Channamma Rachappa Saradagi Vs ITO (ITAT Bangalore)
Section 68 Addition on Opening Loan Balances Deleted – Interest on MSME/Gold Loan & Salary Payments Allowed – CIT(A) Order Set Aside – ITAT Bangalore
Assessee, proprietor of M/s Srinidhi Transports, engaged in hiring and leasing of transport vehicles, filed return declaring income of ₹4.19 lakh. During scrutiny assessment u/s 143(3) r.w.s. 144B, AO made three additions: ₹1.45 crore u/s 68 for unsecured loans, ₹2.21 lakh disallowance of interest u/s 36(1)(iii) on MSME/gold loans, and ₹12.09 lakh disallowance of salary expenses u/s 37(1). CIT(A)/NFAC confirmed all additions.
Before ITAT, assessee furnished confirmations, PAN details, affidavits and ledger accounts of lenders and explained that most of the unsecured loans were opening balances carried forward from earlier years. Tribunal observed that section 68 can be invoked only when a sum is credited during the relevant year. Since in most cases the balances represented opening balances or repayments, addition could not be sustained. Only one transaction involving fresh credit from Rachappa Saradagi required verification by AO; hence addition was deleted except to that limited extent.
Regarding interest disallowance, ITAT held that MSME loan from Kotak Mahindra Bank and gold loan were obtained in the name of the business and utilised for business purposes. As AO had not shown any personal use of borrowed funds, interest was allowable u/s 36(1)(iii).
On salary expenditure, the Tribunal noted that payments to manpower contractor and staff were supported by invoices, PAN details, GST registration, TDS certificates and banking transactions. Since the expenses were incurred wholly for business purposes, the disallowance of ₹12.09 lakh was also deleted.
ITAT further observed that CIT(A) confirmed the additions without properly examining the evidence placed on record, making the appellate order unsustainable.
Accordingly, the appeal of the assessee was partly allowed, with major additions deleted and only limited verification directed regarding one loan transaction.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. Captioned appeal for Ay 2022-23 is filed by Mrs. Channamma Rachappa Saradagi against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 29 August 2025 wherein the appeal filed by the assessee against the assessment order dated 22nd of March 2024 passed under section 143 (3) read with section 144B of the Income Tax Act, 1961 [the Act] passed by the learned assessing officer was dismissed. Therefore the assessee is in appeal before us.
