the said payment of cash. The relevant findings of the Assessing Officer are as under:

15. On appeal, the learned CIT(A) has confirmed the addition.

16. Before the Tribunal, the learned Authorised Representative of the Assessee has referred to the bank account of the assessee and particularly the transactions of payment of Rs.9 lakhs to one Mr. Mathi Chandra Sekhar with the narration ‘Plot’. The learned Authorised Representative of the Assessee has submitted that this payment was made by the assessee to his colleague who was also working with M/s. Aurobindo Pharma Limited for purchase of plot however, subsequently it was found that there is a defect in the title of the said property and therefore, the transaction of purchase of plot could not materialized and assessee then, pursued for refund of the said amount from Mr. Mathi Chandra Sekhar. He has further submitted that Mr. Mathi Chandra Sekhar was working as a middleman/broker for the transaction and also indulged in some malpractices and deceiving the persons in the name of sale of properties. The assessee after great persuasion and with the support of colleagues as well as management of the Company viz., M/s. Aurobindo Pharma Limited was able to recover the said amount but the same was refunded by Mr. Mathi Chandra Sekhar in instalments and in cash which was used by the assessee for making the payment of rent during the year under consideration. The learned Authorised Representative of the Assessee has referred to the affidavit of the assessee placed at Page nos.23 to 25 of the paper book and submitted that the assessee has explained the source of the said payment of rent as it was earlier given as an advance payment for purchase of land but subsequently the same was received back in cash which was utilized by the assessee for making the rent payment. Thus, the learned Authorised Representative of the Assessee has submitted that the addition made by the Assessing Officer is not justified and liable to be deleted. He has also submitted that as an alternative plea raised in the additional ground, the addition cannot be made u/sec.69A of the Act as this is an expenditure incurred by the assessee for making the rent payment and not an amount or any valuable asset found falling in the ambit of sec.69A of the Act. Thus, the learned Authorised Representative of the Assessee has submitted that provisions of sec.69 are not applicable and consequently, the higher rate of tax u/sec.115BBE is also not applicable on this issue.

17. On the other hand, the learned DR has submitted that the Assessing Officer has made the addition as the amount of Rs.9,96,000/- was paid in cash and therefore, the assessee failed to explain the source of the said cash and consequently, the Assessing Officer has rightly made the addition u/sec.69A of the Act. He has relied upon the Orders of the authorities below.

18. I have considered the rival submissions as well as relevant material on record. The Assessing Officer has made the addition of Rs.9,96,000/- u/sec.69A by treating the same as unexplained money whereas it is not in dispute that this amount was paid by the assessee towards rent and thus it was not a cash found with the assessee by the Assessing Officer but it is only an expenditure incurred by the assessee towards the rent payment. Further, the provisions of sec.69A are attracted only if some money, bullion or article or thing are found in the possession of the assessee and not recorded in the books of account whereas, in the case in hand, these transactions are duly part of the record and not a case of not recorded in the books of account therefore, the mandatory condition for invoking the provisions of sec.69A that the transaction is not recorded in the books of account is not satisfied here. Accordingly, the provisions of sec.69A of the Act cannot be applied in respect of the transaction of payment of rent in cash. Thus, this issue as raised in the additional grounds by the assessee is decided in favour of the assessee.

19. As regards the merits of the addition on account of cash payment of rent of Rs.9,96,000/- it is manifest from the bank account of the assessee and particularly, the entries dated 19.10.2019 that a sum of Rs.9 lakhs was paid towards plot. The assessee has explained the transaction as this amount was paid to one Mr. Mathi Chandra Sekhar for purchase of plot of land however, due to defect in the title and some developments the transaction could not be materialized and assessee has demanded refund of the same from the said person. The assessee has filed an affidavit to explain this transaction placed at Page nos.23 and 24 as under:

19.1 Though these facts and details were explained by the assessee before the Assessing Officer but the affidavit now filed by the assessee was not available before the Assessing Officer. Accordingly, in the facts and circumstances of the case, when the assessee has explained the source as it is only an earlier payment made by the assessee to one Mr. Mathi Chandra Sekhar towards purchase of plot which was not materialized and subsequently the amount was recovered from the said person but in cash in instalments which was used by the assessee for payment of the rent. The Assessing Officer has not conducted any enquiry to ascertain these facts from the other party i.e., Mr. Mathi Chandra Sekhar. Hence, in the facts and circumstances of the case, I am of the considered opinion that the explanation of the assessee cannot be rejected without conducting further enquiry when the assessee has filed supporting evidence in the shape of bank account as well as filed the affidavit to explain the incidence. The assessee has also filed relieving letter of Mr. Mathi Chandra Sekhar due to his involvement in the malpractices and causing inconvenience to the colleagues to show that the said person was involved in these activities. Thus, all these facts are required to be verified. Accordingly, the Assessing Officer is directed to conduct proper enquiry and then decide this issue as per law, after giving an appropriate opportunity of hearing to the assessee.

19.2 In the result, ITA.No.1279/Hyd./2026 of the Assessee is partly allowed for statistical purposes.

ITA.No.1331/Hyd./2026:

20. In the penalty appeal, the assessee has raised the following grounds:

“On the facts and in the circumstances of the case and in law, the learned National Faceless Appeal Centre has erred in invoking the provisions of sec.271AAC ignoring the submissions and facts that the House Rent payment were made in cash out of the recoveries of advances made earlier to one of his friend by way of cheque which fact is available on record from the Bank Statement.

Such other ground OR grounds that may be urged during the appeal proceedings.

The assessment order made u/sec.271AAC(1) is erroneous and bad both on facts and in law.”

21. I have heard the learned Authorised Representative of the Assessee as well as learned DR. The Assessing Officer has levied the penalty u/sec.271AAC1 of the Income Tax Act [in short “the Act”], 1961 in respect of the addition made on account of rent paid in cash.

22. Since this issue has been remanded to the record of the Assessing Officer in quantum appeal therefore, the penalty levied by the Assessing Officer u/sec.271AAC(1) would not survive. Accordingly, the matter is remanded to the record of the Assessing Officer for reconsideration of the same as per the outcome of the quantum remand proceedings.

23. In the result, appeal ITA.No.1331/Hyd./2026 of the assessee is allowed for statistical purposes.

To sum up, ITA.No.1279/Hyd./2026 of the Assessee is partly allowed for statistical purposes and ITA.No.1331/Hyd./2026 of the assessee is allowed for statistical purposes. A copy of this common order be placed in the respective case files.