Gross Interest Can’t Be Taxed In Hands Of Mere Facilitator: ITAT Restricts Addition To TDS Amount

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that where an assessee merely acted as a facilitator in arranging loans for a company, the gross interest amount paid directly by the company to lenders could not be taxed in the assessee’s hands. The bench of Keshav Dubey (Judicial Member) and Waseem Ahmed (Accountant Member) sustained addition to the extent of the TDS credit claimed by the assessee, observing that the assessee failed to establish that the TDS benefit had been passed on to the actual lenders. As per the facts recorded by the Tribunal, the assessee was the Managing Director of Dustven Private Limited. The company allegedly required funds and the assessee arranged borrowings amounting to Rs. 1.77 crore from several lenders. The loans were directly credited by the lenders into the bank account of the company. Interest amounting to Rs. 20.49 lakh was debited by the company and TDS of Rs. 2.04 lakh was deducted in the name of the assessee. The assessee disclosed the interest income under the head “Income from Other Sources” and simultaneously claimed deduction of the corresponding interest expenditure under Section 57 of the Income Tax Act. However, during assessment proceedings, the Assessing Officer disallowed the deduction on the ground that the assessee failed to substantiate actual payment of interest to the lenders. The entire amount of Rs. 20.49 lakh was therefore added to the assessee’s income. In an earlier round of litigation, the ITAT had restored the matter to the Assessing Officer for fresh examination. The Tribunal had observed that once the assessee claimed TDS credit and offered corresponding interest income, the onus was upon him to establish how the payments were made to the lenders and whether the benefit of TDS had actually reached them. During the remand proceedings, the Assessing Officer issued notices seeking details regarding the flow of funds, payment of interest, and supporting documentary evidence. The assessee reiterated that he had merely arranged the loans and that the company itself had directly paid interest to the lenders. Certain confirmation letters from lenders were also furnished. However, the Assessing Officer held that the assessee had still failed to establish actual payment of interest or the transfer of the TDS component to the lenders. Consequently, the deduction under Section 57 was again disallowed. The CIT(A) also confirmed the addition, observing that mere confirmations without bank trails, vouchers, or evidence of statutory compliance could not discharge the burden placed upon the assessee. Before the Tribunal, the assessee argued that he had not earned any real income since the funds were directly advanced to the company and the company had directly paid interest to the lenders. It was submitted that TDS had been deducted in his name only for procedural reasons and therefore the gross interest could not be taxed in his hands. Alternatively, the assessee contended that if any addition was to survive, it should be restricted only to the TDS component. The Revenue, on the other hand, argued that the assessee himself had claimed TDS credit and disclosed the interest income in the return. Therefore, according to the Department, the income had rightly accrued in the assessee’s hands. The Revenue also contended that despite clear directions in the earlier ITAT order, the assessee failed to produce evidence regarding actual payment to lenders or transfer of the TDS benefit. After considering the rival submissions, the Tribunal observed that the material on record clearly demonstrated that the funds had been directly advanced by third-party lenders to the company and that the company itself had directly paid interest to such lenders. Therefore, the Tribunal held that the assessee merely acted as a facilitator and the “real income” belonged to the lenders. The Bench accordingly held that the gross interest amount of Rs. 20.49 lakh could not be brought to tax in the assessee’s hands. However, the Tribunal distinguished the issue relating to TDS credit. It noted that once TDS of Rs. 2.04 lakh had been deducted in the assessee’s name and credit thereof had been claimed by him, the burden squarely rested upon him to prove that the corresponding TDS benefit had been passed on to the actual recipients of income. Since no documentary evidence such as bank trails, reconciliations, or proof of adjustment in favour of the lenders was produced, the Tribunal held that the TDS component remained unexplained in the assessee’s hands. Accordingly, the addition was sustained only to the extent of Rs. 2,04,950 being the TDS amount, while the balance addition was deleted. The Tribunal thus partly allowed the appeal of the assessee. Case Details Case Title: Bharath Bail Versus DCIT Citation: JURISHOUR-1224-ITA-2026(BANG) Case No.: ITA No.118/Bang/2026 Date: 17.04.2026 Counsel For Appellant: Chandrashekar, Advocate Counsel For Respondent: Ganesh R Ghale Click Here To Read Order Read More: S. 68 First Proviso Applies Only To Companies, Not Partnership Firms: ITAT

Gross Interest Can’t Be Taxed In Hands Of Mere Facilitator: ITAT Restricts Addition To TDS Amount

Membership Required

Latest articles

JURISHOUR | TAX LAW DAILY BULLETIN : 10 JULY, 2026

ITR Filing for Senior Citizens AY 2026-27

CSIR Promotion Dispute: Supreme Court Rejects Judicial Formula for Averaging Performance Scores

CBI-DRI Joint Operation Busts Interstate Wildlife Trafficking Syndicate; 53 Protected Animals Rescued, Six Arrested

More like this

JURISHOUR | TAX LAW DAILY BULLETIN : 10 JULY, 2026

ITR Filing for Senior Citizens AY 2026-27

CSIR Promotion Dispute: Supreme Court Rejects Judicial Formula for Averaging Performance Scores

About us

Company

Categories