NIDRA HOSPITALITY GUJARAT PRIVATE LIMITED,VADODARA vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1)(2), VADODARA, VADODARA

ITA 1963/AHD/2026Status: DisposedITAT Ahmedabad01 October 2026AY 2017-187 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had discharged its primary onus under Section 68 by furnishing all primary documentary evidence, including the lender's PAN, ITR, audited financials, and bank statements, establishing the identity, creditworthiness, and genuineness of the loan transaction. The Tribunal noted that the AO conducted no independent inquiry to controvert this evidence. Crucially, the Tribunal observed that the statutory requirement to explain the 'source of source' for loans was introduced by the Finance Act, 2022, with prospective effect from April 1, 2023, making it inapplicable to Assessment Year 2017-2018. In the absence of independent inquiry by the AO and failure by the Revenue to bring on record material to controvert the assessee's submissions, the addition of Rs. 2,67,00,000/- under Section 68 was deleted. Consequently, the consequential disallowance of interest expenditure of Rs. 3,06,832/- was also deleted. Ground No. 7 regarding the enhanced tax rate was allowed for statistical purposes without findings on merits. The appeal was allowed.

What were the facts?

The assessee, Nidra Hospitality Gujarat Private Limited, filed its return for Assessment Year 2017-2018 declaring a loss. The Assessing Officer (AO) initiated scrutiny and observed an unsecured loan of Rs. 2,67,00,000/- received from Carbel Mercantile Ltd. The assessee provided the lender's PAN, loan confirmation, ITR acknowledgement, audited financial statements, bank statements, and proof of interest payment. The AO treated the loan as an unexplained cash credit under Section 68, citing the lender's returned loss and prior fund receipt. The CIT(A) partly allowed the appeal against the AO's order but sustained the addition. The assessee appealed to the ITAT against the CIT(A)'s order dated 16/03/2026.

What were the issues?

1. Whether the loan of Rs. 2,67,00,000/- obtained from an NBFC can be treated as an unexplained cash credit under Section 68 of the Income Tax Act, 1961, when the assessee furnished documentary evidence of the lender's identity, creditworthiness, and transaction genuineness. 2. Whether the CIT(A) erred in concluding a lack of creditworthiness based solely on the lender's returned loss, ignoring bank statements showing funds available at the time of the transaction. 3. Whether the CIT(A) erred in confirming the addition based on back-to-back fund transfers without the AO conducting further inquiry to establish the funds' origin from the assessee's undisclosed sources. 4. Whether the CIT(A) erred in failing to appreciate that the assessee cannot be required to prove the 'source of the source' when the AO failed to disprove the furnished evidence. 5. Whether the consequential disallowance of interest expenditure of Rs. 3,06,832/- is warranted if the loan is genuine. 6. Whether the enhanced rate of tax of 60% under Section 115BBE applies to the addition for AY 2017-2018, considering the amendment is prospective from AY 2018-19. Assessee's Contentions: The assessee argued it discharged its initial onus under Section 68 by providing documentary evidence. The AO conducted no independent inquiry and failed to show funds originated from the assessee. The burden of proving the 'source of source' is not on the assessee. The interest expenditure is allowable if the loan is genuine. The enhanced tax rate under Section 115BBE is not applicable for AY 2017-2018. Revenue's Contentions: The Departmental Representative relied on the lower authorities' orders, highlighting the lender's returned loss and fund transfers into the lender's account prior to the loan disbursement.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE,Section 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, C” BENCH, AHMEDABAD

Per Rahul Chaudhary, Judicial Member:

1.

The present appeal has been preferred by the Assessee against the Order, dated 16/03/2026, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby the Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 27/12/2019, passed under Section 143(3) of the Income Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2017-2018. 2. The Assessee has raised following ground

The order continues below.

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