ITAT Faults CIT(A)/NFAC for Lack of Reasoning; Deletes Major Additions, Remands Rs. 44.71 Lakh Loan Issue

The ITAT Bangalore has delivered its judgement on an appeal filed by Mrs. Channamma Rachappa Saradagi against the Income Tax Department, challenging an order dated August 29, 2025, passed by the CIT(A)/NFAC Delhi. The case is related to the Assessment Year 2022-23.

The impugned order had dismissed the assessee’s appeal filed challenging an assessment order dated March 22, 2024, passed by the Income Tax Authorities under section 143 (3) read with section 144B of the Income Tax Act, 1961.

The assessee filed its income tax return (ITR) for the year in consideration, declaring the total income at Rs. 419,470. The Assessing Officer (AO) chose the return for scrutiny. The AO completed the assessment, making three different additions to the assessee’s income: Rs. 1.45 crore under Section 68 towards unsecured loans, Rs. 2.21 lakh disallowance of interest under Section 36(1)(iii), and Rs. 12.09 lakh disallowance of salary expenses under Section 37(1). The aggrieved assessee filed an appeal before the ITAT Bangalore.

The Tribunal observed that most of the unsecured loans were opening balances belonging to earlier years and were brought forward; none belonged to the year in consideration, except in one case involving Rachappa Saradagi, where fresh transactions required verification. Therefore, the Tribunal deleted the addition of Rs. 1.43 crore under Section 68 except to the extent of Rs. 44.71 lakh in the case of Rachappa Saradagi, which was sent back to the AO for verification.

The next issue concerned the disallowance of interest expenditure of Rs. 2.21 lakh, being interest expenditure on a gold loan and an MSME loan obtained by the assessee. The tribunal observed that the loans were taken in the business name and used for business purposes. The tribunal could not find any evidence proving that the loans were taken for personal use, hence deleting the impugned disallowance.

The next issue relates to the Rs. 12.09 lakh disallowance of salary expenditure. The Tribunal found that the assessee had proven the source of payments to a manpower contractor and staff with supporting documents, including bills, GST details, TDS records, and bank payments. Hence, deleted the impugned disallowance.

Based on the aforesaid findings, the tribunal noted that the CIT(A) did not properly examine the case, and the impugned order lacked proper reasoning. In conclusion, the appeal was partly allowed.