ITAT directs to delete Income Tax Additions based on Interest Paid on Cash Loans [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Delhi Bench has directed deletion of income taxadditions made on account of alleged interest payments connected with supposed cash loans.

The appeals were filed against reassessments under Section 147 of the Income Tax Act, wherein the Assessing Officer had made additions treating certain interest expenses as unexplained expenditure under Section 69C of the Income Tax Act.

The case was linked to allegations that the assessee had received cash loans routed through intermediaries associated with Shri Sant Lal Aggarwal, purportedly a handler of accommodation entries. Based on these assertions, substantial interest payments were disallowed.

Challenging the additions, the assessee argued that the disallowances were unsupported by tangible evidence and rested solely on third-party statements. During proceedings, the counsel for Shagun Jewellers highlighted that the exact issue had previously been adjudicated in favour of the company by the ITAT in June 2020 (ITA No. 9890/Del/2019 for AY 2010-11).

In that order, the Tribunal had categorically held that the additions were based only on conjectures arising from the statement of a third party, Shri Devi Das Tikamdas Chattani, without any corroborative evidence.

The earlier tribunal order had further noted that Shri Sant Lal Aggarwal, in his statement, had expressly denied knowledge of the said intermediary or of handling large-scale cash loan transactions. The Tribunal in that case criticized the Assessing Officer for relying on one statement while ignoring another that favoured the assessee.

The Tribunal Bench, comprising Judicial Member Shri Anubhav Sharma and Accountant Member Shri Manish Agarwal, delivered the ruling while hearing a batch of three appeals relating to Assessment Years 2009-10, 2011-12, and 2012-13.

Taking cognizance of this precedent, the present Bench found that circumstances in the years under appeal were identical. It held that additions could not survive in the absence of concrete material linking the assessee with cash-based interest payments. Respectfully following its earlier ruling in the assessee’s own case, the Tribunal directed deletion of the impugned additions across all three assessment years.

While several other grounds, including jurisdictional challenges to reopening under Section 147 of the Income Tax Act were initially raised, these were not pressed during arguments. The Tribunal’s order, therefore, focused exclusively on the disallowance of interest expenditure.

The appeals were thus partly allowed in favour of the assessee.

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