DCIT CIRCLE 2(3)(1), MUMBAI, MUMBAI vs. NDX P2P PRIVATE LIMITED, MUMBAI

2.1 The Assessing Officer observed that the assessee was engaged The Assessing Officer observed that the assessee was engaged The Assessing Officer observed that the assessee was engaged in the business of operating a lending and borrowing platform in the business of operating a lending and borrowing platform in the business of operating a lending and borrowing platform under the name “Liquiloans”, facilitating loans between borrowers under the name “Liquiloans”, facilitating loans between borrowers under the name “Liquiloans”, facilitating loans between borrowers and lenders through a technology and lenders through a technology-based platform. On examination ased platform. On examination of the profit and loss account, the Assessing Officer noticed “other of the profit and loss account, the Assessing Officer noticed “other of the profit and loss account, the Assessing Officer noticed “other expenses” amounting to expenses” amounting to ₹44,14,97,840/-. Holding that the assessee . Holding that the assessee had failed to establish that the said expenditure was incurred had failed to establish that the said expenditure was incurred had failed to establish that the said expenditure was incurred wholly and exclusively for t wholly and exclusively for the purposes of business he purposes of business as required under Section 37(1) Section 37(1) of Act , the AO proceeded to disallow 20% of the AO proceeded to disallow 20% of NDX P2P Pvt. Ltd those expenses on the grounds that the assessee failed to produce those expenses on the grounds that the assessee failed to produce those expenses on the grounds that the assessee failed to produce the comprehensive ledger account and failed to establish, to the the comprehensive ledger account and failed to establish, to the the comprehensive ledger account and failed to establish, to the AO’s satisfaction. The The Assessing Officer also made an addition of Assessing Officer also made an addition of ₹77,60,711/- under section 41(1) of the Act. under section 41(1) of the Act.

3.1 It was specifically contended that the disallowance of 20% of It was specifically contended that the disallowance of 20% of It was specifically contended that the disallowance of 20% of total expenditure without rejection of books of account or total expenditure without rejection of books of account or total expenditure without rejection of books of account or identification of any specific unverifiable item amounted to an identification of any specific unverifiable item amounted to an identification of any specific unverifiable item amounted to an arbitrary ad-hoc disallowance, contrary to settled legal principles. sallowance, contrary to settled legal principles. sallowance, contrary to settled legal principles.

3.2 The Ld. CIT(A) called for a remand report from the Assessing The Ld. CIT(A) called for a remand report from the Assessing The Ld. CIT(A) called for a remand report from the Assessing Officer and, after considering the remand report and the assessee’s Officer and, after considering the remand report and the assessee’s Officer and, after considering the remand report and the assessee’s rejoinder, deleted the disallowance. The Ld. CIT(A) recorded a rejoinder, deleted the disallowance. The Ld. CIT(A) recorded a rejoinder, deleted the disallowance. The Ld. CIT(A) recorded a NDX P2P Pvt. Ltd categorical finding that the assessee had furnished ledger accounts l finding that the assessee had furnished ledger accounts l finding that the assessee had furnished ledger accounts running into several pages, party running into several pages, party-wise details, and TDS particulars, wise details, and TDS particulars, and that the Assessing Officer had not pointed out any specific and that the Assessing Officer had not pointed out any specific and that the Assessing Officer had not pointed out any specific defect, infirmity, or non defect, infirmity, or non-genuine expenditure. It was further not genuine expenditure. It was further noted that the books of account were neither rejected nor was any enquiry that the books of account were neither rejected nor was any enquiry that the books of account were neither rejected nor was any enquiry conducted to establish that the expenses were not incurred for conducted to establish that the expenses were not incurred for conducted to establish that the expenses were not incurred for business purposes. On these facts, the Ld. CIT(A) held that the ad- business purposes. On these facts, the Ld. CIT(A) held that the ad business purposes. On these facts, the Ld. CIT(A) held that the ad hoc disallowance was unsustainable and deleted the same. The Ld. hoc disallowance was unsustainable and deleted the same hoc disallowance was unsustainable and deleted the same CIT(A) deleted the addition of the ad CIT(A) deleted the addition of the ad-hoc disallowance of the 20% hoc disallowance of the 20% observing as under:

“ 4.4 In the course of appellate proceedings the appellant vehemently 4.4 In the course of appellate proceedings the appellant vehemently 4.4 In the course of appellate proceedings the appellant vehemently contended that the disallowance is uncalled for. The appellant has contended that the disallowance is uncalled for. The appellant has contended that the disallowance is uncalled for. The appellant has furnished all the furnished all the details of the expenses as called for by the AO. The details of the expenses as called for by the AO. The books of accounts are duly audited and the AO has not rejected the books of accounts are duly audited and the AO has not rejected the books of accounts are duly audited and the AO has not rejected the books of accounts. The appellant uploaded the reply furnished by it books of accounts. The appellant uploaded the reply furnished by it books of accounts. The appellant uploaded the reply furnished by it to the AO on 04.03.2024 wherein the ledger account of the other to the AO on 04.03.2024 wherein the ledger account of the other to the AO on 04.03.2024 wherein the ledger account of the other expenses as required by the AO in the show cause notice dated nses as required by the AO in the show cause notice dated nses as required by the AO in the show cause notice dated 26.02.2024 was uploaded. The said reply is reproduced as below: 26.02.2024 was uploaded. The said reply is reproduced as below: 26.02.2024 was uploaded. The said reply is reproduced as below: ............................................. ............................................. 4.7 From the above facts it is clear that in order to prove the 4.7 From the above facts it is clear that in order to prove the 4.7 From the above facts it is clear that in order to prove the genuineness and the busi genuineness and the business purpose the appellant has furnished ness purpose the appellant has furnished all the details required by the AO. The appellant has furnished the all the details required by the AO. The appellant has furnished the all the details required by the AO. The appellant has furnished the party wise details along with the name, address, PAN etc. of the party wise details along with the name, address, PAN etc. of the party wise details along with the name, address, PAN etc. of the parties. The appellant has furnished the ledger account copies as parties. The appellant has furnished the ledger account copies as parties. The appellant has furnished the ledger account copies as well as the deta well as the details of expenses on which TDS was effected as well as ils of expenses on which TDS was effected as well as the expenses on which TDS was not effected. Thus, all relevant the expenses on which TDS was not effected. Thus, all relevant the expenses on which TDS was not effected. Thus, all relevant details have been furnished to the AO as required. No specific details have been furnished to the AO as required. No specific details have been furnished to the AO as required. No specific infirmity has been pointed out by the AO. The AO has also not infirmity has been pointed out by the AO. The AO has also not infirmity has been pointed out by the AO. The AO has also not doubted the ver doubted the veracity of the expenses. Neither has the AO specified as acity of the expenses. Neither has the AO specified as to on what basis the part expenses on estimated basis were held to to on what basis the part expenses on estimated basis were held to to on what basis the part expenses on estimated basis were held to be not incurred wholly and exclusively for the purpose of appellant's be not incurred wholly and exclusively for the purpose of appellant's be not incurred wholly and exclusively for the purpose of appellant's business. The AO has not required the appellant to furnish any o business. The AO has not required the appellant to furnish any o business. The AO has not required the appellant to furnish any other detail with regard to the claim of these expenses. The books of detail with regard to the claim of these expenses. The books of detail with regard to the claim of these expenses. The books of NDX P2P Pvt. Ltd 44AB account of the appellant are statutorily audited as per section 44AB account of the appellant are statutorily audited as per section 44AB of the Act and such books of accounts were not rejected by the AO. In of the Act and such books of accounts were not rejected by the AO. In of the Act and such books of accounts were not rejected by the AO. In view of these facts, the action of AO disallowin view of these facts, the action of AO disallowing 20% of the impugned g 20% of the impugned expenses is found to be devoid of merit and hence, cannot be expenses is found to be devoid of merit and hence, cannot be expenses is found to be devoid of merit and hence, cannot be confirmed. Accordingly, the disallowance of Rs.8,82,99,568/ confirmed. Accordingly, the disallowance of Rs.8,82,99,568/ confirmed. Accordingly, the disallowance of Rs.8,82,99,568/- from out of the other expenses is deleted. AO is directed to delete the out of the other expenses is deleted. AO is directed to delete the out of the other expenses is deleted. AO is directed to delete the same. Ground no. 1 of the appeal is allo same. Ground no. 1 of the appeal is allowed.”

4.1 It is evident that the disallowance made by the Assessing It is evident that the disallowance made by the Assessing It is evident that the disallowance made by the Assessing Officer was purely on an ad Officer was purely on an ad-hoc basis, without identifying any hoc basis, without identifying any specific expenditure as non specific expenditure as non-genuine or not incurred for business genuine or not incurred for business purposes. The assessee had furnished detailed ledger accounts, purposes. The assessee had furnished detailed ledger ac purposes. The assessee had furnished detailed ledger ac party-wise break-up, and TDS details during assessment as well as up, and TDS details during assessment as well as up, and TDS details during assessment as well as remand proceedings. The Assessing Officer has neither rejected the remand proceedings. The Assessing Officer has neither rejected the remand proceedings. The Assessing Officer has neither rejected the books of account nor pointed out any particular defect in the bills, books of account nor pointed out any particular defect in the bills, books of account nor pointed out any particular defect in the bills, vouchers, or supporting documents. vouchers, or supporting documents. The Assessing Officer has not ng Officer has not doubted the veracity of the expenses and did not point out any doubted the veracity of the expenses and did not point out any doubted the veracity of the expenses and did not point out any specific deficiency or defect in the bills and vouchers. specific deficiency or defect in the bills and vouchers. specific deficiency or defect in the bills and vouchers.

4.2 It is well-settled that where the assessee maintains audited settled that where the assessee maintains audited settled that where the assessee maintains audited books of account and furnishes complete details of expenditure, an books of account and furnishes complete details of expenditure, an books of account and furnishes complete details of expenditure, an NDX P2P Pvt. Ltd ad-hoc disallowance, without pointing out specific defects or hoc disallowance, without pointing out specific defects or hoc disallowance, without pointing out specific defects or discrepancies, discrepancies, discrepancies, cannot cannot cannot be be be sustained sustained sustained in in in law. law. law. Estimation Estimation Estimation of of of expenditure is permissible only where the accounts are found to be re is permissible only where the accounts are found to be re is permissible only where the accounts are found to be unreliable or incomplete, which is not the case here. unreliable or incomplete, which is not the case here. unreliable or incomplete, which is not the case here.

4.3 During the appellate proceedings, the matter was remanded to During the appellate proceedings, the matter was remanded to During the appellate proceedings, the matter was remanded to the AO. Even at that stage, the Revenue could not bring forth any the AO. Even at that stage, the Revenue could not bring forth any the AO. Even at that stage, the Revenue could not bring forth any evidence to impeach the credibility of the 477 mpeach the credibility of the 477-page ledger or the page ledger or the corresponding TDS records. A disallowance under Section 37(1) corresponding TDS records. A disallowance under Section 37(1) corresponding TDS records. A disallowance under Section 37(1) cannot be sustained on mere suspicion or the subjective cannot be sustained on mere suspicion or the subjective cannot be sustained on mere suspicion or the subjective dissatisfaction of the AO; it must be rooted in objective evidence. In dissatisfaction of the AO; it must be rooted in objective evidence. In dissatisfaction of the AO; it must be rooted in objective evidence. In quasi-judicial proceedings, an assessment must be based on facts proceedings, an assessment must be based on facts proceedings, an assessment must be based on facts and evidence, not on conjectures and surmises. and evidence, not on conjectures and surmises.

4.4 The Ld. CIT(A), after examining the remand report and the The Ld. CIT(A), after examining the remand report and the The Ld. CIT(A), after examining the remand report and the assessee’s rejoinder, has returned a reasoned finding of fact that assessee’s rejoinder, has returned a reasoned finding of fact that assessee’s rejoinder, has returned a reasoned finding of fact that the expenditure was duly supp the expenditure was duly supported and that no basis existed for orted and that no basis existed for an estimated disallowance. We find no perversity or infirmity in the an estimated disallowance. We find no perversity or infirmity in the an estimated disallowance. We find no perversity or infirmity in the said findings.

4.5 Accordingly, we uphold the same. The grounds of appeal of the Accordingly, we uphold the same. The grounds of appeal of the Accordingly, we uphold the same. The grounds of appeal of the Revenue are accordingly dismissed. Revenue are accordingly dismissed.

Order pronounced in the open Court on ced in the open Court on 10/02 /02/2026.