Cashfree Payment India Private Limited Vs DCIT (ITAT Bangalore)
In a major relief to Cashfree Payments India Private Limited, the Bangalore ITAT held that once an assessee furnishes substantial evidence proving the identity, genuineness and creditworthiness of the lender, the AO cannot make a mechanical addition under section 68 merely because the lender’s balance sheet was not produced.
The assessee had raised ₹120 crores through secured Redeemable NCDs from Trifecta Venture Debt Fund, a SEBI-registered Category II AIF. The Tribunal noted that the assessee had produced the lender’s PAN, SEBI registration, bank statements, debenture documents, confirmations, source of funds details and even explained why the AIF showed NIL income under the pass-through taxation regime of sections 115UA/115UB.
The ITAT observed that the AO ignored overwhelming evidence and focused only on non-production of the AIF’s balance sheet, despite the assessee specifically requesting the AO to invoke section 133(6) and directly call for the records from the lender. The Tribunal remarked that the AO had failed to conduct any meaningful inquiry before invoking section 68.
The Tribunal also delivered a strong finding on section 40A(2)(b), holding that a mere lender-borrower relationship does not trigger related-party disallowance provisions. Since Trifecta had no shareholding, profit participation or specified relationship with the assessee, the disallowance of interest merely because the AO considered 14% interest “high” was deleted in entirety.
Further, the ITAT deleted the proportionate interest disallowance under section 36(1)(iii), observing that the borrowings were admittedly for working capital purposes and not for acquisition of capital assets.
On the issue of ad hoc disallowance of expenses, the Tribunal held that blanket 10% disallowances without identifying specific defects or non-business expenditure cannot survive, especially in large-volume digital businesses where uploading every voucher may not be practically feasible. The matter was restored for proper verification instead of arbitrary estimation.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The Assessee appeals against the appellate order of NFAC, Delhi [ld. CIT(A)] dated 17-Feb-2026 (AY 2023-24), which dismissed its appeal against the assessment order dated 24.03.2025 passed by the Assessment Unit [ld. AO] under section 143(3) read with section 144B of the Income-tax Act, 1961 (“the Act”).
