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Facts
The assessee, a Non-Banking Finance Company, filed its return declaring a loss. The AO made an addition of Rs. 40,00,000 as unexplained cash credit under Section 68 and a disallowance of Rs. 34,90,337 under Section 14A read with Rule 8D. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that the loan of Rs. 40,00,000 was repaid and the lender's identity, creditworthiness, and genuineness of the transaction were established with documentary evidence. Regarding Section 14A, it was noted that the assessee had suo motu disallowed a sum, and no expenditure was directly related to income forming part of total income for the disallowance made by the AO.
Key Issues
Whether the addition of Rs. 40,00,000 on account of unsecured loan and disallowance under Section 14A are sustainable.
Sections Cited
68, 14A, 8D, 143(2), 142(1), 133(6), 250, 260A, 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: January 15, 2026 ORDER
Per Pradip Kumar Choubey, Judicial Member:
This appeal filed by the assessee is directed against the order dated 04.07.2025 of the NFAC, Delhi (hereinafter referred to as the “CIT(A)”) passed u/s 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2017–18.
Brief facts of the case are that the assessee is engaged in the business of Non-Banking Finance Company and filed its return of Income declaring total income of Rs.(-)240910. The case was selected for Complete scrutiny (CASS) and accordingly notices under section 143(2) & u/s 142(1) of the Act were issued by the AO for submission of documents. The AO completed the assessment making addition of Rs.40,00,000 as unexplained cash credit U/s 68 and the Assessing Officer also calculated the disallowance under section 14A read with rule 8D amounting to Rs.34,90,337/-.
Tug Indofin Pvt. Ltd 3. Aggrieved by the said order, the assessee filed an appeal before the CIT(A) wherein the ld. CIT(A) dismissed the appeal of the assessee.
Aggrieved and dissatisfied, the assessee is in appeal before us. At the time of hearing, the Ld. AR challenges very impugned order thereby submitting that the ld. CIT(A) erred in upholding the addition of Rs.40,00,000/- on account of unsecured loan ignoring the fact that the said loan was repaid in subsequent year. The ld. AR also submits that the Ld. CIT(A) also erred in upholding the additional disallowance of Rs.19,45,409 u/s 14A read with section Rule 8D of the Income Tax Rules, 1962 ignoring the fact that the assessee had suo moto disallowed a sum of Rs.15,44,928/- during the year under consideration and therefore, the additional disallowance of Rs.19,45,409 made u/s 14A is not warranted. He also submits that the assessment proceedings initiated pursuant to the notice issued u/s 143(2) of the Act as invalid, but during the course of argument he only pressed grounds on merits. The ld. AR further submits that the assessee received a loan of Rs.40,00,000/- from M/s Legend Agency Private Limited (Presently known as KSA Agro Industries Pvt. Ltd.) and in response to notice u/s 133(6) of the Act, the lender company immediately complied and filed documentary evidences regarding its identity, creditworthiness and genuineness of the transaction done with the assessee company. His further submission is that the assessee company furnished the loan confirmation of the loan creditors, their name, address, PAN, and other details and all loan transactions were done through banking channels i.e. through account payee cheques/NEFT/RTGS and the assessee company deducted TDS wherever applicable. The ld. AR also submits that the loan creditor also filed its return disclosing loan transactions with the assessee and declaring interest income on the said loan. His submission is that during the course of assessment proceedings, various details/evidences were furnished to the Assessing Officer and the Tug Indofin Pvt. Ltd Assessing Officer did not point out any defect or discrepancy in the documents/details submitted by the assessee to prove the identity and creditworthiness of the loan creditor and genuineness of the transaction. In regard to the disallowance of Rs.19,45,409/- u/s 14A r.w.r. 8D, the ld. AR submits that for the purpose of computing the total income under this chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income.
The Ld. DR supports the impugned order.
We have considered the submissions of the counsels of the respective parties and perused the material available on record. We find that the assessee received a loan of Rs. 40,00,000/- from one company namely KSA Agro Industries Pvt. Ltd.. The Assessing Officer issued notices u/s 133(6) which were duly complied by the lender company and submitted relevant documents in support of the loan transactions. It is pertinent to note here that the lender company is dealing in rice products or for that matter any staple food product in the form of a Commodity is running on wafer thin margin and the company earned low margin on gross sales/receipts. We also find that the loan transactions were done through banking channels by Account Payee Cheques. We further note that to prove the identity, creditworthiness and genuineness of the transaction, the assessee submitted the following documents which are as under: i. PAN Card ii. ROC Master Data as on 12.03.2021 reflecting the Company Status (for e-filing) as ACTIVE iii. Certificate of Incorporation pursuant to change of name iv. ITR Acknowledgement for the A.Y. 2017-18 v. Audited Balance Sheet as at 31.03.2017 and Tug Indofin Pvt. Ltd vi. Statement of Profit & Loss Account for the year ended 31.03.2017 along with all the annexures and notes to accounts. vii. Copy of Loan Confirmation of Accounts for the period 01.04.2016 to 31.03.2017. viii. Copy of Loan Confirmation of Accounts for the period 01.04.2017 to 31.03.2018. 6.1 We further note that the Company namely KSA Agro Industries Private Limited was a company registered under Company's Act having valid CIN number and was carrying on its business activities and the Company was duly Registered with Registrar of Companies, Kolkata when the Assessee Company has entered into loan transactions with the said company. We also note that the loan taken from KSA Agro Industries Pvt. Ltd. was repaid with interest also by account payee cheques. It is also important to note here that the Assessing Officer did not find any fault or defect in the documents/details submitted by the assessee to discharge its primary onus to establish identity, creditworthiness and genuineness of the transaction. Reliance has been placed to the decision of Hon’ble Jurisdictional High Court in the case of PCIT vs. Alom Extrusions Ltd. in ITAT/268/2024, wherein, the Hon’ble High Court held as under:
“This appeal filed by the Income Tax Department under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated December 14, 2023 passed by the Income Tax Appellate Tribunal "A" Bench, Kolkata (The Tribunal) in for the assessment year 2015-16. The revenue has raised the following substantial questions of law for consideration : i) Whether the Learned Income Tax Appellate Tribunal has committed substantial error in law in upholding the order of the Commissioner of Income Tax (Appeals) deleting the disallowance made under Section 68 of the Income Tax Act, 1961 on account of unsecured loan from shell companies amounting to Rs.3,00,00,000/- as unexplained cash credit without appreciating the materials brought on record and facts evaluated by the Assessing Officer in the Assessment Order ? ii) Whether the Learned Income Tax Appellate Tribunal has committed substantial error in law in upholding the order of the Commissioner of Income Tax (Appeals) deleting the addition made under Section 69C of the Income Tax Act, 1961 on account of interest expenses on such unsecured loan ? Tug Indofin Pvt. Ltd We have heard Mr. Tilak Sharma, learned standing counsel appearing for the appellant and Mr. Amit Agarwal, learned counsel appearing for the respondent. The Department was unsuccessful in their challenge before the learned Tribunal wherein they questioned the correctness of the order passed by the Commissioner of Income Tax (Appeals) - 27, Kolkata [CIT(A)] on 14 th June, 2023. By the said order, the [CIT(A)] allowed the appeal filed by the assessee and set aside the addition made by the Assessing Officer by invoking power under Section 68 of the Act. As could be seen from the order passed by the learned Tribunal, the Tribunal has examined the factual details after noting the factual findings recorded by the [CIT(A)], more importantly, the learned Tribunal found that all the loans stood repaid, which has also been factually ascertained by the [CIT(A)] and re-affirmed by the Tribunal. We find the order passed by the [CIT(A)] to be an elaborate order after discussing all the facts. The learned Tribunal has, in fact, quoted the relevant portions of the order passed by the [CIT(A)] and thereafter independently proceeded to examine the correctness of the finding and affirmed the same. Thus, we are of the view that no questions of law, much less substantial questions of law arises for consideration in this appeal. Hence, the appeal fails and the same is dismissed. 6.2 Going over the discussion made above and considering the judicial pronouncement, we find substance in the argument of the ld. AR of the assessee and delete the addition of Rs.40,00,000/- made u/s 68 of the Act.
We find that in respect of disallowance u/s 14A r.w.r 8D at Rs.19,45,409/- made by the Assessing Officer, the Assessing Officer calculated the disallowance u/s 14A of Rs. 34,90,337/- out of which Rs.15,44,928/- had been suo moto disallowed by assessee company so the remaining balance of Rs.19,45,409/- was disallowed by the Assessing Officer. We note that the disallowance is nothing but one percent of annual average of the monthly averages of the opening and closing balances of the value of investment as per Rules 8D(2)(ii) as per working of disallowance. We also find that the assessee company had received dividend from investments in Mutual Fund during the F.Y. 2016-17 and the assessee company had not earned any exempt income from the Investments in Shares during the Financial Year 2016-17 and also the assessee had suo-moto disallowed Rs.15,44,924.38 u/s 14A in Tug Indofin Pvt. Ltd its computation of Taxable Income and Income Tax Return for the A.Υ. 2017-18. We find that the assessee company has not incurred any expenditure during the year which was directly related to the income which formed part of total income for making disallowance u/s 14A r.w.r. 8D, hence the disallowance of the balance amount of Rs.19,45,409/- is disallowed u/s 14A of the Act made by the Ld. AO is hereby deleted.
In the result, the appeal of the assessee is allowed. Kolkata, the 15th January, 2026.
Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member Dated: 15.01.2026. RS Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- , 5. CIT(DR),