Alleged Cash Receipts deleted in Hands of Lenders like UK Paints: ITAT upholds deletion of unaccounted interest expenditure [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that where the alleged recipients of cash interest have been judicially cleared of receiving such payments, the corresponding addition for unaccounted interest expenditure in the hands of the payer cannot be sustained.

Orris Infrastructure Pvt. Ltd. (assessee) was accused by the Assessing Officer (AO) of paying unaccounted interest at rates as high as 24% to 36% to various lending groups. These lenders included the U.K. Paints India Ltd., Span Holdings Pvt. Ltd., and the Shahi Group.

The AO based these additions on documents seized during a search of the U.K. Paints Group, which allegedly showed a bifurcation between "cheque" interest and "material" (cash) interest. The AO made a total addition of ₹97.88 crores.

Aggrieved by the AO’s order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) reduced the addition. Aggrieved by the CIT(A)’s relief, the Revenue appealed to the ITAT to restore the full additions for the assessment years 2012-13 and 2013-14.

The assessee contended that the entire case for "unaccounted interest" rested on material and statements belonging to third parties. The assessee also submitted that the ITAT Delhi Bench, in orders dated September 5, 2023, and December 27, 2024, had already deleted the alleged cash interest income in the hands of the lenders, U.K. Paints India Ltd. and Span Holdings.

The assessee argued that since the recipients were legally held not to have received any cash interest, the assessee could not be taxed as the alleged payer of the same.

The two-member bench comprising Mahavir Singh (Vice President) and Krinwant Sahay (Accountant Member) observed that the issue was squarely covered by the decisions in the group cases of the lenders.

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The bench noted that revenue could not provide any argument against the fact that the additions were deleted for the lenders (U.K. Paints and Span Holdings). It confirmed the CIT(A)’s order deleting the additions for the assessee.

The Revenue’s appeals regarding the deletion of unaccounted interest amounting to ₹6.12 crores for AY 2012-13 and ₹4.86 crores for AY 2013-14 were dismissed. The appeals of the Revenue were dismissed.

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