SHREE VALLABH SEVA NIKETAN TRUST,VADODARA vs. ITO EXEMPTION WARD, VADODARA

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ITA 1438/AHD/2026Status: DisposedITAT Ahmedabad27 October 2026AY 2017-188 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the addition of Rs. 15,31,003/- under section 69A was not sustainable. Following the Gujarat High Court's decision in Principal Commissioner of Income-tax v. Vishal Exports Overseas Ltd., the Tribunal found that the cash was duly recorded in the assessee's books and explained as receipts from regular activities. The mere unusual quantum or pattern of accumulation, without independent material from the revenue, did not justify the addition. Ground Nos. 1 and 1.1 were allowed. Regarding the disallowance of interest of Rs. 14,00,000/- and TDS of Rs. 1,40,000/-, the Tribunal held that the CIT(A) made this disallowance as an enhancement of assessed income without providing the assessee with a reasonable opportunity to show cause, which is mandatory. Therefore, the disallowance was unsustainable. Ground No. 2 was allowed. On the addition of Rs. 20,14,250/- for advances written off, the Tribunal held that the advances were capital in nature, made towards construction of buildings. The write-off of a capital advance, even if irrecoverable, does not convert it into an allowable revenue expenditure. Thus, the disallowance was sustained. Ground No. 3 was dismissed. Finally, concerning the applicability of the enhanced rate under section 115BBE, the Tribunal held that for transactions prior to 01-04-2017, the enhanced rate of 60% is not applicable, following the Madras High Court's decision in S.M.I.L.E. Microfinance Ltd. v. ACIT. Ground No. 4 was allowed. The appeal was partly allowed.

What were the facts?

The assessee, Shree Vallabh Seva Niketan Trust, a charitable trust running educational institutions, filed an appeal against the order of the CIT(A) for AY 2017-18. The Assessing Officer (AO) had made additions of Rs. 15,31,003/- under section 69A for cash deposits during demonetisation, Rs. 14,00,000/- under section 68 for repayment of an old unsecured loan, and Rs. 20,14,250/- for advances written off. The assessee had declared Nil income after claiming exemption under section 11. The CIT(A) partly allowed the appeal, confirming the addition under section 69A, disallowing interest on the unsecured loan, rejecting the claim for advances written off, and upholding the enhanced tax rate under section 115BBE.

What were the issues?

1. Whether the addition of Rs. 15,31,003/- under section 69A of the Income-tax Act, 1961, in respect of cash deposits made on 09-11-2016 and 12-11-2016 is sustainable, when the cash was recorded in the books of account and explained as fees from students. - Assessee: Contended that the cash was duly recorded in its books, formed part of its cash balance, and its source was explained as fees from students. Relied on Principal Commissioner of Income-tax v. Vishal Exports Overseas Ltd. (Gujarat High Court). - Revenue: Did not accept the explanation, citing a substantial increase in cash balance and inconsistent pattern of transactions. 2. Whether the disallowance of interest of Rs. 14,00,000/- and TDS of Rs. 1,40,000/- on an unsecured loan obtained in FY 2008-09 is valid, especially when the AO had not made such a disallowance, and the CIT(A) made it for the first time as an enhancement without providing an opportunity to the assessee. - Assessee: Argued that the disallowance was made by the CIT(A) as an enhancement without proper procedure and opportunity. Relied on the fact that the AO had not made this disallowance. - Revenue: The judgment does not record specific arguments for the revenue on this point, other than what was presented before the CIT(A). 3. Whether the addition of Rs. 20,14,250/- on account of writing off unrealizable advances for supply given in the course of charitable activities is justified. - Assessee: Explained that these were advances for construction of buildings, supply of cement, and painting work, written off as irrecoverable due to inability to obtain bills. - Revenue: Treated the write-off as unexplained cash credit under section 68 for not establishing the genuineness of transactions. 4. Whether the enhanced rate of tax under section 115BBE of the Act is applicable to transactions prior to 01-04-2017. - Assessee: Contended that the amendment increasing the rate from 30% to 60% is not applicable to transactions before 01-04-2017. Relied on S.M.I.L.E. Microfinance Ltd. v. ACIT (Madras High Court). - Revenue: The judgment does not record specific arguments for the revenue on this point.

Which sections of the Income-tax Act were involved?

Section 69A,Section 68,Section 115BBE,Section 36(1)(iii),Section 11,Section 12AA,Section 250,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

For Appellant: Shri Ankit Choksi, AR
For Respondent: Ms. Kalpana Singh, Sr. DR
Hearing: 23.09.2026Pronounced: 27.10.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT SHRI TAPAS RAM MISRA, JUDICIAL MEMBER ITA No. 1438/Ahd/2026 (Assessment Year : 2017-18) Shree Vallabh Seva Niketan Trust, Income-Tax Officer, Vs. Sevasi Koyali Road, Exemption Ward AT & PO – Ankodia, Vadodara Vadodara-391330 [PAN: AABTS 2271 E] (Appellant) .. (Respondent) Assessee represented by : Shri Ankit Choksi, AR Department represented by: Ms. Kalpana Singh, Sr. DR Date of Hearing 23.09.2026 Date of Pronouncement 27.10.2026

O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-

This appeal has been filed by the assessee against the order passed by the Ld. Addl/JCIT(A), Udaipur (hereinafter referred to as "CIT(A)" for short), dated 12.09.2026 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short], for Assessment Year (AY) 2017-18.

2.

The assessee has raised the following grounds:-

“1. Ld. CIT(A) erred in law and on facts in confirming the addition made by the AO of Rs. 15,31,003/- u/s 69A of the Act in respect of cash transfers and deposits made on 09-11-2016 and 12-11-2016.

1.1 Ld. CIT(A) erred in law and on facts in confirming such addition of Rs. 15,31,003/- u/s 69A of the Act despite the fact that such cash was duly recorded in the books of accounts of appellant, the same formed part of cash balance of Rs. 21,64,381/- as on 08-11-2016 and the source of the same was duly explained to be the receipt of fees from students which was already recorded in the credit side of profit and loss account of appellant.

2.

Ld. CIT(A) erred in law and on facts in making disallowance of interest paid of Rs. 14,00,000/- to Mr. Rajeev Garg in respect of unsecured loan

ITA No. 1438/Ahd/2026 Shree Vallabh Seva Niketan Trust Vs. ITO Asst.Year : 2017-18 - 2– obtained from him in F.Y. 2008-09 and TDS deducted thereon of Rs. 1,40,000/- alleging the said unsecured loan to be ingenuine without having brought on record any evidence in support of such allegation and despite the fact that no disallowance of such interest and TDS thereon was made by the AO in his Assessment Order.

3.

Ld. CIT(A) erred in law and on facts in confirming the addition of Rs. 20,14,250/- made by the AO on account of writing off of unrealizable advances for supply given in course of charitable activities.

4.

Amendment to section 115BBE increasing rate of tax on income referred to in section 68 from 30 per cent to 60 per cent with effect from 1-4-2017 is not applicable to transactions prior to 1-4-2017 and therefore, the ld. AO erred in law in applying such higher rate and ld. CIT(A) erred in confirming the same.”

3.

The brief facts of the case are that the assessee is a charitable trust registered under the provisions of the Bombay Public Trust Act and under section 12AA of the Act. It is engaged in running educational institutions and a Disaster Education Academy. During the year under consideration, the assessee derived receipts mainly from academic fees, ambulance and medical activities, interest and other related activities. The assessee filed its return of income declaring Nil income after claiming exemption under section 11 of the Act.

4.

The assessment was completed under section 143(3) of the Act on 27.12.2019. The Assessing Officer made an addition of Rs.15,31,003/- under section 69A on account of cash deposited during the demonetisation period, an addition of Rs.14,00,000/- under section 68 in respect of repayment of an old unsecured loan and an addition of Rs.20,14,250/- in respect of advances written off. The assessment order records that the assessee had maintained a cash book and had explained that the cash represented accumulated receipts, including fees received from students.

5.

Aggrieved by the additions made by the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) partly allowed the appeal. In respect of the cash deposit, the Ld. CIT(A) confirmed the addition under section

ITA No. 1438/Ahd/2026 Shree Vallabh Seva Niketan Trust Vs. ITO Asst.Year : 2017-18 - 3– 69A. In respect of the old loan, the Ld. CIT(A) deleted the addition under section 68 but proceeded to disallow interest of Rs.14,00,000/- and the related TDS. The claim relating to advances written off was also rejected. The Ld. CIT(A) further upheld the application of the enhanced rate under section 115BBE.

6.

We have heard the rival submissions and perused the material available on record. We proceed to adjudicate the grounds issue-wise.

Ground Nos. 1 and 1.1 : Addition of Rs.15,31,003/- u/s 69A 7. The assessee has challenged the addition of Rs.15,31,003/- made under section 69A of the Act in respect of cash deposited during the demonetisation period. The case of the assessee is that the impugned cash was duly recorded in its regular books of account and formed part of the cash balance available with the assessee as on 08.11.2016. It was further explained that the cash had accumulated from fees received from students and other receipts which were duly recorded in the books of account. The Assessing Officer, however, did not accept the explanation primarily on the ground that the cash balance had increased substantially before demonetisation and that the pattern of cash withdrawals, transfers and deposits was not consistent with the normal conduct of the assessee. The Assessing Officer accordingly treated Rs.15,31,003/- as unexplained money under section 69A of the Act. The relevant findings of the Assessing Officer show that the cash balance and the impugned transactions were reflected in the cash book maintained by the assessee.

8.

We find that the issue is squarely covered by the judgment of the Hon’ble jurisdictional Gujarat High Court in Principal Commissioner of Income-tax v. Vishal Exports Overseas Ltd., [2024] 164 taxmann.com 286 (Gujarat). In that case also, an addition under section 69A was made in respect of cash deposited in the bank. The Hon’ble High Court upheld the deletion of the addition, noting that the cash was duly recorded in the cash book and audited accounts. In the present case also, the impugned cash was duly recorded in the regular books of

ITA No. 1438/Ahd/2026 Shree Vallabh Seva Niketan Trust Vs. ITO Asst.Year : 2017-18 - 4– account. The assessee explained that the cash represented receipts from students and other regular activities of the educational institutions run by the trust. In these circumstances, merely because the Assessing Officer found the quantum or pattern of cash accumulation unusual, the same cannot, by itself, justify an addition under section 69A. The Revenue has also not brought any independent material to show that the impugned cash represented any undisclosed income of the assessee. Accordingly, it is hereby held that the addition of Rs.15,31,003/- made under section 69A is not sustainable.

Ground Nos. 1 and 1.1 are allowed. Ground No. 2: Disallowance of interest of Rs.14,00,000/-

9.

The Assessing Officer had made an addition of Rs.14,00,000/- under section 68 in respect of repayment of an old unsecured loan. The assessment record shows that the loan had originated in an earlier financial year. The CIT(A), after considering the matter, appreciated that repayment of an existing liability could not itself constitute a fresh credit under section 68 and deleted the addition of Rs.14,00,000/- under that section. However, the Ld. CIT(A) thereafter proceeded to disallow interest of Rs.14,00,000/- on account of default of TDS, although no such disallowance had been made by the Assessing Officer in the assessment order. The relevant observations of the Ld. CIT(A) are as under:-

“I have carefully considered the submissions of the appellant, the assessment order, and the material available on record. The issue arises out of the Assessing Officer's action of invoking the provisions of section 68 of the Act, 1961 in respect of repayment of unsecured loan amounting to Rs.14,00,000/- during the year under appeal and consequent taxation of the same under section 115BВЕ. 5.2.1 lt is an admitted fact that the unsecured loan of Rs.67,00,000/- was taken by the appellant in earlier year i.e. financial year 2008-09, and has been shown as a carried forward liability in the books of account for subsequent years. The appellant has produced ledger accounts and TDS certificates, demonstrating that the loan was received and interest was paid during the intervening years, but has not furnished bank statements of

ITA No. 1438/Ahd/2026 Shree Vallabh Seva Niketan Trust Vs. ITO Asst.Year : 2017-18 - 5– receipt or copies of ITR of the lender or the appellant to substantiate the genuineness of the original transaction. 5.2.2 A close reading of the assessment order shows that the Assessing Officer has neither pointed out any fresh credit entry in the books of account during the year under appeal nor has identified any new unsecured loan received during the relevant year. The AO has treated repayment of Rs. 14,00,000/- as unexplained cash credit under section 68 and added the same to the total income of the appellant. 5.2.3 It is, however, well settled that section 68 is attracted only when there is a "credit entry" in the books of account during the year under consideration and there is failure by the assessee to satisfactorily explain the nature and source of such credit. The very language of section 68 demonstrates that it applies to credits in the books of accounts and not to repayments or debits. Repayment of an existing liability cannot be converted into a fresh unexplained credit. 5.2.4 The Delhi High Court in CIT v. Vardhman Overseas Ltd. (2012) 343 ITR 408 (Del HC) has held that section 68 applies only in respect of credit entries appearing in the books of the assessee during the year under scrutiny. A repayment or reduction of an existing liability cannot be treated as unexplained credit under section 68 in a year where no such credit has arisen. 5.2.5 Similarly, in ITO v. Shri Bhagwat Prasad (ITAT Jaipur) and several other ITAT decisions, it has been consistently held that debit entries or payments made during the year cannot be treated as unexplained cash credits merely because supporting documents such as bank statements were not filed. The tribunal in such cases has deleted additions where the Assessing Officer attempted to tax repayments under section 68. 5.2.6 In the instant case, the appellant has been able to demonstrate that the loan stood recorded as a liability in earlier years and its repayment during the year under assessment merely reduced the liability. There is no fresh credit of Rs. 14,00,000/- in the books of account during the year under consideration. Therefore, the Assessing Officer's action of invoking section 68 in respect of the repayment of Rs.14,00,000/- is without jurisdiction and unsustainable in law, and the same is accordingly deleted. 5.2.7 However, the appellant has also placed on record that interest amounting to Rs.14,00,000/- was paid during the year and that TDS of Rs.1,40,000/- was deducted and deposited. This payment of interest is

ITA No. 1438/Ahd/2026 Shree Vallabh Seva Niketan Trust Vs. ITO Asst.Year : 2017-18 - 6– claimed as a deduction under section 36(1) (iii). The appellant, however, has not satisfactorily established the genuineness of the unsecured loan by way of supporting evidence such as the bank statement for receipt of the loan or copies of the lender's ITR showing creditworthiness at the time of making the loan. Mere production of ledger accounts and TDS certificate does not discharge the onus of proving the genuineness of the loan transaction for the purpose of allowing the deduction of interest. The Supreme Court in CIT v. Orissa Corporation P. Ltd. (159 ITR 78 (SC)) and various ITAT decisions have held that when the genuineness of a loan is in doubt, the interest paid thereon cannot be allowed without substantiation of the principal transaction itself.

5.2.8 In the light of the above, while repayment of Rs. 14,00,000/- cannot be treated as unexplained cash credit under section 68, the deduction claimed on account of interest payment of Rs.14,00,000/- and the associated TDS of Rs. 1,40,000/- is disallowed for want of satisfactory evidence in respect of the principal unsecured loan.”

10.

From the above, it is clear that the Assessing Officer had not made any disallowance of interest of Rs.14,00,000/- or the related TDS of Rs.1,40,000/- in the assessment order. The Ld. CIT(A), while deleting the addition of Rs.14,00,000/- made by the Assessing Officer under section 68, for the first time disallowed the interest and related TDS on the ground that the genuineness of the old unsecured loan was not established. The disallowance made by the Ld. CIT(A) amounts to an enhancement of the assessed income. Such enhancement can be made only after giving the assessee a reasonable opportunity of showing cause against the proposed enhancement. There is nothing on record to show that such an opportunity was given to the assessee. We, therefore, hold that the disallowance of interest of Rs.14,00,000/- and the related TDS of Rs.1,40,000/- made by the Ld. CIT(A), without following the mandatory requirement of law is unsustainable.

Ground No. 2 is accordingly allowed.

ITA No. 1438/Ahd/2026 Shree Vallabh Seva Niketan Trust Vs. ITO Asst.Year : 2017-18 - 7– Ground No. 3: Addition of Rs.20,14,250/- relating to advances written off

11.

The assessee had written off an aggregate amount of Rs.20,14,250/- comprising advances of Rs.13,14,250/- to P.P. Shroff, Rs.5,00,000/- to Ravi Kiran Marketing and Rs.2,00,000/- to Vinod C. Shah. Before the Assessing Officer, the assessee explained that the aforesaid amounts had been advanced in earlier years in connection with the construction of buildings for its educational institutions, towards supply of cement and execution of painting work. As the corresponding bills could not be obtained from the parties despite repeated follow-up, the outstanding advances were ultimately written off as irrecoverable during the year under consideration. The Assessing Officer treated the aforesaid write-off as unexplained cash credit u/s 68 of the Act, mainly on the ground that the assessee could not establish the genuineness of these transactions.

12.

We have considered the rival submissions and perused the material available on record. It is evident that the amounts in question represent advances made by the assessee to the respective parties in earlier years towards construction-related activities, namely, supply of cement and execution of painting work for the buildings of its educational institutions. The advances were subsequently written off during the year under consideration on account of the inability of the assessee to obtain the corresponding bills despite repeated follow-up. In our considered opinion, the advances having been made towards construction of buildings, the underlying expenditure is capital in nature. The mere fact that such advances have subsequently become irrecoverable and have been written off in the books of account would not, by itself, convert the capital expenditure into a revenue expenditure allowable as a deduction in computing the taxable income. The write-off of a capital advance does not result in an allowable business deduction merely because the amount has been rendered irrecoverable.

ITA No. 1438/Ahd/2026 Shree Vallabh Seva Niketan Trust Vs. ITO Asst.Year : 2017-18 - 8–

Accordingly, the assessee's claim for deduction of Rs.20,14,250/- on account of the write-off of the aforesaid capital advances is not allowable. The disallowance is, therefore, sustained. Ground No. 3 is thus dismissed. Ground No. 4: Applicability of enhanced rate u/s 115BBE

14.

Ground No. 4 relates to the applicability of the enhanced rate of tax under section 115BBE of the Act. The disputed transactions took place on 09.11.2016 and 12.11.2016, i.e. prior to 01.04.2017, from which date the rate was enhanced from 30% to 60%. Therefore, following the decision of the Hon'ble Madras High Court in S.M.I.L.E. Microfinance Ltd. v. ACIT, 179 taxamnn.com 65, and the subsequent decisions of the Ahmedabad and Surat Benches of the Tribunal, we hold that the enhanced rate of 60% is not applicable to transactions undertaken prior to 01.04.2017.

Accordingly, the Ground No. 4 of the assessee is allowed.

15.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 27.10.2026

Sd/- Sd/-

(TAPAS RAM MISRA) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 27.10.2026 Digitally signed by JEETENDRA **btk DEVENDRABHAI UPADHYAY DN: c=IN, o=PERSONAL, JEETENDRA आदेश की �ितिलिप अ�ेिषत / Copy of the Order forwarded to : title=6087, 2.5.4.20=7e5568a89b633f174b अपीलाथ�/ The Appellant 1. 28a80f5e63c638da40b7313fb4 DEVENDRA 7ebaefda841cf59d1703, ��थ�/ The Respondent. 2. postalCode=380059, संबंिधतआयकरआयु�/ Concerned CIT BHAI 3. st=Gujarat, serialNumber=816dc56e89621 4. आयकरआयु�(अपील) /The CIT(A)- 1a1a21ccc4abc94ddc94458f4a UPADHYAY 1b37be8e1854e9399295106d4 5. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, अहमदाबाद/ DR, ITAT, Ahmedabad , cn=JEETENDRA DEVENDRABHAI UPADHYAY 6. गाड�फाईल /Guard file. Date: 2026.10.30 15:45:30 +05'30' आदेशानुसार/ BY ORDER, True Copy सहायकपंजीकार (Dy./Asstt. Registrar) आयकरअपीलीयअिधकरण, अहमदाबाद / ITAT, Ahmedabad

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