ITAT Ahmedabad Judgments — October 2026

The Tribunal held that Grounds 1 and 2 were not pressed and were dismissed. Regarding Grounds 3 to 13 concerning the transfer pricing adjustment of Rs. 20,17,56,905/-, the Tribunal noted that an identical issue had arisen in the assessee's own case for AYs 2017-18 and 2018-19, where the Tribunal deleted the adjustments, a decision upheld by the Hon'ble Gujarat High Court. The High Court had observed that the TPO did not undertake the exercise under Rule 10AB before determining ALP at Nil and that the assessee had demonstrated receipt of India-specific services. The Tribunal also noted that a coordinate bench had followed these decisions for AY 2021-22. Finding the facts and circumstances materially identical for the current year and in the absence of distinguishing features from the Revenue, the Tribunal directed the deletion of the transfer pricing adjustment, allowing Grounds 3 to 13. For Grounds 14 to 17, concerning the adoption of total income, the Tribunal found the assessee's contention supported by the rectification order and directed the Assessing Officer to give effect to the rectification order dated August 26, 2024, allowing Grounds 14 and 17. For Grounds 15 and 16, regarding the disallowance under Section 36(1)(va) and depreciation adjustment, the Tribunal found the disallowance unsustainable due to timely payment and directed verification for the depreciation adjustment, allowing Grounds 15 and 16. The Tribunal did not record any specific findings or decisions on Grounds 7 and 8 as they were not discussed in the provided excerpt.

The Tribunal held that the notice issued under section 148 was barred by limitation and was therefore invalid in law. The admitted facts were that the assessment year was 2019-20, the alleged escaped income was Rs.53,000/-, and the notice under section 148 was issued on 20.04.2023. Even after considering the period granted to the assessee for responding to the notice under section 148A(b), which extended up to 19.04.2023, the notice under section 148 was issued after this date. Consequently, the reassessment order dated 17.03.2025, passed under section 147 read with section 144B, was annulled. The ratio of this decision is that a notice under section 148 issued beyond the prescribed limitation period under section 149 renders the entire reassessment proceedings invalid.

The Tribunal held that the assessee had discharged its primary onus under Section 68 by furnishing all primary documentary evidence, including the lender's PAN, ITR, audited financials, and bank statements, establishing the identity, creditworthiness, and genuineness of the loan transaction. The Tribunal noted that the AO conducted no independent inquiry to controvert this evidence. Crucially, the Tribunal observed that the statutory requirement to explain the 'source of source' for loans was introduced by the Finance Act, 2022, with prospective effect from April 1, 2023, making it inapplicable to Assessment Year 2017-2018. In the absence of independent inquiry by the AO and failure by the Revenue to bring on record material to controvert the assessee's submissions, the addition of Rs. 2,67,00,000/- under Section 68 was deleted. Consequently, the consequential disallowance of interest expenditure of Rs. 3,06,832/- was also deleted. Ground No. 7 regarding the enhanced tax rate was allowed for statistical purposes without findings on merits. The appeal was allowed.

On Ground No. 1, the Tribunal noted it was general in nature and did not provide specific findings or reasoning. On Ground No. 2, concerning the disallowance of processing fees, the Tribunal held that the issue requires examination of the period to which the expenditure relates and the purpose of the borrowings. It stated that payment to a bank or treatment as prepaid expenditure does not inherently make it capital in nature. The Tribunal directed the Assessing Officer to examine if the processing fee was part of the acquisition of capital assets. Consequently, the finding of the Ld. CIT(A) was set aside, and the matter was restored to the Assessing Officer for fresh adjudication. Ground No. 2 was allowed for statistical purposes. On Ground No. 3, regarding TDS credit, the Tribunal noted that the Ld. CIT(A) had already directed the Assessing Officer to grant credit in accordance with law. Therefore, the Tribunal declined to interfere with the Ld. CIT(A)'s order. The appeal was partly allowed for statistical purposes.

The Tribunal decided the appeal as follows: Regarding Ground Nos. 3, 3.1 to 3.3 and Ground Nos. 4 & 4.1 (transfer pricing adjustment for manufacturing segment), the Tribunal allowed the grounds for statistical purposes. It set aside the order of the lower authorities and restored the matter to the Assessing Officer/TPO for re-determination of the Arm's Length Price (ALP). The Tribunal noted that while regulatory ceilings do not negate the need for benchmarking, the TPO's rejection of the assessee's claims at the threshold without examining comparability adjustments was not tenable. Rule 10B(3) requires adjustments to eliminate material effects of differences. The TPO is directed to consider the assessee's submissions, determine if differences materially affect profit margins, grant quantified comparability adjustments, and re-evaluate the final set of comparables through functional comparability analysis. The assessee will be granted a reasonable opportunity of being heard. Regarding Ground No. 5, 5.1 to 5.4 (ECB interest adjustment), the Tribunal allowed the grounds for statistical purposes and restored the issue to the Learned TPO for fresh determination. The Tribunal found that while RBI guidelines do not override transfer pricing provisions, the TPO's approach of selecting a single comparable with a fundamentally different credit profile, scale, and risk attributes was also not tenable. The TPO is directed to re-determine the ALP after considering the assessee's submissions and granting a reasonable opportunity of being heard. Regarding Ground No. 6 (disallowance on lease rent equalization reserve), the ground was dismissed as not pressed. Regarding Ground Nos. 7, 8 & 9 (initiation of penalty proceedings), these grounds were dismissed as premature, as penalty proceedings are separate from assessment proceedings. Regarding Ground No.1&10 (general grounds), these were dismissed as general in nature.

The Tribunal held that the additions made by the Assessing Officer could not be sustained. It observed that the additions were substantially based on statements or material from a third-party search. The assessee had disputed this and requested the underlying material and an opportunity for cross-examination. However, the assessment order did not demonstrate that the relied-upon material was duly furnished to the assessee or that an effective opportunity to rebut it was given. Since the adverse material forming the basis of the additions was not properly confronted to the assessee, the Tribunal restored the matter to the Assessing Officer for fresh adjudication. The Assessing Officer is directed to furnish the material relied upon, provide a reasonable opportunity to the assessee to rebut it, and decide the issues afresh in accordance with the law. The appeal of the assessee was allowed for statistical purposes.

The Tribunal held that the assessee had discharged its primary onus under Section 68 by furnishing complete details, including identity, creditworthiness, and genuineness of the investors. The Tribunal found that the AO's observation about non-receipt of replies to Section 133(6) notices was contrary to the record, as investor companies had submitted documents directly. The Tribunal noted that common shareholding in the investor companies does not automatically imply that the funds are unexplained, and the AO failed to demonstrate this. The Tribunal also observed that the financial statements of the investor companies did not show an increase in investment from Billion Properties, suggesting the investor companies used their own reserves. The Tribunal found that the AO had erroneously examined the name of one company and that low income alone was not a sufficient basis to doubt creditworthiness, especially when complete documentation was provided. The Tribunal concluded that the assessee had provided sufficient documentary evidence and explanations, shifting the burden to the AO to disprove the transactions, which the AO failed to do. Reliance was placed on CIT Vs. Winstral Petrochemicals (P.) Ltd, CIT Vs. Gangour Investment Ltd, and CIT Vs. Electro Polychem Ltd. The addition was deleted.

The Tribunal held that the addition under Section 68 was not sustainable based solely on the information that M/s Niyati Traders was an accommodation entry provider. The Tribunal noted that the assessee recorded the transactions as sales in its regular books, received consideration through banking channels, included the sales in its turnover, and offered the resultant profit to tax. The burden was on the Revenue to demonstrate, with cogent material, that the transaction was not a sale or that the money received was not sale consideration. The Tribunal found that the Revenue had not established a specific nexus between M/s Niyati Traders' alleged accommodation entry operations and the assessee's specific transactions. The assessment record lacked independent inquiry by the AO regarding the specific transactions. Therefore, the CIT(A)'s order was set aside, and the matter was restored to the AO for fresh adjudication after examining the evidence relating to the impugned transactions, providing the assessee with an adequate opportunity of being heard. The appeal was allowed for statistical purposes.

The Tribunal held that while the payment to M/s. Tanzil Nutrition Centre, being a proprietary concern of the assessee's wife, falls under Section 40A(2)(b), the provision does not mandate automatic disallowance. The AO must examine if the expenditure is excessive or unreasonable considering the fair market value, legitimate business needs, or benefit derived. The Tribunal noted that the AO's benchmark of 30% was based on a comparison with the Ayurvedic products business, which the assessee contested as inappropriate for his Herbalife distribution model. The assessee had provided an agreement with TNC and stated that TNC incurred substantial expenditure on business promotion. The Tribunal found that a mere comparison with a different business line without comparable material is insufficient to establish excessiveness. It also acknowledged that the recipient being a related person requires verification of services rendered and commercial justification. Considering the facts, the Tribunal set aside the disallowance of Rs. 18,76,286/- made under Section 40A(2)(b).