ITAT Bangalore Remands Entire Assessment Involving TDS Defaults, ₹10.70 Crore Credits u/s 68 and Penalty u/s 271AAC

1. Background of the Dispute

The appeals in the case of SASA Stone Private Limited Vs DCIT (ITAT Bangalore Bench) concern Assessment Year 2018-19 and arise from:

  • An assessment framed under Section 143(3) read with Section 143(3A) and Section 143(3B) of the Income Tax Act 1961, and
  • A consequential penalty order passed under Section 271AAC(1).

The assessee had e-filed its return of income on 30.03.2019, declaring a total income of ₹4,22,51,100. The assessment was completed on 13.03.2021, determining the total income at ₹15,28,03,614, mainly on account of:

  • Disallowance under Section 40(a)(ia) in relation to tax deduction at source (TDS),
  • Additions aggregating to ₹10,70,39,649 under Section 68 in respect of unsecured loans/credits, and
  • A small addition of ₹3,55,405 relating to differences in computation of amounts written off.

These adjustments were confirmed by the National Faceless Appeal Centre (NFAC), Delhi in an appellate order dated 12.02.2026, leading the assessee to approach the ITAT Bangalore Bench in:

  • ITA No. 1597/Bang/2026 – quantum appeal, and
  • ITA No. 1598/Bang/2026 – penalty appeal under Section 271AAC(1).

2. Core Issues Before the Tribunal

The Tribunal examined three primary clusters of controversy:

  1. Disallowance under Section 40(a)(ia) on the basis of TDS deposited on 25.03.2019

    • Whether the entire TDS paid via a common challan on 25.03.2019 could be treated as pertaining exclusively to AY 2018-19 and reverse-grossed to infer corresponding expenditure.

  2. Additions under Section 68 relating to unsecured loans

    • Loans of ₹60,37,883 and ₹10,01,716 received from two individual creditors.
    • A corporate loan/credit of ₹10,00,00,000 connected with Tuscan Consultants & Developers Private Limited and Ozone Infra Developers Private Limited.

  3. Penalty under Section 271AAC(1)

    • Imposed on the additions made under Section 68 aggregating to ₹10,70,39,649.

The Tribunal’s final decision was to remit the entire set of issues – both quantum and penalty – back to the Assessing Officer (AO) for fresh adjudication after detailed verification.

3. Facts Relating to TDS and Section 40(a)(ia) Disallowance

3.1 AO’s Approach

During the scrutiny assessment, the AO noticed that the assessee had deposited TDS under multiple provisions on 25.03.2019, well after the due date of 31.10.2018 for AY 2018-19. Treating this as delayed compliance, the AO proceeded as follows:

  • Considered the TDS challan dated 25.03.2019 covering amounts deductible at different rates, namely 1%, 2% and 10%.
  • “Grossed up” the TDS amounts using these rates to mathematically reconstruct the presumptive underlying expenditure.
  • On this basis, the AO computed related expenditure at ₹4,11,41,460.
  • Observed that the assessee, in its own computation, had already disallowed 30% of certain expenditure of ₹3,06,60,593.
  • After allowing credit for this self-disallowance, the AO made a further net disallowance of ₹31,57,460 under Section 40(a)(ia).

Additionally, the AO noticed a difference of ₹3,55,405 in respect of amounts written off and treated this as an income addition.

3.2 Findings of CIT(A)/NFAC

In appeal, the NFAC:

  • Upheld the AO’s computation and logic concerning disallowance under Section 40(a)(ia), proceeding on the understanding that all TDS payments made on 25.03.2019 related entirely to AY 2018-19, and
  • Confirmed the addition of ₹3,55,405 for the difference regarding write-offs.

The assessee’s explanation that certain components of the TDS paid on 25.03.2019 related to the subsequent year, AY 2019-20, was not accepted.

3.3 Assessee’s Contentions Before ITAT

Before the Tribunal, the assessee argued that:

  • The TDS paid on 25.03.2019 was a common challan covering payments relating to two financial years – FY 2017-18 and FY 2018-19.
  • A detailed break-up, along with the challan copy and portal-based allocation, was produced to show that only a specific portion of the TDS related to AY 2018-19.
  • In particular, with reference to Section 194-I, out of ₹7,11,572, only ₹6,49,038 pertained to AY 2018-19, and the assessee had already disallowed 30% of the related expenditure in its computation.
  • The assessee had, on its own, disallowed ₹91,84,978 (30% of ₹3,06,16,593) and therefore the further enhancement in disallowance by the AO and NFAC was unwarranted.

4. Unsecured Loans from Two Individuals – Section 68 Additions