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Facts
The assessee, a firm manufacturing hoists and cranes, faced additions by the AO for unsecured loans under Section 68, disallowance of interest on these loans, and disallowance of employees' provident fund contribution. The Ld. CIT(A) deleted all these additions, leading the Revenue to file an appeal before the Tribunal.
Held
The Tribunal dismissed the Revenue's appeal concerning the additions for unsecured loans and the disallowance of interest, affirming that the assessee had established the identity, creditworthiness, and genuineness of the lenders and that no non-business use of borrowed funds was proven. However, the Tribunal allowed the Revenue's appeal regarding the employees' PF contribution, citing the Supreme Court's decision in *Checkmate Services*, and restored the AO's disallowance as the contributions were not deposited within the statutory due date.
Key Issues
1. Whether the CIT(A) erred in deleting the addition for unsecured loans under Section 68 and in admitting additional evidence under Rule 46A. 2. Whether the CIT(A) erred in deleting the disallowance of interest on unsecured loans. 3. Whether the CIT(A) erred in deleting the disallowance of employees' provident fund contribution paid beyond the statutory due date.
Sections Cited
Section 250, Section 68, Rule 46A, Section 36(1)(va), Section 2(24)(x), Section 143(3), Section 139(1)
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
O R D E R
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:
- This appeal has been filed by the Revenue against the order dated 22.01.2025 passed by the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi (“Ld. CIT(A)” for short), under Section 250 of the Income-tax Act, 1961 (“the Act” for short), relating to the Assessment Year 2017- 18.
The Revenue has raised following grounds of appeal :- “(1) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs 1,03,00,000/- made by AO on account of unsecured loan received from various lenders u/s. 68 of IT Act, despite the fact that the assessee had not corroborative evidences identity genuineness/creditworthiness of the lenders during assessment establish the proceedings. (2) The Ld. CIT(A) has erred in law and on facts in admitting the additional evidences during appellate proceedings, without giving the opportunity to the AO as required by Rule 46A.. (3) The Ld. CITA) has erred in law and on facts in deleting the addition of Rs.1,66,037/- made by AO on account of disallowance of interest on unsecured loans paid to lenders, despite the fact that the assessee had not DCIT Vs. Techno Industries Asst. Year : 2017-18 - 2– submitted establish corroborative evidences to the identity / genuineness / creditworthiness of the lenders during assessment proceedings. (4) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,27,846/- made by AO on account of disallowance of late payment Contribution of Employees Provident Fund u/s. 36(1)(va) r.w.s. 2(24)(x) of IT Act, despite the fact that Explanation 2 to Section 36(1)(va) is clarificatory in nature and hence it is applicable to A.Y. 2017-18.”
3. The assessee is a firm engaged in the business of manufacturing of hoists and cranes. It filed its return of income for A.Y. 2017-18 declaring total income of Rs.64,27,990/-. The assessment was completed u/s 143(3) on 25.12.2019 determining total income at Rs.1,93,22,803/- after making, the following additions/disallowances:- i. Unsecured loans Rs.1,03,00,000/- u/s 68 ii. Disallowance of interest of Rs.1,66,037/- iii. Disallowance of employees’ PF contribution of Rs.3,27,846/-
4. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A), who deleted the above additions. Against the said relief, the Revenue is in appeal before us.
Ground No. 1 & 2 – Addition u/s 68 and Rule 46A 5. The Assessing Officer made an addition of Rs.1,03,00,000/- u/s 68 in respect of unsecured loans received from five parties, holding that the assessee failed to establish identity, creditworthiness and genuineness. The Ld. CIT(A), after considering confirmations, PAN details, bank statements, income-tax returns of the lenders, and evidence of transactions through banking channels with deduction of TDS on interest, held that the assessee had discharged the onus cast upon it under section 68 and deleted the addition.
5.1 Before us, the Ld. DR relied upon the assessment order. DCIT Vs. Techno Industries Asst. Year : 2017-18 - 3– 5.2 The Ld. AR, on the other hand, submitted that all evidences were filed during appellate proceedings and were duly examined. 5.3 We have carefully considered the rival submissions and perused the material on record on this issue. From the records, we find that the Assessing Officer made an addition of Rs.1,03,00,000/- u/s 68 in respect of unsecured loans received from following five parties: - Amount Remarks 1 Jagdishchandra M. Taparia 6,00,000 Businessman 2 Shreys V. Pandya HUF 60,00,000 Loan Repaid 3 Lavnyaben A. Choksi 6,00,000 Wife of Partner 4 Urviben N. Choksi 6,00,000 Wife of Partner 5 Shah Corporation Prop. Surendra 25,00,000 Businessman M. Shah Total 1,30,00,000 We find that the Ld. CIT(A) has recorded a categorical finding that the identity of all lenders was established through PAN and ITRs, creditworthiness was proved by income declarations and bank statements and the genuineness was supported by transactions through banking channels and payment of interest after TDS. Before us also, the assessee has submitted the following documents :- a. Jagdishchandra M. Taparia - Confirmation, Bank Statement, ITR acknowledgment with statement of total income, Copy of aadhar card and PAN card b. Shreyas V. Pandya (HUF) - Confirmation, Bank Statement, ITR acknowledgment, Copy of electricity bill and PAN card c. Lavanyaben A Chokshi - Confirmation, Bank Statement, ITR acknowledgment, Copy of PAN card d. Urviben N. Chokshi - Confirmation, Bank Statement, ITR acknowledgment, Copy of aadhar card and PAN card c. Shah Corporation - Confirmation, Bank Statement, ITR acknowledgment, Copy of aadhaar card DCIT Vs. Techno Industries Asst. Year : 2017-18 - 4– No adverse material has been brought on record by the Revenue to controvert these factual findings.
5.4 In view of the settled law that once identity, creditworthiness and genuineness are established, no addition u/s 68 can be sustained and we, therefore, find no infirmity in the order of the Ld. CIT(A).
Accordingly, Ground Nos. 1 and 2 raised by the Revenue are dismissed.
Ground No. 3 – Disallowance of Interest
The Assessing Officer disallowed interest expenditure of Rs.1,66,037/- on the ground that borrowed funds were not used wholly and exclusively for business purposes. The Ld. CIT(A) deleted the disallowance holding that the Assessing Officer failed to establish any nexus between borrowed funds and non- business use and that the assessee had sufficient business activity and funds deployed in the business. Before us also, the Revenue could not bring any material on record to rebut the findings of the Ld. CIT(A). In view of the above, this ground of appeal raised by the Revenue is also dismissed.
Ground No. 4 – Employees’ Contribution to PF
The Assessing Officer disallowed Rs.3,27,846/- being employees’ contribution to PF paid beyond the due date prescribed under the Act/law. The Ld. CIT(A) deleted the disallowance holding that the contribution was paid before the due date of filing of return of income u/s 139(1) and that the amendment introduced by the Finance Act, 2021 was prospective.
7.1 We have carefully considered the rival submissions and perused the material on record. The issue is squarely covered by the judgment of the Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. v. CIT, (2022) 448 ITR 518 (SC), wherein it has been categorically held that employees’ contribution to PF/ESI is governed by section 36(1)(va) of the Act and is allowable as deduction DCIT Vs. Techno Industries Asst. Year : 2017-18 - 5– only if the same is deposited within the due date prescribed under the relevant Act. In view of the above, we set aside the order of the Ld. CIT(A) on this issue and restore the disallowance made by the Assessing Officer.
Ground No. 4 raised by the Revenue is allowed.
In the result, the appeal filed by the Revenue is partly allowed.
The order is pronounced in the open Court on 03.02.2026 (SIDDHARTHA NAUTIYAL) VICE-PRESIDENT Ahmedabad; Dated …03.02.2026 *btk