NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS,BENGALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(2)(1), BANGALORE

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ITA 2003/BANG/2025Status: DisposedITAT Bangalore21 August 2026AY 2016-201711 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal condoned the delay in filing the appeals. For AY 2016-17, a partial disallowance of cash payment was upheld, while the unsecured loan issue was restored to the AO. For AY 2018-19, the disallowance of expenses was restored to the AO.

What were the facts?

The assessee filed appeals for AY 2016-17 and 2018-19 with a delay. The appeals involved issues of disallowance for cash payments, unexplained credit (unsecured loans), and disallowance of expenses due to lack of supporting bills.

What were the issues?

Whether cash payments exceeding the prescribed limit are allowable, and whether unsecured loans and expenses are sufficiently supported by evidence.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: WASEEM AHMED & KESHAV DUBEY

PER WASEEM AHMED, ACCOUNTANT MEMBER: The two appeals filed at the instance of the assessee are directed against the common order of the learned Commissioner of Income Tax (Appeal) under the National Faceless Appeal Centre (hereafter the Ld. CIT-A) for the A.Y. 2016-17 & 2018-19 passed under section 250 of the Income Tax Act, 1961 (hereafter the Act).

2.

At the outset, we note that both the appeals filed by the assessee are delayed by 11 days. The impugned orders u/s 250 of the Act was passed by the Ld. CIT(A),

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS NFAC on 04.06.2025 and the appeals were required to be filed on or before 31.08.2025. The assessee has filed a petition for condonation of delay supported by an affidavit. It is explained that the responsibility of filing the appeal was entrusted to an advocate at Chennai. However, the advocate fell sick during the last week of August 2025 and could attend to the filing only during the first fortnight of September 2025. This resulted in a delay of 11 days. The assessee submitted that the delay was neither intentional nor deliberate but occurred due to circumstances beyond its control.

3.

The Ld. DR opposed the condonation petition and submitted that the assessee was required to file the appeal within the prescribed period of limitation.

4.

We have considered the rival submissions and the reasons stated in the petition and the affidavit. The delay is only 11 days, and the explanation given by the assessee appears reasonable and bona fide. The affidavit specifically states that the delay occurred because the advocate engaged for filing the appeal fell sick in the last week of August 2025 and that the delay was neither intentional, wilful nor deliberate.

4.1 In this regard, we draw support from the judgment of the Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji & Others [1987] 167 ITR 471 (SC), wherein it has been held that the expression “sufficient cause” should receive a liberal interpretation so as to advance substantial justice and that ordinarily a litigant does not stand to benefit by filing an appeal late. The cause of substantial justice should prevail over technical considerations.

4.2 Considering the short period of delay and the reasonable explanation furnished by the assessee, we are satisfied that there was sufficient cause for not filing the appeal within the prescribed time. Accordingly, the delay of 11 days in filing the present appeals is condoned, and the appeals are admitted for adjudication on merits.

First, we take up the assessee's appeal in ITA No. 2003/Bang/2025 for A.Y. 2016-17

5.

The assessee, in the memo of the appeal, has raised 12 grounds of appeal. The Ground Nos. 1 to 4 and Ground Nos. 9 to 12 of the assessee's appeal are general

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS grounds and the same do not require any separate and independent adjudication. Hence, the same are hereby dismissed as infructuous.

6.

The Ground No. 5 of the appeal pertains to the addition of Rs. 6,78,664/- made on account of cash payment in contravention of section 40A(3) of the Act.

7.

The facts in brief are that the assessee, a trust, is engaged in the business of educational institutions and filed its return of income for the year under consideration showing business loss of Rs. 2,39,89,016/- only. During the assessment, the AO observed that the assessee made cash payments towards repair & maintenance of the vehicle in violation of section 40A(3) of the Act. Such cash payments aggregated to Rs. 6,78,664/- only. Accordingly, the AO added Rs. 6,78,664/- to the assessee's total income.

8.

On appeal by the assessee, the learned CIT(A) confirmed the addition made by the AO.

9.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

10.

The learned AR before us filed the paper book running from pages 1 to 275 and submitted that the cash payment of Rs. 40000/- made on 23rd August 2015 falls under the exception provided under clause (j) of Rule 6DD of the Income Tax Rules 1962 as the payment was made on sunday and the bank was closed on account of a holiday. Regarding the balance cash payment exceeding the threshold limit, the learned AR conceded. The learned DR, on the other hand, supported the findings of the authorities below.

11.

We have heard the rival submissions of both the parties and perused the materials available on record. The issue relates to disallowance of Rs. 6,78,664/- u/s 40A(3) of the Act in respect of cash payments made towards repair and maintenance of vehicles. The AO noticed that these payments were made in cash in excess of the prescribed limit and accordingly made the disallowance, which was confirmed by the Ld. CIT(A).

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS 11.1 Before us, the Ld. AR has specifically pointed out that out of the total disallowance, a sum of Rs. 40,000/- was paid on 23.08.2015, which was a Sunday. It is therefore submitted that the said payment is covered by the exception provided under Rule 6DD(j) of the Income-tax Rules, 1962, since the banks were closed on that day. However, in respect of the remaining cash payments exceeding the prescribed limit, the Ld. AR fairly conceded the issue.

11.2 We find merit in the contention of the assessee to the limited extent of the payment of Rs. 40,000/-. Section 40A(3) of the Act has to be read along with the exceptions provided under Rule 6DD of the Income-tax Rules, 1962. Rule 6DD(j) provides an exception where payment is required to be made on a day on which the banks are closed either on account of holiday or strike. In the present case, the payment of Rs. 40,000/- was admittedly made on 23.08.2015, being a Sunday. Therefore, the said payment deserves to be excluded from the disallowance u/s 40A(3) of the Act.

11.3 As regards the balance amount of Rs. 6,38,664/-, no case has been made out before us to bring such payments within any of the exceptions provided under Rule 6DD. In fact, the Ld. AR has fairly conceded the issue in respect of these payments. We therefore find no reason to interfere with the order of the Ld. CIT(A) to this extent and the disallowance of Rs. 6,38,664/- is confirmed. Accordingly, we direct the AO to delete the disallowance of Rs. 40,000/-, as the payment was made on 23.08.2015 being holiday (Sunday) as claimed by the assessee. The balance disallowance of Rs. 6,38,664/- is sustained. Thus, Ground No. 5 of the assessee is partly allowed.

12.

The next issue raised by the assessee in Ground No. 6 pertains to the addition of Rs. 2,59,40,000/- made u/s 68 of the Act, treating the unsecured loan as unexplained credit.

13.

The AO found that, during the year under consideration, the assessee's books were credited with unsecured loans from 5 persons. The AO further found that the assessee failed to establish the identity of the creditors, the genuineness of the transaction, and the creditors' creditworthiness. Therefore, the AO treated impugned

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS credits of unsecured loans of Rs. 2,59,40,000/- as unexplained credit as per section 68 of the Act and added to the assessee’s total income.

13.1 Subsequently, the Ld. CIT-A also confirmed the addition made by the AO by observing that the assessee failed to provide the documentary evidence to establish the identity of the creditors, the genuineness of the transaction, and the creditworthiness of the creditors.

14.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

15.

The learned AR before us submitted that, during the appellate proceedings before the Ld. CIT-A, relevant documents in relation to unsecured loans from the 5 parties, which included PAN, a copy of confirmation of balance of loan, copy of ledger account, copy of bank account statement of the lenders were filed. These documents are available on pages 2 to 55 of the paper book. The learned CIT(A), without considering the same, confirmed the addition made by the AO. The AO also, without providing proper opportunity, treated the credit of unsecured loan as unexpended credit.

16.

On the other hand, the learned DR vehemently supported the order of the revenue authorities.

17.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue relates to the addition of Rs. 2,59,40,000/- u/s 68 of the Act in respect of unsecured loans received by the assessee from five persons. The AO made the addition on the ground that the assessee failed to establish the identity and creditworthiness of the lenders and genuineness of the transactions. The Ld. CIT(A) confirmed the addition on substantially the same reasoning.

17.1 Before us, the Ld. AR submitted that the assessee had furnished various documents in respect of all the five lenders during the proceedings before the Ld. CIT(A). These documents include the PAN of the lenders, confirmations of the loan balances, copies of ledger accounts and bank statements of the lenders. The said

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS documents have also been placed before us at pages 2 to 55 of the paper book. The assessee's grievance is that the Ld. CIT(A) did not consider the same. It was further submitted that adequate opportunity was also not provided by the AO before treating the unsecured loans as unexplained credits.

17.2 We find that an addition u/s 68 of the Act cannot be decided merely on a general observation that the assessee has failed to establish the necessary ingredients. The evidence furnished by the assessee in respect of each lender is required to be examined and a finding has to be recorded regarding the identity and creditworthiness of the lender and genuineness of the transaction. In the present case, the assessee claims to have furnished supporting documents in respect of all five lenders, but the lower authorities do not appear to have examined these documents in detail.

17.3 At the same time, since these documents require factual verification, including verification of the bank statements, confirmations, source and capacity of the respective lenders to advance the loans, we are of the view that it would not be appropriate for us to record a final finding on the merits of the addition at this stage. Considering the facts and in the interest of substantial justice, we set aside the finding of the Ld. CIT(A) on this issue and restore the matter to the file of the AO for fresh adjudication. The AO shall examine the documents and evidence furnished by the assessee in respect of each of the five lenders and determine the issue afresh in accordance with law. The assessee shall also be at liberty to furnish any further evidence or explanation necessary to establish the identity and creditworthiness of the lenders and genuineness of the transactions. The AO shall provide reasonable opportunity of being heard to the assessee and shall pass a speaking order after properly considering all the materials to be placed before him. We make it clear that we have not expressed any opinion on the merits of the addition. Accordingly, Ground No. 6 of the assessee’s appeal is allowed for statistical purposes.

18.

The next issue raised by the assessee in Ground Nos. 7 & 8 of the appeal is interconnected and pertains to disallowances of sales promotion and advertisement expenses.

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS 19. During the assessment, the AO noticed that the assessee has claimed sales promotion and advertisement expenses of Rs. 10,76,906/- and 20,22,884/- respectively, which are abnormally high considering the number of students who were only 65 during the year. Accordingly, the assessee was asked to furnish the necessary supporting documents of promotion and advertisement expenses. On verification of the details provided, the AO noted that certain bills and vouchers were pertaining to F.Y. 2014-15 aggregated to Rs. 7,56,232/-, but the claim was made in the year under consideration. Hence, the entire amount of Rs. 7,56,232/- pertaining to F.Y. 2014-15 was disallowed.

19.1 Similarly, the AO noted that most of the expenditure claimed was not supported by bills and vouchers. Hence, an ad hoc amount of 30% of the remaining expenses of Rs. 23,43,558/- (10,76,906 + 20,22,884 -7,56,232) was disallowed. Accordingly, an addition of Rs. 70,03,067/- was made to the total income of the assessee. On appeal, the ld. CIT-A also confirmed the same.

20.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

21.

The learned AR before us submitted that the disallowances of expenses being business promotion and advertisement were made for want of proper supporting documents. The learned AR argued that the assessee was ready to produce the necessary supporting evidence and accordingly prayed that the issue be restored to the file of the AO for fresh adjudication.

22.

On the other hand, the learned DR did not raise any objection in case the issue is restored to the file of the AO for fresh adjudication.

23.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue relates to disallowance of sales promotion and advertisement expenses. The AO disallowed Rs. 7,56,232/- on the ground that the supporting bills and vouchers pertained to F.Y. 2014-15. Further, since most of the remaining expenditures were not supported by proper bills and vouchers, the AO made an ad hoc disallowance of 30% of such expenditure.

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS 23.1 Before us, the Ld. AR submitted that the assessee is now in a position to produce the necessary supporting evidence and requested that the matter be restored to the AO for verification. The Ld. DR has also not raised any objection to such restoration. Considering the facts, we are of the view that the allowability of the expenditure should be decided after examining the relevant bills, vouchers and other supporting evidence. Further, an ad hoc disallowance merely for want of supporting documents, without examining the evidence which the assessee is now willing to produce, would not be appropriate. We therefore set aside the finding of the Ld. CIT(A) on this issue and restore the matter to the file of the AO for fresh adjudication. The AO shall verify the evidence to be furnished by the assessee, including the year to which the expenditure relates, and decide the allowability of the expenditure in accordance with law after providing reasonable opportunity of being heard to the assessee. Accordingly, Ground Nos. 7 and 8 are allowed for statistical purposes.

24.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Coming to assessee’s appeal in ITA No. 2004/Bang/2025 for the A.Y. 2018-19.

25.

The assessee has raised multiple grounds in the memo of appeal. However, the effective issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances of 30% of total expenditures.

26.

The necessary facts are that the assessee for the year under consideration declared business loss of Rs. 2,19,38,172/-. During the assessment proceedings, the AO noticed that the assessee, in the profit and loss account, claimed expenditure of Rs. 4,64,89,549/- only. The AO asked the assessee to furnish supporting bills of the expenditures exceeding Rs. 2 Lakh. However, the assessee failed to furnish the same, citing the voluminous nature of the data. Hence, in the absence of supporting evidence, the AO made ad hoc disallowances at the rate of 30% of the total expenditures claimed under different heads. Accordingly, the AO made an addition of Rs. 1,39,76,865/- to the total income of the assessee.

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS 27. The aggrieved assessee preferred an appeal before the learned CIT(A), who confirmed the addition/disallowances by observing that the assessee, during the appellate proceeding, also failed to provide the evidence in support of the expenditures claimed.

28.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

29.

The learned AR before us submitted that the assessee is ready to provide the necessary documentary evidence in support of the expenditures claimed in the profit and loss account. Accordingly, the learned AR prayed us to restore the issue to the file of the AO for adjudication.

30.

On the other hand, learned DR expressed no objection to restoring the issue to the file of the AO.

31.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue relates to disallowance of expenses claimed under different heads on the ground that the supporting bills and vouchers were not made available. Accordingly, the AO made an ad hoc disallowance of 30% of such expenditures.

31.1 Before us, the Ld. AR submitted that the assessee is now in a position to produce the necessary supporting evidence and requested that the matter be restored to the AO for verification. The Ld. DR has also not raised any objection to such restoration.

31.2 Considering the facts, we are of the view that the allowability of the expenditure should be decided after examining the relevant bills, vouchers and other supporting evidence. Further, an ad hoc disallowance merely for want of supporting documents, without examining the evidence which the assessee is now willing to produce, would not be appropriate. We therefore set aside the finding of the Ld. CIT(A) on this issue and restore the matter to the file of the AO for fresh adjudication. The AO shall verify the evidence to be furnished by the assessee, and decide the allowability of the

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS

expenditure in accordance with law after providing reasonable opportunity of being heard to the assessee. Accordingly, the grounds of appeal raised are allowed for statistical purposes.

32.

In the result, the appeal of the assessee is allowed for statistical purposes.

33.

In the combined result, the assessee's appeal for A.Y. 2016-17 is partly allowed for statistical purposes, whereas the appeal for A.Y. 2018-19 is allowed for statistical purposes.

Order pronounced in the open court on 21st August, 2026

Sd/- Sd/- KESHAV DUBEY WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 21st August, 2026 Vms

ITA 2003 & 2004/BANG/2025 NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS

Copy to: NARAYANI GROUP OF EDUCATIONAL INSTITUTIONS, 438, SHILPA CONCRETE BLOCKS ROAD 1 MARATHAHALLI BENGALURU, BENGALURU-560037, KARNATAKA ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE4(2)(1), 2 BMTC BUILDING, KORAMANGALA, BENGALURU-560095, KARNATAKA 3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE By Order

ASSISTANT REGISTRAR / I.T.A.T., BANGALORE

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