Unsecured Loan Additions Deleted upon Proving Source

Unsecured Loan Additions Deleted upon Proving Source and Transfer Pricing Issues Remanded for Fresh Verification

Issue

Whether an addition under Section 68 can be sustained when the assessee provides comprehensive proof of the lender’s identity, creditworthiness, and source of funds.
Whether the Transfer Pricing Officer (TPO) must make functional adjustments to comparable margins (for sales commission and freight) to ensure a fair comparison under the Resale Price Method (RPM).
Whether a TPO can arbitrarily change the tested party and pricing method without following Dispute Resolution Panel (DRP) directions or considering economic factors like COVID-19.
Whether a transfer pricing adjustment can be made for interest on outstanding receivables from Associated Enterprises (AEs) if the company does not charge interest from unrelated customers.

Facts

Unsecured Loan: For the Assessment Year (A.Y.) 2020-21, the assessee-company received an unsecured loan from its director. The Assessing Officer (AO) treated it as an unexplained cash credit under Section 68, questioning the source and the timing of its accounting.
TP Adjustment (A.Y. 2020-21): The assessee imported coal from its AE and benchmarked the transaction using the RPM. The TPO recomputed the margins of comparable companies without adjusting for sales commission and freight/port clearance charges, which had been reduced from the assessee’s own margins.
TP Adjustment (A.Y. 2021-22): The assessee benchmarked its coal imports using its foreign AE as the tested party under the RPM. The TPO rejected this framework, treated the assessee as the tested party, applied the Transactional Net Margin Method (TNMM), and ignored DRP directions regarding COVID-19 and stock adjustments.
Interest on Receivables: The TPO made an upward adjustment by imputing interest on outstanding receivables from AEs for both assessment years. The assessee asserted a uniform business policy of not charging interest from unrelated third-party customers for delayed payments.

Decision

Section 68 Addition Deleted: The assessee produced robust documentary evidence establishing the identity, genuineness, creditworthiness, and the “source of the source” of the funds. Since the tax assessments of the lender and the source entities were completed with no adverse findings, the addition was deleted.
Adjustment to Comparables Ordered: The TPO was directed to recompute the Arm’s Length Price (ALP) by recalculating the profit margins of the comparable companies after making appropriate adjustments for sales commission and freight/port clearance charges.
Tested Party Framework Remanded: The transfer pricing determination for A.Y. 2021-22 was remanded back for a fresh look. The TPO must comply with DRP guidelines and address the assessee’s objections regarding the tested party, chosen comparables, and the economic disruption caused by COVID-19.
Imputed Interest Remanded for Verification: The issue of interest on AE receivables was restored to the AO/TPO for factual verification. The court ruled that if the assessee is found to have not charged interest from unrelated customers, no transfer pricing adjustment can be legally imposed on AE receivables.

Key Takeaways

Discharge of Section 68 Onus: Once an assessee maps out the entire chain of funds (“source of the source”) and shows that the lending entities are fully assessed to tax without any adverse remarks, the primary burden of proof shifts back, and the revenue cannot make ad-hoc additions.
Parity in Transfer Pricing Benchmarking: To secure a valid comparison under any transfer pricing methodology, the TPO cannot compare “apples to oranges.” If specific operational expenses are stripped from the assessee’s margins, identical economic adjustments must be performed on the target comparables.
No Imputed Interest on AEs if Third Parties Are Exempt: Imputing national interest on delayed receivables from international group companies is legally impermissible if the taxpayer proves that it maintains an identical, non-interest-bearing commercial policy with completely unrelated market buyers.

IN THE ITAT DELHI BENCH ‘I’

Nivaya Resources (P.) Ltd.

Deputy Commissioner of Income-tax

ANUBHAV SHARMA, Judicial Member
and Naveen Chandra, Accountant Member

IT Appeal Nos. 4341 & 6052 (Delhi) of 2024
[Assessment years 2020-21 & 2021-22]

MAY 29, 2026

Dhruv Goel, AR for the Appellant. Nikhil Govila, CIT (DR) for the Respondent.

ORDER

Naveen Chandra, Accountant Member. – The above captioned appeals are preferred by the assessee against the orders dated 31.07.2024 for AY 2020-21 and 29.10.2024 for AY 2021-22, passed by Assistant Commissioner Of Income Tax DC/ACIT Cent Karnal (hereinafter referred to as ‘ld. AO) passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) in pursuance of directions of the ld. Dispute Resolution Panel-1 (in short ‘ld. DRP’) dated 03.05.2024 and 26.06.2024 pertaining to Assessment Years 2020-21 and 2021-22.

2. The assessee has raised following grounds of appeal in ITA No.4341/Del/2024:-

“ISSUE NO.1: RELATING TO TRANSFER PRICING ADJUSTMENTS OF RS. 15,16,05,971/- ON ACCOUNT OF IMPORT OF COAL

1.1 That the learned AO r.w Hon’ble DRP directions u/s 144C r.w. TPO Order u/s 92CA has erred in law and on facts in making transfer pricing adjustments of Rs. 15,16,05,971/- on account of international transaction of import of coal from associated enterprise. (Page 42 of AO’s order and page 2 of DRP Order) (Tax effect = Rs. 3,81,59,223/-)

1.2 That the learned AO has erred in making transfer pricing adjustments of Rs. 15,16,05,971/- ignoring that the TPO had committed grave computational and logical errors while arriving at the adjustment in Order u/s 92CA dated 31.05.2023. 1

.3 That the learned AO as well as the Hon’ble DRP have erred in law and on facts in making/confirming transfer pricing adjustments without considering assessee’s objections and submissions making the order contrary to principles of natural justice.

1.4 That the Hon’ble DRP has erred in law and on facts in not adjudicating upon the objections filed by the assessee on account of transfer pricing adjustments of Rs 15,18,66,950/-

ISSUE NO.2: RELATING TO TRANSFER PRICING ADJUSTMENTS OF RS. 260979/- ON INTEREST ON RECEIVABLES

2. That the learned AO r.w Honble DRP directions u/s 144C and TPO Order u/s 92CA has erred in law and on facts in making transfer pricing adjustments of Rs 260979/- on account of unearned interest on outstanding trade receivables from associated enterprises.

(Page 56 of AO’s order and page 2 of DRP Order)

(Tax effect= Rs. 65688/-)

ISSUE NO.3: RELATING TO ADDITIONS OF UNSECURED LOAN OF RS. 25,50,00,000/- AS UNEXPLAINED INCOME U/S 68

3.1 That the learned AO read with the directions of Hon’ble DRP u/s 144C erred in law and on facts in assessing unsecured loan of Rs 25,50,00,000/- as unexplained income u/s 68 r.w.s. 115BBE and making additions of such amount to the total income.

(Page 78 of AO’s order and page 5 of DRP Order)

(Tax effect = Rs. 19,89,00,000/-)

3.2 That the learned AO as well as the Hon’ble DRP have erred in assessing the unsecured loan of Rs. 25,50,00,000/-as unexplained income u/s 68 solely on basis of suspicions and conjectures.

ISSUE NO.4: RELATING TO DISALLOWANCE OF RS.18,44,509/- ON ACCOUNT OF EDUCATION CESS

4.1 That the learned AO read with the directions of Hon’ble DRP u/s 144C erred in law and on facts in making disallowance of Rs. 18,44,509/- being education cess on income tax whereas assessee had already filed form 69 and agreed to voluntarily pay tax on the same.

(Page 61 of AO’s order and page 2 of DRP Order)

(Tax effect = Rs. 4,64,263/-)

4.2 That the learned AO read with the directions of Hon’ble DRP u/s 144C erred in law and on facts in initiating penalty proceedings u/s 270A on account of disallowance of education cess of Rs. 18,44,509/- ignoring the provisions of section 155(18) of the Act.

4.3 That notwithstanding the above, Hon’ble DRP has erred in law and on facts in not adjudicating upon the objections filed by assessee against disallowance of Rs. 18,44,509/- and in not passing a speaking order on the subject matter.

3. The assessee has raised following grounds of appeal in ITA No.6052/Del/2024:-

1.1 That the learned AO r.w. Hon’ble DRP directions u/s 144C r.w. TPO Order u/s 92CA has erred in law and on facts in making transfer pricing adjustments of Rs. 5,37,83,221/-on account of international transaction of import of coal from associated enterprise.

1.2 That the learned AO has erred in making transfer pricing adjustments of Rs. 5,37.83,221/- without adhering to the DRP directions which called for reverification of the margins of comparable companies and to pass a speaking order regarding assessee’s contention for each comparable.

1.3 That the learned AO r.w. order of TPO Order u/s 92CA has erred in computing the transfer pricing adjustment of Rs.5,37,83,221/- without providing detailed calculation or basis of such adjustment despite multiple requests in this regard by assessee.

1.4 That the learned AO/TO as well as the Hon’ble DRP have erred in law and on facts in rejecting the resale price method adopted by assessed by taking the foreign A as tested party and Instead adopting Transactional net margin method by taking assessee as tested party for arriving at the arm’s length price.

1.5 That the leamed AO/TPO as well as the Hon’ble DRP have erred in law and on facts in considering the companies SG Projects Pvt Lid and Cosmol Energy Pvt Lid as comparable to assessee.

1.6 That the Iearned AQ/TPO as well as the Hon’ble DRP have erred in law and on facts in not providing economic adjustment from the Median Net Margin owing to unique facts of assessee’s case for AY 2021-22.

1.7 That the leamed AO/TPO as well as Hon’ble DRP have erred in law and on facts in not restricting the transfer pricing adjustment to only the purchases made during the year from AB and instead applying the same to opening stock held by assessee.

2. That the learned AO r.w Hon’ble DRP directions u/s 144C has erred in law and on facts in making transfer pricing adjustments of Rs 17,79,236l- on account of unearned interest on outstanding trade receivables from associated enterprises,

3. That the assessee craves leave to add/amend/alter or revise the above grounds of appeal during the pendency of the matter before the Hon’ble Bench.

4. There are four issues in dispute for Assessment Year 2020-21 and two issues in dispute for Assessment Year 2021-22. The two issues being common i.e. TP adjustment from import of coal from Associated Enterprises (in short) and TP adjustment on interest on receivables due from AE are common.

5. We first take upon the appeal for Assessment Year 2020-21. Ground no.3.1 to 3.2 is in respect of unsecured loan of Rs.25.05 Crore from Ayush Goel added in the account of the assessee under section 68 of the Act. The ld counsel of the assessee submitted that an unsecured loan of Rs 25.5 crore from director Ayush Goel (PAN ARKPG0785H) was credited in books of company on 31.3.2020 in form of 11 different cheques dated 31.3.2020 (refer ledger at pg 230). However, cheques were not encashed in AY 2020-21 and instead entire sum was received next year in May-June 2020 (refer chart at pg 227). It was stated that Ayush Goel advanced this sum to the company from his HDFC Bank saving a/c after making account transfer from his other saving a/c with IndusInd bank. Source of funds in his IndusInd bank account was equivalent amount received from his relative Anita Goel (PAN AAUPG7339Q). Source of funds in hands of Anita Goel was equivalent amount received by her from husband Sudhir Goel (PAN ABJPG7522M) and son Prerit Goel (PAN ABJPG7994H). Both Sudhir and Prerit Goel had advanced money to Anita Goel out of their respective salary incomes.

6. The ld AR further submitted Assessment order u/s 143(3) in case of lender (Ayush), source of lender (Anita) & source of source of lender (Sudhir) which have been completed u/s 143(3) by same AO for both AY 2020-21 & AY 2021-22 and no adverse observation were made therein. It was stated that following documentary evidence has been filed by assessee before AO & DRP on this issue:

PERSON	DOCUMENTARY EVIDENCE
AYUSH GOEL (LENDER AND PRIMARY SOURCE)	1. Detailed confirmation at pg 227-229 2. Bank statement of assessee at pg 231-242 3. ITR of Ayush Goel pg 243 4. Bank statement of Ayush Goel HDFC Bank at Pg 244-246 5. Bank statement of Ayush Goel Indusind bank at pg 247-250 6. Assessment order Ayush Goel for AY 2020-21 dt 30.9.22 at pg 251-252 7. Assessment order Ayush Goel for AY 2021-22 dt 8.6.2023 at pg 253-309
ANITA GOEL (SOURCE OF SOURCE AYUSH GOEL)	8. Detailed confirmation at pg 310-312 9. ITR of Anita Goel for AY 2020-21 and AY 2021-22 at pg 313-314 10. Bank statement of Anita Goel at pg 315-324 11. Assessment order of Anita Goel for AY 2020-21 at pg 1-3 of PBK-2 12. Assessment order of Anita Goel for AY 2021-22 at pg 325-327
SUDHIR GOEL (SOURCE OF ANITA GOEL I.E. SOURCE OF SOURCE OF SOURCE OF LOAN RECEIVED BY COMPANY)	13. Detailed confirmation at pg 352 14. ITR of Sudhir Goel for AY 2021-22 at pg 353 15. Assessment order of Sudhir Goel for AY 2021-22 at pg 354-356 16. Assessment order of Sudhir Goel for AY 2020-21 at Pg 4-6 of PBK-2 17. Salary certificate from employer of Sudhir Goel regarding salary paid to him (source of funds paid by him to Anita Goel) at pg 357 18. Salary account of Sudhir Goel in books of employer at pg 359 19. Money transfer receipts regarding funds transferred by Sudhir Goel to Anita Goel at pg 361-374
PRERIT GOEL (SOURCE OF ANITA GOEL I.E. SOURCE OF SOURCE OF SOURCE OF LOAN RECEIVED BY COMPANY)	20. Detailed confirmation at pge 328-329 21. ITR of Prerit Goel for AY 2020-21 and AY 2021-22 22. Salary certificate from employer of Prerit Goel regarding salary paid to him (source of funds paid by him to Anita Goel) at pg 358 23. Salary account of Prerit Goel in books of employer at pg 360 24. Money transfer receipts regarding funds transferred by Prerit Goel to Anita Goel at pg 375-394

7. The Id AR placed reliance on

ITAT Delhi dated 19.4.2024 in Devki Nandan Maheshwari v. ACIT (Delhi – Trib.)/IT Appeal No. 7239/DEL/2019 (page 7-9 PBK-2)

ITAT Mumbai dated 7.1.2025 in Dy. CIT v. Supreme Holdings and Hospitality (India) Ltd. (Mumbai – Trib.)/IT Appeal No. 1437/MUM/2024 (page 10-17 PBK-2)

Mall Hotel Ltd. v. CIT IT Appeal No. 2688/DEL/2014 dated 31.5.2022 (page 18-23 PBK-2)

Acres Buildwell (P.) Ltd. v. ITO IT Appeal No. 2191/DEL/2022 dt 22.5.2024 (Page 24-29 PBK-2)

Dy. CIT v. Glass Tech India IT Appeal No. 6241/DEL/2017 dt 25.3.2022 (Page 30-33 PBK-2)

ITO v. Zexus Air Services (P.) Ltd. 189 ITD 434/88 ITR(T) 1 (Delhi – Trib.)/IT Appeal No. 2608/DEL/2018 dt 23.4.2021 (Page 34-45 PBK-2)

Punjab & Haryana HC in CIT v. Jawahar Lal Oswal (Punjab & Haryana)/[2016] 382 ITR 453 (Punjab & Haryana) (Page 46-56 PBK-2)

Supreme Court in Umacharan Shaw & Bros v. CIT [1959] 37 ITR 271 (SC) (Page 57-59 PBK-2)

8. Per contra, the Id DR relied on the AO’s order.

9. We have heard the rival submissions and have perused the materials on record. We find that the addition by DRP and AO is based on suspicion for routing of transaction through Ayush Goel instead of directly taking loan from Anita Goel and accounting for the loan in AY 2020-21 despite receiving funds in next year. We however find that the assessee has furnished documentary evidence of the primary source i.e. Ayush Goel, the secondary source i.e. Anita Goyal. We also find that the assessee has given the source of Anita Goyal i.e. the details of documents of Sudhir Goyal who is the source of Anita Goyal as well as Prerit Goyal who is also the source of Anita Goyal. Having all these documents and explanation before him, the AO did not raise any objections or made any enquiry with regard to the genuineness or creditworthiness of the source, the source of source, source of source of loan received by the company. Further, assessment for AY 2020-21 and AY 2021-22 have been completed u/s 143(3) in cases of Ayush Goel (lender), Anita Goel and Sudhir Goel (source of funds of lender) & no adverse inference has been drawn regarding these transactions after examination. We therefore find that the assessee has discharged its onus cast upon it under section 68 to establish the identity, genuineness and creditworthiness of the lender and the addition u/s 68 is not warranted and accordingly directed to be deleted. Accordingly, the ground of appeal no. 3.1 and 3.2 are allowed.

10. With regard to issue no.2 of transfer pricing adjustment on import of coal from Associated Enterprises as available in ground no.1.1 to 1.4, the assessee states that there is incorrect margin calculation by the TPO. The ld AR stated that the assessee is engaged in business of trading of coal and oils and imported coal of Rs. 246,06,34,712/- from its associated enterprise. As per TP Study (Pg 150-194), assessee computed ALP as per Resale Price Method by taking Profit/Sales as tested parameter, selected 6 comparable companies and concluded that assessee’s Profit/Sales of 4.01% was within acceptable range of -1.12% to 4.07% and thus no TP Adjustment was made by assessee. It is submitted that the TPO proposed TP Adjustment of Rs. 15,16,05,971/- by rejecting 1 of the 6 comparables of assessee; added 5 comparables of his own i.e. taken total 10 comparables v. 6 by assessee; Recalculated GP margins of all 10 companies; Determined Arms’ length GP/Sales at 4.46% to 15.43% and Median at 10.23% and Median of 10.23% held as Arms length GP/Sales as assessee’s margin of 4.01% outside range.

11. The ld AR vehemently stated that the TPO took incorrect margin calculation and assessee margin was within acceptable range. It was submitted that Assessee’s GP/Sales of 4.01% was calculated after adjusting sales commission and freight/port clearance charges. However, GP/Sales of other 10 comparable companies had been calculated by TPO without adjusting for such transportation, clearing, and selling expenses such as commission and instead only COGS has been reduced by TPO. The ld AR submitted that if such correction is made to GP/Sales of comparable 9 companies, Arms length TP Range would be 2.5% to 5.33% and assessee’s margin of 4.01% would be within acceptable range (refer detailed calculation at Page 220-221):

12. Per Contra, the ld. DR relied upon the order of the AO.

13. We have heard rival submissions and perused the material available on record. We find that comparison made by the TPO is without adjustment of expenses such as sales commission and freight/port clearance charges. In view of the same, we are of the view that the issue may be set-aside to the AO who may forward it to the TPO for working out the Arm’s Length Price by calculating the margins of the comparables afresh by comparing the assessee’s GP sales after adjusting for sales commission and freight/port clearance charges. The TPO is directed to compare the company’s result in accordance with above directions by making similar adjustment of sales commission freight/port clearance charges and thereafter ascertaining the Arm’s Length Price range and if the same is within the acceptable range, no adjustment is required to be made. Ground 1 and its sub-grounds is decided on aforesaid terms and allowed for statistical purpose.

14. The 3rd issue is with regard to TP adjustment on account of interest on receivables placed at ground no.2. The ld. AR submitted that assessee had certain receivables from foreign AEs which have been treated as separate international transaction. The TPO has considered 30 days interest free period and thereafter calculated the interest on such receivables at LIBOR+4%. This has been recalculated by the DRP in AY 2021-22, wherein the DRP has allowed interest free period of 90 days. It is stated that the assessee has not charged any interest from any other unrelated customers and therefore no interest should be charged by the assessee from its foreign AEs and has relied upon the decision of the Hon’ble Bombay High Court in case of CIT-9 v. Indo American Jewellery Ltd. (Bombay)/IT Appeal (L) No.1053 of 2012 order dated 08.01.2013 and Honble Delhi ITAT in case of Global Logic India Ltd. v. Dy. CIT, Circle 12(1), New Delhi (Delhi – Trib.)/IT Appeal No.1104/Del./2015 and Kadimi Tool Manufacturing Co. (P.) Ltd. v. Dy. CIT, Circle- 5 (1), New Delhi (Delhi – Trib.)/(IT Appeal No.7068/Del/2014) and Motherson Sumi Infotech & Designs Ltd. v. Dy. CIT, Circle-17(1), Central Revenue, New Delhi (Delhi – Trib.)/(IT Appeal No.6331/Del./2016) settled the view that interest from AE shall not be assessed as income if no interest was charged by assessee from any other unrelated customer also.

15. Per Contra, the ld. DR relied upon the order of the AO.

16. We find that the assessee argument is that it is not charging any interest from receivables from any other unrelated customers, hence it should not be made to charge interest from its AEs. We are of the considered view from the facts available on record, the factum of assessee charging/not charging interest from any other customer is not established. Therefore, the said issue is set-aside to the AO for the limited purpose for verification whether any interest has been charged by the assessee from any other unrelated customers. In case it is found that interest has not been charged from any other unrelated customers, following the decisions cited above, we direct the AO/TPO that no interest be charged from receivables from foreign AEs of the assessee. Ground 2 is allowed for statistical purposes.

17. Issue no.4 with regard to initiation of penalty u/s 270A on disallowed education cess is consequential in nature.

18. We now take up the AY 2021-22. The Grounds in the Assessment Year 2021-22 are (Gr 1.1-1.7) TP Adjustment of Rs. 5,37,83,221/- on import of coal from associated enterprise and TP Adjustment of Rs. 24,96,025/- interest on receivables due from associated enterprises (Ground 2).

19. The assessee filed the Original ITR on 14.03.2022 declaring loss of Rs. 29,34,70,039/-. It is stated by the ld. AR that the assessee had incurred loss because of Covid period and there were peculiar facts during the year. In the instant year, the Assessee company had engaged in import of 62000MT Indoensian Steam Coal from the AE located in UAE for Rs. 22,07,10,853/- (purchase invoice at Pg 112). The coal was shipped directly from Indonesian supplier to assessee and AE only acted as a merchant trader with limited risk and had only born the shipping cost (AE’s purchase invoice at pg 115 and freight invoice at Page 110111).

20. During the year, the Assessee’s operating loss from trading of coal was 9.1%. Since AE was limited risk distributor, it was taken as tested party and ALP was determined as per Resale price method. AE earned GP on sales of 4.52% on sale of 62000MT Coal to assessee while AE made GP of 13.17% on sale of 55000MT coal to an unrelated 3^rd Indian customer (summary at page 107). In both cases, coal was directly shipped from Indonesia to India and AE has borne only freight cost. The AE’s sale, purchase and freight payments are supported by invoices produced at Page 108-115. Upon TP reference, TPO rejected the assessee’s ALP computed and instead recomputed the ALP by taking assessee as tested party, applied TNMM and proposed adjustments of Rs. 5,37,83,221/-. Before DRP, assessee objected to such adjustment on the grounds of Incorrect rejection of Foreign AE as tested party & rejection of RPM as Most appropriate method; Incorrect application of TNMM as Most appropriate method; Incorrect adoption of 2 of the 8 comparables for determining ALP; Incorrect calculation of GP/sales at 11.95% v. 2.73% by assessee and Incorrect application of TP Adjustment.

21. At the outset, the ld AR contested the order as the TPO failed to adhere to the DRP directions which mandated TPO to consider assessee’s objections and to collect details of basis for calculation of ALP and to then pass speaking order on computation of GP/Sales of each comparable.

22. Per Contra, the ld. DR relied on the orders of the AO.

23. We have heard the rival submission and we find that the AO/TPO has not followed the directions of the DRP for adjustment in ALP considering the peculiar facts of the case and facts of incurring loss of the assessee due to Covid period. The issue of adjustment of ALP is accordingly set-aside to the file of AO/TPO to adjudicate the issue afresh as per the direction of the DRP. While adjudicating afresh, the AO shall consider the resale price method and foreign AEs as tested party; exclude comparables as mandated by the DRP, consider the assessee’s plea for economic adjustment on account Covid-19 and financial difficulty as well as TP adjustment made on sales out of opening stock since purchase of last year has already been subjected to TP adjustment in AY 2020-21. The TPO/AO is directed to give fair hearing, collect relevant materials and workings from assessee, provide his own workings and thereafter pass speaking order while computing the ALP. The ground is disposed accordingly.

24. The ground regarding adjustment of Rs 24,96,025/- interest on receivables, is decided in accordance with decision taken in ground 2 for AY 2020-21 herein above.

25. In the result, appeals of the assessee ITA Nos.4341 is partly allowed while that of 6052/Del/2025 is allowed for statistical purpose.