ITO Vs NCCCL Kinjal Ktil Consortium (ITAT Mumbai)
The Mumbai ITAT held that outstanding trade liabilities arising from genuine business transactions cannot be treated as unexplained cash credits under Section 68, especially when the corresponding purchases, services and payments through banking channels are accepted by the Department. The Tribunal accordingly upheld deletion of addition of ₹16.44 crore made against a consortium executing large infrastructure projects for a Government corporation.
The assessee consortium, formed by reputed infrastructure companies including NCCCL and KTIL, had undertaken construction of flyovers, bus stands, commercial buildings, roads and allied infrastructure works. During scrutiny, the AO treated outstanding balances payable to consortium members amounting to ₹16.44 crore as unexplained cash credits u/s 68 on the ground that the assessee failed to satisfactorily establish identity, genuineness and creditworthiness during assessment proceedings.
Before the Tribunal, the assessee demonstrated that NCCCL and KTIL were not outside parties but consortium partners themselves, both being established public limited companies regularly assessed to tax. The outstanding balances represented material supply payables, technical consultancy charges and other trade liabilities arising during project execution. Payments were routed through banking channels, reflected in the books of both parties, supported by GST invoices, ledger accounts and returns of income.
The ITAT accepted the contention that Section 68 primarily deals with unexplained “cash credits” and not mere accounting liabilities arising out of accepted business transactions. The Tribunal observed that once the AO accepted the corresponding purchases and expenditure, he could not tax the other side of the same transaction as unexplained credit. Relying upon decisions including Manoj Agarwal (SB), Rajesh G. Jain, Attire Designers Pvt. Ltd. and Ritu Anurag Agarwal, the ITAT reiterated that trade creditors representing accepted purchases cannot ordinarily be added u/s 68.
On the separate disallowance of ₹1.37 crore towards “liaisoning expenses” paid to consortium member KTIL, the Tribunal noted that the payments were actually towards technical consultancy, supervision, procurement advisory, quality control and coordination with Government authorities in relation to the infrastructure project. The expenses were supported by notarised MOU, GST invoices, TDS deductions and ledger confirmations.
The AO had disallowed the expenditure mainly because the MOU was allegedly not registered and KTIL did not respond to notices. Rejecting this approach, the ITAT observed that business agreements are not required to be compulsorily registered merely because they regulate commercial dealings between parties. The Tribunal further remarked that when the AO himself accepted the GST component of the very same invoices, he could not selectively reject the remaining expenditure component.
The Revenue also alleged violation of Rule 46A on the ground that the CIT(A) relied upon additional evidence. However, the Tribunal held that the documents considered by the CIT(A) – such as ledger accounts, invoices, consortium agreements and GST records- were already part of the books and assessment records and therefore could not be treated as “additional evidence.” Accordingly, the ITAT dismissed the Revenue’s appeal in entirety.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the Revenue and cross objection by the assessee challenging the impugned order dt. 05.08.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the Commissioner of Income Tax (Appeals) [CIT(A)] for the assessment year 2022-23.
