ITAT Partially Allows Appeal, Directs AO to Reverify TDS and Expense Claims
The present appeal (ITA No: 1436/Ahd/2025) has been filed by Nimbeshwar Gudadram Desai (appellant) against the DY.CIT Circle-3(1)(1), in the Income Tax Appellate Tribunal, Ahmedabad “B” Bench, before Dr BRR Kumar, Vice President, and Shri Siddhartha Nautiyal, Judicial Member. The present appeal is related to the assessment year 2017-18. The case was heard on September 15, 2025, and a decision was made on October 01, 2025.
The company (assessee) has filed the appeal challenging an appellate order dated 20.06.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, related to the assessment year 2017-18. The issue mainly revolved around multiple disallowances made by the Assessing Officer (AO) during the scrutiny assessment.
Background of the Case
The taxpayer (appellant) filed his income tax return (ITR) for the assessment year 2017-18, declaring aggregate income of Rs. 77.29 lakh. However, after deep investigation, the Assessing Officer (AO) made several additions and increased his total income to Rs. 1.99 crore. The following are the allegations made by AO against the appellant:
- The assessing officer noted that Mr Desai paid around Rs. 41.21 lakh as interest to several Non-Banking Finance Companies (NBFCs) such as Cholamandalam, Hinduja, and Tata Motors Finance but did not deduct TDS as required under Section 194A of the Income Tax Act.
- The assessee claimed Rs. 8.05 crore as expenses for diesel, transport, travel, and labour. Since full proof like bills and vouchers were not submitted and some payments were made in cash, the AO treated them as partly unverifiable and disallowed 10% (Rs. 80.59 lakh) of these expenses.
- The AO found that Rs. 8.95 lakh of employees’ PF/ESIC contributions were not paid before the statutory due date.
- The AO noted that Mr Desai, in the past, had taken loans worth Rs. 12.61 crore and claimed Rs. 1.41 crore as interest expense. Then, he had given interest-free advances of Rs. 1.71 crore to others. The AO said this was a diversion of borrowed funds for non-business purposes and disallowed Rs. 20.55 lakh as interest related to those advances.
After considering all these disallowances, the AO declared the total taxable income of the assessee as Rs. 1.99 crore.
CIT (Appeals) Decision
The dissatisfied assessee then approached the CIT (Appeals), arguing that all the expenses and payments were genuine and properly accounted for. However, CIT (A) disagreed with the arguments of the assessee and announced the decision in favour of the Assessing Officer (AO) and upheld all the additions made by AO. Thus, the appeal was dismissed in full at this stage.
Hearing Before ITAT
The assessee, still dissatisfied with the decision of CIT (A), then approached the ITAT Ahmedabad. The appellate authority analysed both the arguments of the appellant and the respondent. Then decided on a partially favourable order for Mr Desai.
- On TDS Disallowance (Section 40(a)(ia))
The Tribunal referred to a similar case (Vivek Bhole Architects Pvt. Ltd. vs DCIT, 2023) where it was held that if the NBFC has already shown the interest as its taxable income, then the payer should not be penalised. ITAT therefore sent the issue back to the Assessing Officer to verify this fact.
- On 10% Expense Disallowance
The ITAT said the assessee should get another chance to submit all the bills and vouchers. So, this issue was also remanded (sent back) to the AO for fresh checking.
- On Late PF/ESIC Payment
The Tribunal said this issue has already been settled by the Supreme Court in the Checkmate Services Private Limited case (2022), which clearly states that employee contributions must be paid within the statutory deadline, not just before ITR filing. Hence, ITAT upheld this disallowance and supported the point of the AO; no relief to the assessee here.
- On Interest Disallowance (Section 36(1)(iii))
The assessee explained that he operates about 80 trucks, and the so-called advances were actually business payments for diesel and transport expenses, not personal loans. Since this explanation was not properly considered earlier, the ITAT remanded the issue to the AO to freshly verify the business purpose of the advances.
Final Outcome
In the final order, the ITAT Ahmedabad partially allowed the appeal for statistical purposes. The assessing officer has been instructed to re-examine the TDS issue, recheck the interest disallowance, while the PF/ESIC disallowance remains confirmed. Mr Desai (assessee) has been given a fresh opportunity to submit all evidence and documents during this reassessment.
Citation: Nimbeshwar Gudadram Desai Vs DY.CIT Circle-3(1)(1) (ITAT Ahmedabad); ITA No: 1436/Ahd/2025; 01/10/2025; 2017-18
