Castles Vista Pvt. Ltd. Vs ACIT (ITAT Bangalore)
Bangalore ITAT: Technical Glitch in Form 26A Filing Cannot Trigger Section 40(a)(ia) Disallowance; Notional Interest and Clerical ICDS Errors Also Deleted
The Bangalore ITAT granted substantial relief to the assessee by deleting multiple additions made during scrutiny assessment. On the issue of disallowance under section 40(a)(ia), the Tribunal held that where the assessee had obtained Form 26A from all the payees certifying that the corresponding income had been offered to tax and all the conditions of the first proviso to section 201(1) stood satisfied, the assessee could not be treated as an assessee in default merely because the forms were uploaded belatedly due to technical glitches on the Income-tax portal. The delay was supported by grievance records and was beyond the assessee’s control. Since the Revenue did not dispute either the validity of Form 26A or the fact that the recipients had paid tax on the income, the Tribunal held that the benefit of the proviso could not be denied on a mere procedural lapse and accordingly deleted the disallowance under section 40(a)(ia).
The Tribunal also deleted the addition of notional interest computed at 12% on interest-free business advances given for land acquisition. It held that the agreements between the parties did not provide for payment of interest, no interest had actually accrued or been received, and there is no statutory provision permitting taxation of purely hypothetical interest income. Relying on the settled principle that only real income can be taxed, the Tribunal held that merely because an assessee could have charged interest, it cannot be taxed on income that never accrued.
On the ICDS adjustment, the Tribunal found that the assessee had merely committed a clerical error by entering the amount in the wrong column of the return of income. The amount ought to have been disclosed in column 3B instead of column 4(e) of Part A-OI. Since the computation of income remained unchanged and the error had no tax impact, the Tribunal held that the Assessing Officer and CIT(A) ought not to have taken advantage of such an inadvertent mistake. It observed that sustaining the addition would effectively result in double taxation and accordingly deleted the entire addition.
The Tribunal further deleted the addition made under section 68 in respect of an outstanding trade creditor. It held that mere non-response to a notice under section 133(6) does not justify treating a genuine trade liability as an unexplained cash credit, particularly when the assessee had produced invoices, work orders, ledger accounts, GST details, payment records and other documentary evidence establishing the transaction. It also observed that the opening balance could never be added under section 68 and that the advertisement expenditure itself had not been disallowed by the Assessing Officer. Accordingly, the addition under section 68 was deleted and the Assessing Officer was directed to allow carry forward of the consequential business loss after giving effect to the Tribunal’s order.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. M/s. Castles Vista Pvt. Ltd. (the assessee/appellant) has filed this appeal for Assessment Year 2022-23 against the appellate order dated 7 July 2025 passed by the National Faceless Appeal Centre, Delhi [the learned CIT(A)]. By that order, the learned CIT(A) dismissed the assessee’s appeal against the assessment order passed by the National Faceless Assessment Centre, New Delhi [the learned Assessing Officer], under section 143(3) read with section 144B of the Income-tax Act, 1961 (the Act). The assessment determined total income at Z 220,838,930, as against the business loss of Z 418,505,428 returned by the appellant.
