SPANDANA SPHOORTY FINANCIAL LIMITED,HYDERABAD vs. ACIT., CIRCLE 3(2), HYDERABAD

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ITA 821/HYD/2025Status: DisposedITAT Hyderabad17 October 2025AY 2017-1863 pages
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What did the Tribunal hold?

The Tribunal held that the CIT(A) erred in affirming the addition of INR 564,100,000 under Section 69A. The Tribunal noted that the SBNs were recorded in the assessee's books and an explanation was provided. The AO did not reject the books of account, and the assessee's explanation regarding collections from borrowers was supported by branch-wise and borrower-wise details. The auditor's report also corroborated the source of SBNs. The Tribunal found no justification for invoking Section 69A when the money was recorded and its source explained. Regarding the adjustment under Section 145, the Tribunal held that the change in accounting policy by the assessee was in pursuance of statutory compliance with RBI clarifications. The Tribunal found no justification for the AO to reject this change, as the accounting principles were in agreement with relevant Accounting Standards and prepared on an accrual basis. The Tribunal relied on High Court and ITAT decisions, including CIT v. Citi Financial Consumer Fin. Ltd and Magma Fincorp Ltd, and Supreme Court decisions in Taparia Tools Limited and Madras Industrial Investment Corporation Ltd, to allow the upfront recognition of ancillary borrowing costs and loan processing fees. The addition of INR 114,451,818 was vacated. Grounds 1.1 and 4.1 were dismissed as not pressed. The appeal was partly allowed.

What were the facts?

The assessee, Spandana Sphoorty Financial Limited, an NBFC, filed its return for AY 2017-18 declaring nil income. The Assessing Officer (AO) initiated scrutiny assessment. During demonetization (Nov 9, 2016 - Dec 30, 2016), the assessee deposited Rs. 135.62 crore in its bank accounts, claiming it was from loan borrower collections. The AO identified Rs. 56.41 crore in Specified Bank Notes (SBNs) and, relying on a government notification, treated this amount as unexplained money under Section 69A, making an addition. Additionally, the AO observed a change in the assessee's accounting policy, aligning with RBI clarifications, which recognized ancillary borrowing costs and loan processing fees upfront instead of amortizing them. The AO made an adjustment of Rs. 114,451,818 towards processing fees under Section 145. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld both additions. The assessee appealed to the ITAT.

What were the issues?

1. Whether the CIT(A) erred in affirming the AO's action of invoking Section 69A of the Income Tax Act, 1961, and making an addition of INR 564,100,000 on account of Specified Bank Notes (SBNs) accepted by the assessee, when the SBNs were recorded in the books of account and the assessee offered an explanation regarding their source (collections from borrowers)? The assessee argued that Section 69A requires the assessee to be the owner of unrecorded money and offer no explanation, neither of which applied here. The revenue's contentions are not explicitly recorded, but their action implies disagreement with the assessee's explanation and recording. 2. Whether the CIT(A) erred in confirming the AO's adjustment of INR 114,451,818 towards processing fees under Section 145 of the Act, despite the assessee adhering to its mercantile system of accounting and RBI guidelines? The assessee contended it followed RBI requirements and its accounting treatment was consistent with accrual basis and historical cost convention. It relied on the Supreme Court's decision in Taparia Tools Limited. The revenue's position, as upheld by the CIT(A), implies disagreement with the assessee's accounting treatment of processing fees.

Which sections of the Income-tax Act were involved?

Section 69A,Section 143(3),Section 145,Section 115JB

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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad

For Respondent: Shri Nikhil Tiwari, CA, AR, Dr. Narendra Kumar Naik
Pronounced: 17.10.2025

आदेशकी �ितिलिप अ�ेिषत/ Copy of the order forwarded to:- 1. िनधा�रती/The : M/s Spandana Sphoorty Financial Limited, Galaxy, Wing B, 16th Floor, Plot No.1, Assessee Sy.No.83/1, Hyderabad Knowledge City, TSIIC, Raidurg, Panmaktha, Madhapur, Shaikpet, Hyderabad 2. राज�/ : The Asst.Commissioner of Income Tax, The Circle-3(1), Hyderabad Revenue 3. The Principal Commissioner of Income Tax, Hyderabad. 4. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT, Hyderabad 5. गाड�फ़ाईल / Guard file

आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Hyderabad

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