MULCHAND SHAMJI CHHEDA HUF,MUMBAI vs. INCOME TAX OFFICER 41(1)(3), MUMBAI

आयकर अपीलीय अिधकरण �ायपीठ मुंबईम�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JM & SHRI ARUN KHODPIA, AM I.T.A. No. 5767/Mum/2025 (Assessment Year: 2018-19) Mulchand Shamji Chheda Income Tax Officer – 41(1)(3), HUF Mumbai Ground Floor, 16/76, Next to Pratyakshakar Bhavan, C-11, Bandra Vs. Hotel Bawa Regency, Gokuldas Kurla Complex, Bandra East, Pasta Road, Dadar (East), Mumbai-400051 Mumbai-400014 PAN: AAAHH2523M Assessee- अपीलाथ� / Appellant Revenue-��थ�/ Respondent :

Assessee by : Ms. Mrugakshi K. Joshi Revenue by : Shri Ketan Gajjar, Sr. DR Date of Hearing : 20.08.2026 Date of Pronouncement : 31.08.2026

O R D E R Per Arun Khodpia, AM: This appeal is preferred by the assessee against the order of the Commissioner of Income Tax Appeals, National Faceless Appeal Centre (NFAC), Delhi [in short, “the Ld. CIT(A)”], dated 20.08.2025 for the Assessment Year (AY) 2018-19, arises from the assessment order under section 143(3) of the Income Tax Act, 1961 [in short, “the Act”] dated 17.03.2021, passed by National e-Assessment Centre, Delhi [in short, “the Ld. AO”].

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf 2. The grounds of appeal raised by the assessee are as under: “Ground No. 1: 'Income from Other Sources' or 'Business Income" 1. The learned CIT(A) erred in confirming the action of the Assessing Officer of treating the Interest Income earned under the head 'Profits/ Gains from Business/Profession' instead of 'Income From Other Sources'. 2. The learned CIT(A) failed to follow the principles of consistency, where the Assessee has been offering the Interest Income under the head 'Income from Other Sources' and the same has been duly accepted in all preceding years. 3. The learned CIT(A) erred in treating the Assessee as moneylender and failed to take into consideration that the borrowed loans have been utilized mainly for the purposes of giving loans to its 09 related parties who are family members and family concerns. Ground No. 2: Disallowance of Rs. 3,78,34,975/-u/s. 40(a)(ia) 4. Without prejudice to what is stated above, the learned CIT(A) erred in making disallowance u/s. 40(a)(ia) of Rs. 3,78,34,975/- (being 30% of the Interest paid of Rs. 12,61,16,582/-) on the ground that the deduction u/s. 194A has not been complied with. 5. Non-Applicability of TDS provisions: (i) The learned CIT(A) failed to take into consideration that as per the Proviso to section 194A, the Assessee is not required to deduct any TDS u/s. 194A for AY. 2018-19, since the total sales/gross receipts from business of profession, in which such interest is credited or paid, exceeds Rs.1,00,00,000/- (as specified in section 44AB). Ground No. 3: Applicability of section 44AB (ii) The learned CIT(A) erred in holding that the Appellant is subject to tax audit u/s. 44AB. He failed to take into consideration that the Appellant disclosed the Interest income under the head 'Income from Other Sources' and was therefore not liable to get his books of accounts audited. (iii) The Appellant cannot be penalized u/s. 271B, merely on account of change of head by the Assessing Officer. 3. The assessment in the present case was completed under section 143(3) of the Income-tax Act, 1961 (“the Act”). Then, the case was selected for limited scrutiny on the issue of “Deductions from Income from Other Sources”. During the course of assessment proceedings, the Ld. AO observed that the assessee had received substantial interest income from 2

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf various parties to whom the assessee had advanced unsecured loans. From the pattern of income disclosed by the assessee, the Ld. AO inferred that the assessee was engaged in the business of financing and money lending, whereas the corresponding income had been offered under the head “Income from Other Sources”. The Ld. AO called for certain details from the assessee, which were furnished. It was noted that during the relevant year the assessee had earned interest income of Rs.12,64,47,463/- and had incurred interest & other expenses of Rs.17,32,64,458/-.

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf 5. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The submissions of the assessee, however, did not find favour with the First Appellate Authority. The Ld. CIT(A) held that the provisions of section 40(a)(ia) were attracted, particularly in view of the treatment of the assessee’s income as business income and the admitted fact that tax had not been deducted at source from the interest expenditure. Before the Ld. CIT(A), the assessee furnished Form No. 26A certificates in respect of certain payees. The Ld. CIT(A), however, observed that complete Form No. 26A certificates in respect of all the payees had neither been furnished before the Ld. AO nor before him. It was accordingly held that partial compliance could not, by itself, absolve the assessee from the consequences contemplated under section 40(a)(ia) of the Act. The appeal of the assessee was, accordingly, dismissed.

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf scrutiny. It was, therefore, submitted that the addition made by the Ld. AO was beyond jurisdiction and liable to be deleted.

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf 10. The Ld. Counsel accordingly requested that the matter be restored to the file of the Ld. AO with a direction to verify the Form No. 26A certificates and allow the claim of the assessee in accordance with the second proviso to section 40(a)(ia) read with the first proviso to section 201(1) of the Act, to the extent the statutory conditions were found to be satisfied. The assessee also undertook to furnish the requisite Form No. 26A certificates afresh before the Ld. AO, if so required, and submitted that the certificates in respect of the remaining loan creditors were also being obtained. 11. Per contra, the Ld. DR supported the orders of the Revenue authorities and opposed the submissions advanced on behalf of the assessee. 12. We have considered the rival submissions and perused the material available on record. 13. It is an admitted position that the assessee was engaged in the activity of accepting unsecured loans and advancing unsecured loans to its related concerns. The assessee had offered the interest income arising from such activity under the head “Income from Other Sources”. The Ld. AO, after examining the nature and pattern of the activity, concluded that the same constituted a business activity and, accordingly, assessed the income under the head “Profits and Gains of Business or Profession”. Having treated the activity as a business activity, the Ld. AO examined the allowability of the corresponding interest expenditure and invoked the provisions of section 40(a)(ia) on the ground that the assessee had failed to deduct tax at source 6

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf from the interest payments. Consequently, a disallowance of Rs.3,78,34,975/-, being 30% of the amount liable for disallowance, was made. 14. Before the Ld. CIT(A), the assessee had furnished Form No. 26A certificates in respect of certain loan creditors. However, the Ld. CIT(A) did not accept the claim on the ground that complete certificates in respect of all the payees had not been furnished. Before us, the Ld. Counsel has furnished certain Form No. 26A certificates and has sought restoration of the matter to the file of the Ld. AO for verification thereof and for consideration of the assessee’s claim in terms of the second proviso to section 40(a)(ia) read with the first proviso to section 201(1) of the Act. 15. We have considered the aforesaid submission in the light of the material placed before us. It is evident that the assessee has furnished Form No. 26A certificates in respect of certain interest payments, though the requisite certificates have not been furnished in respect of all the payees. Since the claim of the assessee under the second proviso to section 40(a)(ia), read with the first proviso to section 201(1), requires verification of the prescribed statutory conditions in respect of the respective payees, we consider it appropriate to restore the matter to the file of the Ld. AO for verification. 16. The Ld. AO shall examine the Form No. 26A certificates and other supporting material furnished by the assessee and determine, in accordance with law, whether the conditions prescribed under the second proviso to 7

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf section 40(a)(ia), read with the first proviso to section 201(1), are satisfied in respect of the respective payments. To the extent the statutory conditions are found to be fulfilled, the consequential relief shall be allowed to the assessee in accordance with law. The issue is, accordingly, restored to the file of the Ld. AO for fresh verification and adjudication. 17. Needless to say, the assessee shall be afforded reasonable opportunity of being heard in the set-aside proceedings. The assessee shall also furnish all requisite documentary evidence and extend due cooperation to the Ld. AO for completion of the proceedings. In the event of failure on the part of the assessee to furnish the requisite details or otherwise cooperate with the proceedings, the Ld. AO shall be at liberty to adjudicate the issue on the basis of the material available on record and in accordance with law. 18. As regards the legal contention of the assessee that the assessment was confined to the issue for which the case was selected under limited scrutiny, we note that the issue identified for limited scrutiny was “Deductions from Income from Other Sources”. The disallowance under section 40(a)(ia) arose in the course of examining the allowability of the expenditure corresponding to the interest income and was considered by the Ld. AO in the context of his finding that the activity giving rise to such income constituted a business activity. In these circumstances, we do not find merit in the contention of the assessee that the Ld. AO travelled beyond the scope

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf of the limited scrutiny issue. The said ground of appeal is, accordingly, rejected. 19. As regards the contention of the assessee that the rate of tax applicable to income assessed under the head “Profits and Gains of Business or Profession” and “Income from Other Sources” was the same, we find that the said contention, by itself, does not determine the proper head under which the income is chargeable. The classification of income under the appropriate head has to be determined with reference to the nature of the activity and the applicable provisions of the Act. In the present case, the Ld. AO, after examining the nature of the assessee’s activities, treated the same as a business activity, which finding was also upheld by the Ld. CIT(A). The contention based merely on the alleged similarity in the rate of tax, therefore, does not call for interference with the finding of the Revenue authorities. 20. In the result, the appeal of the assessee is partly allowed for statistical purposes, in above terms.

Order pronounced in the open court on 31-08-2026.

Sd/- Sd/- (ANIKESH BANERJEE) (ARUN KHODPIA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated : 31-08-2026. Ankit K., Sr. PS 9

ITA No. 5767/Mum/2025 Mulchand Shamji Chheda Huf

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai