India Kawasaki Motors Private Limited Vs DCIT (ITAT Pune)
Section 68 Inapplicable to Genuine Trade Payables; Pune ITAT Upholds Deletion of ₹1.50 Crore Addition
India Kawasaki Motors Pvt. Ltd., engaged in manufacturing motorcycles and spare parts, declared a business loss of ₹6.83 crore for AY 2021-22. The dispute involved two separate adjustments.
The AO added ₹1,50,14,517 under section 68 for differences in trade-payable balances relating to Kawasaki Heavy Industries Ltd. (₹1.33 crore) and UNO Minda Ltd. (₹17.06 lakh). The addition was based on differences in confirmations, non-response to section 133(6) notices and absence of stamped reconciliations.
The CIT(A) deleted the addition after finding that the liabilities arose from genuine purchases and that the assessee had furnished reconciliations explaining the differences, including timing differences. The AO had not disputed the purchases or established that they were fictitious.
The ITAT upheld the deletion, observing that the assessee had established the identity of the creditors and genuineness of the underlying purchase transactions. Mere differences in balances or non-response by third parties could not justify treating genuine trade payables as unexplained cash credits under section 68. The Revenue’s appeal was therefore dismissed.
Separately, CPC had reduced the assessee’s business loss by ₹1,80,08,945 under section 143(1)(a) due to a mismatch concerning a GST refund reported in the tax audit report. The assessee contended that the GST amount had never been claimed as an expense and that treating the refund as income resulted in double taxation.
As the assessee produced relevant supporting records for the first time before the Tribunal, the ITAT admitted the additional evidence and restored this limited issue to the AO for de novo verification and adjudication.
The assessee’s appeal was allowed for statistical purposes, while its cross-objection supporting the CIT(A)’s order became infructuous.
List of Cases Discussed / Relied Upon
- CIT v. Bharat Aluminium Co. Ltd. (2010) 187 Taxman 111 (Delhi)
- ITO v. Sanjiv Gupta [2013] 35 taxmann.com 543 (Delhi – Trib.)
- ACIT v. Sify Technologies Ltd. [2021] 129 taxmann.com 185 (Chennai Trib.)
- CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 (SC)
- Nilkanth Concast (P.) Ltd. (2021) 130 taxmann.com 224 (Delhi – Trib.)
FULL TEXT OF THE ORDER OF ITAT PUNE
The two appeals filed by the assessee and the Revenue and the Cross Objection filed by the assessee in Revenue‟s appeal are directed against the order dated 29-09-2025 of the Ld. Commissioner of Income Tax (Appeals), Pune-13, [“CIT(A)”], u/s. 250 of the Income Tax Act, 1961 (the “Act”), pertaining to Assessment Year (“AY”) 2021-22.
2. Briefly stated, the facts of the case are that the assessee is a company wholly owned subsidiary of Kawasaki Motors Limited, Japan. The assessee is engaged in the business of manufacturing of motorcycles and assembly of spare parts and components. It filed its return of income electronically on 11-03-2022, declaring a business loss of Rs. 6,83,00,490/- for the AY. 2021-22. The Centralized Processing Centre (“CPC”) issued an intimation order u/s. 143(1) of the Act, dt. 24-05-2022, proposing an adjustment of Rs. 1,80,08,945/- on account of a mismatch in reporting as per the Tax Audit Report (TAR) in Form-3CD and return of income, which reduced the assessee’s current year‟s business loss to Rs. 5,02,91,545/-. Thereafter, the case of the assessee was selected for scrutiny assessment. The Ld. Assessing Officer (“AO”) made a reference u/s.92CA(1) to the Ld. Transfer Pricing Officer (“TPO”). Various notices were issued from time to time to the assessee seeking clarifications and information. The Ld.TPO after considering assessee‟s submissions passed the order u/s. 92CA(3) of the Act on 31-10-2023 without making any adjustment on account of international transactions. Subsequently, a show cause notice was issued by the Ld.AO on 23-11-2023 proposing addition u/s. 68 of the Act in relation to the trade payables, purchases and advance received from customers. The assessee filed its response to the said show cause notice on 04-12-2023 followed by a Video Conferencing (VC) on 06-12-2023, whereby the explanations/details in respect of the above proposed additions u/s. 68 of the Act were provided. Post VC, the assessee was granted further opportunity to provide additional details/submissions in response to which a detailed reply was filed by the assessee. However, the Ld.AO proceeded to finalise the assessment by making an adjustment to the total income of the assessee of Rs. 1,50,14,517/- in respect of trade payable u/s. 68 of the Act by taking the income as per intimation order u/s. 143(1) of the Act as a starting point for computation of income and consequently, continued to make the addition of Rs. 1,80,08,945/- made by the CPC in its intimation order and raised a demand of Rs. 1,57,01,030/-, vide his order dt. 20-12-2023 passed u/s. 143(3) r.w.s. 144B of the Act.
3. Aggrieved by the said final assessment order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) has given a partial relief to the extent of Rs. 1,50,14,517/- made by the Ld.AO u/s. 68 of the Act, and dismissed the assessee‟s ground in respect of the addition of Rs. 1,80,08,945/- made by way of reduced loss in the intimation order passed u/s. 143(1)(a) of the Act on account of mismatch related to a GST refund reported under clause 16(b) of the TAR for the reason that the assessee failed to rebut the adjustment with credible proof. The relevant findings and observation of the Ld.CIT(A) is reproduced below:
“IV. Findings and Reason:
15 I have carefully considered the submissions made by the Appellant and examined the relevant records, including the Tax Audit Report (TAR), the computation of income, and the assessment order. The primary issue pertains to the adjustment of Rs. 1,80,08,945 made under Section 143(1)(a) of the Act, on account of a mismatch related to a GST refund reported under clause 16(b) of the TAR. The Appellant argues that the said GST refund does not constitute taxable income, as the corresponding GST amount was never claimed as an expense in the Profit and Loss account. While the accounting principle relied upon by the Appellant-that recovery of an amount not previously claimed as an expense does not constitute income-is sound in theory and finds some support in judicial pronouncements such as CIT v. Bharat Aluminium Co. Ltd. (2010) 187 Taxman 111 (Delhi), the burden lies squarely on the Appellant to demonstrate that this principle applies in the present case. In this case, the Delhi High Court held that a refund or recovery cannot be treated as income unless it represents a prior claim of deduction or expense. However, this principle applies only when it is factually established that no such benefit was previously availed.
16. The Appellant’s submissions are generic and merely assert that GST is routed through the balance sheet and not through the Profit and Loss account. However, no specific documentary evidence-such as ledgers, GST refund reconciliation, tax payment challans, or corresponding GST input credit details-has been furnished to establish that the amount refunded had neither been expensed nor capitalized in the current or earlier years. The absence of such verifiable evidence leaves the mismatch unexplained and unresolved. The Hon’ble ITAT in ITO v. Sanjiv Gupta [2013] 35 taxmann.com 543 (Delhi – Trib.) held that bald assertions by the appellant, without documentary corroboration, cannot be accepted in income-tax proceedings, especially when a prima facie mismatch is evident from statutory records.
17. The Assessing Officer, in the final assessment, has rightly adopted the reduced loss figure of Rs. 5,02,91,545, as determined in the Section 143(1) intirmation, due to the Appellant’s failure to rebut the adjustment with credible proof. The reliance placed by the AO on the CPC’s adjustment is justified. It is well established that once a mismatch is flagged in the processing under Section 143(1)(a), it is for the appellant to demonstrate that the adjustment is incorrect. This view is supported by ACIT v. Sify Technologies Ltd. [2021] 129 taxmann.com 185 (Chennai Trib.), where it was held that adjustments under Section 143(1)(a) are sustainable where there is a clear mismatch between the audit report and Further, the Hon’ble Supreme Court return, unless conclusively rebutted by the appellant. in CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 (SC) laid down that the primary responsibility to disclose fully and truly all material facts necessary for assessment lies on the appellant. In the present case, the Appellant has failed to discharge this burden. In view of the discussion made, I find that the Appellant has not discharged the onus of proving that the refund does not represent a recovery of any benefit or deduction previously claimed. As such, the adjustment made under Section 143(1)(a) and sustained by the AO is upheld. The ground of appeal is, accordingly, dismissed.”
4. The Ld.CIT(A) deleted the addition of Rs. 1,50,14,517/- made by the Ld.AO in respect of trade payables u/s. 68 of the Act by observing as under:
“IV. Findings and Reason:
22. I have carefully analyzed the submissions and the legal position regarding the application of Section 68 of the Act.
23. Section 68 is specifically aimed at addressing unexplained cash credits, typically requiring the appellant to prove the identity, genuineness, and creditworthiness of the source of funds credited in the books, Judicial pronouncements, including those cited by the Appellant, consistently affirm that a trade payable a liability arising from the genuine purchase of goods recorded in the books -is fundamentally different from a cash credit. Where the underlying transaction is established as a purchase, the liability arising therefrom does not constitute an unexplained cash credit.
24. The Learned AO’s addition is based purely on the difference in the reconciled balance (Rs. 1,50,14,517), coupled with the non-compliance of Section 133(6) notices and the Appellant’s failure to provide stamped and signed reconciliations. The AO’s approach suffers from a significant legal deficiency: the AO failed to make a finding that the underlying purchase transactions were non-genuine or fictitious. The Appellant is a company engaged in manufacturing and trading, and its creditors are known parties (Kawasaki Heavy Industries Limited and UNO Minda Ltd.). Once the Appellant demonstrated that the amounts relate to liabilities for goods purchased, the onus shifts to the AO to dispute the genuineness of the purchase itself, which was not done.
25. The reliance by the AO solely on the failure of third parties to respond to Section 133(6) notices and the absence of formally signed reconciliations, in the face of the Appellant providing specific, detailed explanations for timing differences (e.g., invoices booked in April 2021 accounted for differences in the 31 March 2021 balance of UNO Minda Ltd.), is insufficient and arbitrary for invoking the severe consequences of Section 68. The ratio established by cases like Nilkanth Concast (P.) Ltd. (Delhi Tribunal) confirms that Section 68 cannot apply to trade payables.
26. I find that the Appellant successfully established the identity of the creditors and the genuineness of the transactions giving rise to the outstanding liabilities. The liability represents trade payables for goods purchased, and the balance mismatch was reasonably explained through reconciliations and timing differences. The Learned AO erred in applying the provisions of Section 68 of the Act to tax these liabilities.
V. Decision:
27. The claim and contentions of the Appellant with respect to Ground Nos. 3, 3.1, and 3.2 are hereby allowed. The addition of Rs. 1,50,14,517 made by the Learned AO under Section 68 of the Act is directed to be deleted.”
5. Dissatisfied with such order of the Ld.CIT(A), both the assessee as well as the Revenue are in appeal before the Tribunal. In ITA No. 2890/PUN/2025, the assessee has raised the following grounds of appeal:
“1. Ground No. 1: General
1.1. On the facts and in the circumstances of the case, and in law, the Learned AO has erred in making adjustments to the total income of the Appellant as specified in the ensuing grounds of appeal and consequentially raising erroneous demand of INR 1,57,01,030 on the Appellant.
1.2. On the facts, and in the circumstances of the case and in law, the Appellant prays that the additions made by the Learned AO to the total income and the consequential tax demand raised by the Learned AO be deleted, as the same is erroneous, unwarranted and bad in law.
2. Ground No. 2: Computation of total income considering erroneous business loss as per intimation order issued under section 143(1) of the Act instead of business loss as per return of income.
2.1 On the facts and in the circumstances of the case and in law, the Learned AO has erred in computing total income of the Appellant considering the erroneous total current year business loss as per intimation order issued under section 143(1) of the Act instead of total current year business loss as per return of income filed by the Appellant.
2.2 The Learned AO has reduced the total loss from business or profession for the AY 2021-22 by INR 1,80,08,945. While computing the total assessed income of the Appellant the Learned AO has considered erroneous current year loss from business or profession of INR 5,02,91,545 instead current year loss from business or profession of INR 6,83,00,490 as per return of income.
3. Ground No. 3: Addition under section 68 for ‘trade pa yables’ amounting to INR 1,50,14,517.
3.1 On the facts and in the circumstances of the case and in law, the Learned AO has erred in making addition on account of trade payables of INR 1,50,14,517 under section 68 of the Act.
3.2 On the facts and in the circumstances of the case and in law, the Learned AO has erred in not appreciating that the provisions of section 68 of the Act are not applicable in the present case. The Appellant has purchased goods from said creditors during the year. The balance of trade payables represents the value of goods purchased by the Appellant which is unpaid at the end of the year. Further, the Appellant had given necessary documentation to substantiate the said amounts of Trade Payables. Thus the same ought not to be treated as unexplained cash credit and the provisions of section 68 ought not to apply.
Ground No. 4: Interest levied under section 234A and 234B of the Act 4.
4.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in levying interest under Section 234A and 234B of the Act amounting to INR 4,22,656 and INR 34,86,912 respectively which is consequential in nature.
Ground No. 5: Erred in initiating penalty proceedings under section 274 read with section 271AAC(1) of the Act.
5.1 The Learned AO has erred in initiating penalty proceedings under section 274 read with section 271AAC(1) of the Act in respect of aforesaid additions without appreciating the bona fide explanations and submissions of the Appellant in its favor.
5.2 In view of the above, the Appellant prays that the initiation of penalty proceedings is not justified and hence, the Learned AO should be directed to drop the same.
Aggrieved by the aforementioned order, the Appellant has filed this Appeal before your Honour, for claiming relief as per the aforesaid grounds of appeal.
The Appellant craves leave to add, alter, amend, delete, rectify, substitute, modify or withdraw all or any of the aforesaid ground(s) of appeal and to submit such statement, facts, document, evidences and papers as may be considered necessary at any time before or at the time of hearing the appeal.”
6. In ITA No. 2779/PUN/2025, the Revenue has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 1,50,14,517 made u/s 68 of the Income-tax Act, 1961 by holding that trade payables for genuine purchases cannot be treated as unexplained cash credits as during the assessment proceedings the assessee failed to provide complete reconciliations, invoices, or proof of goods/services.
2. On the facts and in the circumstances of the case and in law, the Reliance place by the Ld. CIT(A) on CIT v. Calcutta Discount Co. Ltd. (91 ITR 8 SC) is misplaced as it pertains to commercial expediency, not Section 68 or trade liability reconciliation.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) made misplaced reliance on the case of ACIT v. Sify Technologies Ltd. (129 taxmann.com 185) as this case involved a case where th e assessee had furnished full reconciliation, purchase invoices, and confirmations. However, in the instant case, the assessee failed to provide complete reconciliations, invoices, or proof of goods/services.
4. The appellant craves leave to add, amend and alter any of the above grounds of appeal.”
7. The assessee has filed cross objection in Revenue‟s appeal, raising the following grounds:
“Ground 1: On the facts and in the circumstances of the case and in law, the Respondent has adequately and successfully established the identity of the creditors and the genuineness of the transactions giving rise to the outstanding liabilities, which was verified by the learned CIT(A) and taken into consideration while passing its order in favour of the Respondent. Proper invoices, creditor confirmations, and reconciliations for differences in balances in the books of creditors and Respondent were provided during the assessment and appellate proceedings to prove the genuineness of the transactions. Accordingly, the provisions of Section 68 should not be invoked against the Respondent.
Ground 2: As rightly held by the learned CIT(A), the Respondent craves to submit that section 68 of the Act does not apply in case of trade payables. Section 68, specifically aimed at unexplained cash credits, typically applies to prove the identity, genuineness, and creditworthiness of the source of funds credited in the books of accounts. The section does not apply to trade payables, and this principle is upheld by the judicial pronouncements relied on by the Respondent during the appellate proceedings. Also, since the Respondent had furnished reconciliations and demonstrated the identity, genuineness, and creditworthiness of creditors, the Assessing Officer erred in applying section 68 of the Act.
Ground 3: In the facts and circumstances of the case, the Assessing Officer has erred in stating that the learned CIT(A) has relied on CIT vs. Calcutta Discount Co. Ltd. (91 ITR 8 SC). The Respondent would like to state that the aforesaid judgement of the Supreme Court is in relation to commercial expediency and not in the context of section 68. Further, the Learned CIT(A) has relied on the case of CIT vs. Calcutta Discount Co. Ltd. (91 ITR 8 SC) in the context of the Ground raised by the Appellant in relation to the addition made under section 143(1) towards GST refund, while preferring an appeal before the learned CIT(A). The Respondent would further like to state that the Learned CIT(A) has only relied on the case of Nilkanth Concast (P.) Ltd. (2021) 130 taxmann.com 224(Delhi – Trib.) while dismissing the addition under section 68 of the Act.
Ground 4: In the facts and circumstances of the case, the Assessing Officer has erred in stating that the learned CIT(A) has relied on ACIT vs. Sify Technologies Ltd. (129 taxmann.com 185). The Respondent would like to state that the learned CIT(A) has relied on the aforesaid judgement of Chennai Tribunal in the context of the Ground raised by the Appellant in relation to the addition made under section 143(1) towards GST refund, while preferring an appeal before the learned CIT(A). The Respondent would further like to state that the Learned CIT(A) has only relied on the case of Nilkanth Concast (P.) Ltd. (2021) 130 taxmann.com 224(Delhi – Trib.) while dismissing the addition under section 68 of the Act.”
8. We shall first proceed to decide the appeal of the assessee. We have heard the Ld. Representatives of the Parties and perused t he material available on record as well as the paper book(s) filed by the Ld.AR on behalf of the assessee. Although several grounds of appeal have been raised by the assessee, all these relate to the addition of Rs. 1,80,08,945/- made by way of reduced loss in the intimation u/s. 143(1) of the Act and carried forward in the assessment which has been confirmed by the Ld.CIT(A) for the reasons which we have already reproduced in the preceding paragraphs. We observe that the Ld.CIT(A) has sustained the said addition due to the assessee‟s failure to submit documentary evidence to rebut the adjustment. Before us, the Ld. AR submitted that the documentary evidences could not be produced before the lower authorities as the relevant records pertained to earlier years and formed part of archived data, which were not readily retrievable at the relevant time.
Further, the Ld.AR submitted that no specific directions were issued during the appellate proceedings requiring the assessee to furnish such documents by the Ld. CIT(A). The Ld.AR has submitted affidavit of the Managing Director of the assessee-company in support thereof. It is the contention of the Ld.AR that the adjustment of Rs. 1,80,08,945/- made by the Ld.AO and consequently confirmed by the Ld. CIT(A) is factually incorrect and it results in double taxation of the same income and, therefore, it deserves to be deleted. The present case involves a fundamental error arisen due to mismatch between tax audit reporting and actual income disclosure in ITR. The assessee has now collated complete documentary evidence which clearly demonstrate the true nature of the transaction and its correct accounting/tax treatment.
9. In support of its above claim, the Ld.AR has filed certain additional evidences (paper book of additional evidence containing 121 pages), comprising of the following documents and prayed for the admission of the same under Rule 29 of the Appellate Tribunal Rules, 1963. In our considered view, the additional evidences filed by the assessee goes to the root of the matter and are vital for proper adjudication of the dispute and in establishing the contentions of the assessee. In the absence of any contrary material brought on record and any objection raised by the Revenue to the above proposition of the Ld. AR, we deem it fit to admit the additional evidences filed by the assessee. Since these additional evidences are filed by the assessee for the first time before the Tribunal and, therefore, needs verification by the lower authorities. Thus, in our considered view, the matter deserves to be restored to the file of the Ld.AO for denovo adjudication limited to the issue raised in appeal by the assessee. The Ld. DR had no objection if the matter is restored to the file of the Ld.AO. Accordingly, we set aside the impugned order of the Ld. CIT(A) and restore the matter back to the file of the Ld.AO with a direction to decide the impugned issue denovo on merits and as per fact and law, after allowing opportunity of hearing to the assessee. Needless to say, the assessee shall comply with the notices issued by the Ld. AO and make its submissions before him on the appointed date without seeking any adjournment under any pretext, unless required for the sufficient cause, failing which the Ld. AO shall be at liberty to pass appropriate order as per law. We order and direct accordingly. The effective grounds raised by the assessee are accordingly allowed for statistical purposes.
10. In the result, appeal of the assessee in ITA No. 2890/PUN/2025 is treated as allowed for statistical purposes.
11. Now, coming to the appeal filed by the Revenue challenging the deletion of addition of Rs. 1,50,14,517/- in respect of alleged unexplained trade payable u/s. 68 of the Act made by the Ld.AO, we find that although several grounds of appeal have been raised by the assessee, the main grievance of the Revenue is that the addition should not have been deleted by the Ld. CIT(A) as during the assessment proceedings, the assessee failed to provide complete reconciliations, invoices or proof of goods/services.
12. The Ld. DR argued that the Ld. CIT(A) has given relief to the assessee holding that the assessee had successfully established the identity of the creditors and genuineness of the transaction giving rise to the outstanding liabilities and that the assessee had reasonably explained the balance mismatch through reconciliations and timing differences. However, whilst deciding the issue, the Ld. CIT(A) did not call for any remand report and hence, the Ld. AO had no opportunity to verify the assessee‟s claim.
13. The Ld.AR, on the contrary, submitted that proper invoices, creditor confirmations, and reconciliations for differences in balances in the book of the creditor and the assessee were provided during the assessment and appellate proceedings to prove the genuineness of the transactions. The Ld. AR submitted that even otherwise section 68 of the Act does not apply to trade payables and this principle is upheld by various judicial pronouncements which were relied upon by the assessee during the appellate proceedings before the Ld. CIT(A). Referring to the relevant pages of the paper book placed on record, the Ld. AR submitted that full reconciliations were provided before the Ld. CIT(A) and only after considering the same the Ld. CIT(A) has deleted the addition made by the Ld.AO. He accordingly submitted that since the assessee has furnished reconciliations and demonstrated the identity, genuineness and credit worthiness of creditors, the provision of section 68 has been wrongly invoked by the Ld. AO.
14. We find that the impugned addition of R s. 1,50,14,517 was bifurcated as Rs. 1,33,08,990/- pertaining to Kawasaki Heavy Industries Limited and Rs. 17,05,527/- pertaining to UNO Minda Ltd. and the Ld. AO made the said addition on account of difference of amount observed in assessee‟s book and confirmations of the parties provided by the assessee coupled with non-compliance of section 133(6) notice(s) and the absence of stamped and signed reconciliation. We find that admittedly, the assessee had filed reconciliations for differences in balances in the book of the creditor and the assessee before the lower authorities which is on record. The Ld. CIT(A) has deleted the addition for the reasons which we have already reproduced in the preceding paragraphs. It is only after carefully analyzing the submissions of the assessee (including the reconciliation and other documentary evidences filed) and the legal position regarding the application of section 68 of the Act to the facts of the present case, the Ld. CIT(A) held that the addition made by the Ld. AO u/s 68 of the Act is not sustainable and deleted the same.
15. Considering the totality of the facts and the circumstances of the case and based on the above discussion and in the absence of any contrary material/judicial precedent brought on record by the Revenue to controvert the submissions/claim of the assessee, we do not find any infirmity in the order of the Ld. CIT(A) which is hereby upheld. The grounds of appeal raised by the Revenue are accordingly dismissed.
16. In the result, appeal of the Revenue in ITA No. 2779/PUN/2025 is dismissed.
17. As regards the cross objection of the assessee, the Ld. AR at the outset submitted that the grounds raised in the cross objection are filed only in support of the Ld. CIT(A)‟s order. Since we have already dismissed the appeal of the Revenue vide our order above, the cross objection filed by the assessee become infructuous and hence dismissed as such.
18. In the result, the cross objection of the assessee in CO No. 54/PUN/2025 is dismissed.
19. To sum up, the appeal of the assessee in ITA No. 2890/PUN/2025 is treated as allowed for statistical purposes, appeal of the Revenue in ITA No. 2779/PUN/2025 is dismissed and Cross Objection of the assessee in CO No. 54/PUN/2025 is dismissed.
Order pronounced in the open Court on 19-08-2026
