KSTDC LTD,BENGALURU vs. DCIT CIRCLE 4(3)(1), BANGALORE, BENGALURU

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT & SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No.:1876/Bang/2025 Assessment Year:2017-2018 KSTDC LTD Corporate office, Ground floor, BMTC Yeshwanthpur circle, DCIT Circle 4(3)(1), Yeshwanthpur Bazar SO, Bangalore Vs. Bengaluru, Karnataka 560022 PAN: AACCK3563F APPELLANT RESPONDENT

Assessee by : Sri. Deepak Gunashekar, CA : Sri. Balusamy N - JCIT Revenue by

Date of Hearing : 11-03-2026 Date of Pronouncement : 26-05-2026

ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT 1. ITA No. 1876/Bang/2025 for assessment year 2017-18 is filed by Karnataka State Tourism Development Corporation Ltd. against the appellate order passed by the National Faceless Appeal Centre Delhi dated 11th June 2025 wherein the appeal filed by the assessee against the assessment order passed under Section 143(3) of the Income Tax Act by the Deputy Commissioner of Income Tax Circle – 4(1)(1) Bangalore dated 27.12.2019 was partly allowed. The assessee is aggrieved with the same and has raised several grounds of appeal.

ITA Nos.: 1876/Bang/2025 Page 2 of 6 2. Facts of the case shows that the issue in this appeal is disallowance under Section 40(a)(ia) of the Act, addition under Section 69A and 68 of the Act. 3. Briefly stated the fact shows that assessee is a Government of Karnataka Undertaking engaged in business of providing accommodation and transport facility to tourist. Assessee filed its return of income at a total income of Rs. NIL on 31.10.2017. The case of the assessee was selected for scrutiny by issuing its necessary notices. 4. On verification of the books of accounts, it was found that assessee during the demonetization period has made a cash deposit of Rs. 34,05,215/- Howeverin the return of income assessee mentioned the same as Rs. 14,78,500/-. The assessee was asked to furnish the detail and explain the source of cash deposit of Rs. 34,05,215/-.The assessee did not comply with the same. Accordingly, the learned Assessing Officer made an addition of Rs. 34,05,215/- by applying the provisions of Section 69A of the Act. 5. The AO further found that assessee company has made total payment of Rs. 64,78,990/- on which according to the AO tax is required to be deducted assessee has not deducted the tax at source and therefore 30% of the same was required to be disallowed. Assessee did not provide any reply. Therefore Rs. 19,43,697/- was disallowed. 6. AO further noted that assessee has earned total income of Rs. 8,41,200/- as exempt income, assessee has paid interest of Rs. 34,15,284/- assessee was given an opportunity and assessee submitted that dividend income has been earned from a subsidiary company wherein assessee has invested Rs. 42,06,000/- but assessee has not incurred any expenditure towards earning the above income as the investment in the above company is not out of the borrowed funds. The learned Assessing Officer noted that assessee has paid interest and claimed such expenditure as deduction and therefore disallowance is required to be made. He computed the disallowance of Rs. 42,060/-.

ITA Nos.: 1876/Bang/2025 Page 3 of 6 7. The AO further noted that assessee has claimed deduction of Rs. 1,27,99,319 under the lease rent received. The AO issued the show cause notice wherein the assessee stated that assessee has received the income towards the rent of Rs. 41,19,411/- from KGA which is offered as income from house property and further the assessee has claimed deduction of Rs. 1,27,99,300/- which has been offered to tax in the prior years. The learned AO had the deduction relating to the earlier years in not reliable and made the above addition. 8. The AO further noted that assessee has made liquor sales for which TCS has been made by Karnataka State Beverages Corporation Ltd. amounting to Rs. 3,98,5,680/- which was not recognized by the assessee as revenue. Assessee did not furnish any reply and therefore Rs. 3,98,55,680/- was added under Section 68 of the Act. 9. The AO further noted that the amount of Rs. 2,77,47,367/- is outstanding as on 31.03.2017 as interest payable to Government of Karnataka which remained unpaid for a long period. The AO asked the assessee to furnish the detail and why the liability is not treated as ceased. The assessee submitted that a loan is taken from Karnataka Government at the rate of 12.5% interest and therefore the above interest was provided. It was further stated that such non-payment of interest is not hit by provisions of Section 43B. The AO asked the question with respect to applicability of 41(1) but assessee explained the provisions of Section 43B. The learned AO was not dissatisfied, and he made an addition of Rs. 2,77,24,364/-. 10. AO also found that there is a misappropriation of cash of Rs. 12,90,360/- committed by one of the employees of the assessee company. The assessee submitted that it is loss incidental to the business and hence allowable. AO disagreed with the same and stated that it is financial irregularity hence disallowed. 11. Accordingly, the assessment order was passed on 27.12.2019. 12. Assessee challenged the same before the learned CIT-Appeal. The learned CIT-Appeal noted that assessee has submitted written

ITA Nos.: 1876/Bang/2025 Page 4 of 6 submission and certain documents. Based on this the Ld. CIT-Appeal confirmed the disallowance u/s 14A, deleted the addition of Rs. 12,90,360/- confirmed the addition of cash deposit of Rs. 34,05,215/-, sustained the addition of Rs. 1,27,99,319/- and sustained the addition of TCS amounting to Rs. 3,98,55,680/-. On the issue of interest payable to Govt. of Karnataka of Rs. 2,77,47,364/- he deleted the addition. Accordingly appeal of the assessee was partly allowed. 13. The assessee is aggrieved and is in appeal before us. The Ld. Authorized Representative Sri. Deepak Gunashekar vehemently submitted that. a. the disallowance for non-deduction of tax at sources, made by the Ld. Assessing Officer and confirmed by the Ld. CIT-A has failed to consider that assessee has suo moto disallowed the amount of Rs. 9,43,697/- and therefore there is a double disallowance. b. With respect to the amount of cash deposit during demonetization period it was submitted that it’s a Government organization and therefore the amount deposited in the bank account is amount received from the customers and out of the books of accounts of the assessee which could not have been the unexplained income of the corporation. c. With respect to the amount of TCS he submitted that there are agreements in respect of the facilities for purchase and sale of liquor the purchase is made from Karnataka State Beverages Corporation Ltd. The purchase is shown by the assessee is a combined purchase of liquor from the Karnataka State Corporation as well as from other buyers. It was stated that the purchase of liquor is in fact made by concessioners’ agents but as the license is in the name of the appellant TCS is also made in the name of the assessee. It is not the income of the assessee. It was stated that purchase and sale of liquor in the facilities maintained are properly recorded. Further the turnover of sale of liquor made by

ITA Nos.: 1876/Bang/2025 Page 5 of 6 concessioner is not the turnover of the assessee therefore the addition is wrongly made. 14. The Ld. AR further submitted that the assessee did not get proper opportunity of hearing before the Ld. Assessing Officer who has misunderstood the facts of the case. 15. The Ld. DR vehemently submitted that assessee is earned by State of Govt. of Karnataka remained totally non-compliant before the Assessing Officer made incomplete submission before the Ld. CIT-A and therefore no further relief is required to be given to the assessee. 16. We have carefully considered the rival contention and perused the orders of Ld. Lower Authorities. The facts clearly shows that assessee is a Govt. of Karnataka Undertaking. In case of the assessee amount deposited during the demonetization period could not have been the unaccounted and unexplained income of the assessee. But assessee failed to explain that amount of cash deposited is generated out of the regular business operation of the assessee which is recorded in the regular books of accounts. Further we find that the liquor sale is made by the assessee through different mechanism. Part of the purchase is on account of concessioner in the license of the assessee, and part of the purchase is in the account of assessee. Naturally, the purchase is made by the concessioner though stating the license of the assessee could not be the income of the assessee. Therefore, the addition of TCS on that account should not have survived but it is a matter of verification. Further with respect to the disallowance u/s 14A of the Act the claim of the assessee is that it is not incurred any expenditure to earn the dividend income of Rs. 8,41,200/-. The Assessee’s reply was considered by the Assessing Officer, but no satisfaction was recorded. Recording of the satisfaction about the correctness of the claim of the assessee that it did not incur any expenditure is mandatory. The Ld. CIT-Appeal did not consider this aspect. Therefore, in absence of any mandatory satisfaction of the Assessing Officer the addition should have been deleted. However, the assessee did not furnish proper

ITA Nos.: 1876/Bang/2025 Page 6 of 6 information, before the Assessing Officer, the issue needs to be verified. 17. In view of the above facts we restore the issues in appeal decided against the assessee to the file of the Ld. Assessing Officer with direction to the assessee that it is unfair for Govt. of Karnataka Undertaking to not to submit proper details before the Ld. AO, now directed to submit the requisite information before the Jurisdictional Assessing Officer within 90 days from the date of receipt of this order. The assessee is also directed to raise whatever contention it wants to raise before the Ld. AO. The Ld. AO may examine the same and decide the disallowance confirmed by the Ld. CIT-Appeal afresh. Needless to mention that proper opportunity of hearing may be given. 18. In the result, appeal filed by the assessee is allowed for the statistical purposes.

Order pronounced in the open court on 26th May, 2026.

Sd/- Sd/- (SOUNDARARAJAN K.) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 26th May, 2026. *VM* Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A) By order

Assistant Registrar, ITAT, Bangalore