ITAT Grants Major Relief to PNB Housing Finance in Demonetisation Deposits, CSR Deduction and Cash EMI Cases

May 29, 2026 : The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has granted substantial relief to PNB Housing Finance Ltd. in a series of income tax appeals involving demonetisation-era cash deposits, Corporate Social Responsibility (CSR) expenditure deductions, interest income from substandard assets, and penalties related to cash collection of loan instalments. The tribunal partly allowed four appeals and fully allowed one appeal filed by the housing finance company against orders passed by the Income Tax Department for Assessment Years 2017-18 to 2020-21.

The decision was delivered by a bench comprising Judicial Member Satbeer Singh Godara and Accountant Member Naveen Chandra while adjudicating five appeals filed by PNB Housing Finance against assessments and penalties imposed under various provisions of the Income Tax Act, 1961. The appeals involved issues arising from demonetisation cash deposits, denial of CSR-related deductions under Section 80G, treatment of interest income from substandard loan assets, and penalties under Sections 269ST and 271DA relating to cash receipts.

Relief on Demonetisation Cash Deposits

One of the key disputes concerned the addition of ₹1.91 crore under Section 68 of the Income Tax Act, which deals with unexplained cash credits. The tax department had treated cash deposits received by the company from customers during the demonetisation period as unexplained cash credits.

PNB Housing Finance argued that the deposits represented repayments made by its regular loan customers in the ordinary course of business. The company maintained that it had adequately explained the source and nature of the deposits and that the transactions were reflected in its books of account.

The tribunal noted that there was no dispute regarding the nature of the company’s business as a housing finance institution or regarding the existence of the customers whose details were recorded in its books. Taking a balanced view, the tribunal held that a lump-sum addition of only ₹2 lakh would meet the ends of justice and significantly reduced the addition originally made by the tax authorities.

The bench clarified that this relief was based on the specific facts of the case and should not be treated as a precedent. The tribunal also directed the Assessing Officer to compute tax under the normal provisions of the Income Tax Act instead of Section 115BBE, which prescribes a higher tax rate for certain unexplained income.

Interest Income from Substandard Assets Sent Back for Fresh Examination

The company also challenged additions relating to interest income accrued on substandard assets amounting to more than ₹5.32 crore for Assessment Year 2017-18 and ₹7.65 crore for Assessment Year 2018-19.

The tax authorities had rejected the company’s claim due to the alleged failure to provide complete details regarding the relevant loan accounts, recoveries, and reconciliations.

Recognising the nationwide operations and extensive branch network of PNB Housing Finance, the tribunal observed that communication gaps and unintentional errors could not be completely ruled out. Consequently, the matter was remanded to the Assessing Officer for fresh adjudication.

The tribunal directed the company to furnish all necessary records and evidence within three effective opportunities, warning that failure to do so would automatically nullify the remand relief granted by the tribunal.

ITAT Upholds CSR Deduction Under Section 80G

In another significant finding, the tribunal ruled in favour of PNB Housing Finance on the issue of deduction under Section 80G for CSR expenditure amounting to ₹5.35 crore.

The Income Tax Department had denied the deduction on the ground that CSR expenditure mandated under Section 135 of the Companies Act, 2013 could not be treated as a voluntary charitable donation. The department relied on Explanation 2 to Section 37(1), which bars CSR expenditure from being claimed as a business deduction.

However, the tribunal relied on its earlier decisions, including the ruling in Cheil India Pvt. Ltd. v. DCIT, and held that disallowance under Section 37(1) does not automatically prohibit a claim under Section 80G.

Explaining the legal distinction, the tribunal observed that CSR expenditure remains part of the assessee’s total income and may qualify for deduction under Chapter VI-A if it satisfies the conditions prescribed under Section 80G. The bench accepted the company’s claim and overturned the departmental disallowance.

The ruling reinforces a growing line of tribunal decisions recognising that donations made as part of CSR obligations may still qualify for deduction under Section 80G, provided statutory conditions are fulfilled.

Penalty of ₹3.36 Crore for Cash EMI Collections Deleted

Perhaps the most significant relief came in the appeal challenging a penalty of ₹3.36 crore imposed under Section 271DA for alleged violation of Section 269ST.

Section 269ST prohibits receipt of ₹2 lakh or more in cash in certain circumstances, while Section 271DA provides for an equivalent penalty for violations.

The tax department alleged that PNB Housing Finance had accepted loan instalments in cash from customers in breach of the statutory limit.

The tribunal examined the nature of the transactions and found that the cash receipts represented Equated Monthly Instalments (EMIs) paid by existing borrowers against housing loans already disbursed by the company.

Considering the facts and the explanations offered by the company, the bench held that there were sufficient and genuine reasons justifying the cash repayments. It also referred to the Explanatory Memorandum to the Finance Act, 2017 and CBDT Circular No. 2/2018, which recognise that mitigating circumstances may constitute a valid defence against such penalties.

The tribunal concluded that PNB Housing Finance had successfully established “cogent and sufficient reason” for the transactions and therefore deleted the entire penalty.

Tribunal’s Final Outcome

For Assessment Years 2019-20 and 2020-21, the tribunal followed its earlier findings and allowed the company’s claims relating to Section 80G deductions. Certain issues relating to dividend distribution tax, dividend income adjustments, TDS credits and consequential interest had already been remanded by the Commissioner of Income Tax (Appeals), and the company chose not to press those grounds.

As a result, the tribunal partly allowed the appeals relating to Assessment Years 2017-18, 2018-19, 2019-20 and 2020-21, while fully allowing the penalty appeal concerning the alleged violation of cash transaction provisions. The ruling provides important guidance for housing finance companies, NBFCs, and corporate taxpayers on demonetisation-related deposits, CSR deductions and the applicability of penalties for cash loan repayments.

Case Title: PNB Housing Finance Ltd. v. DCIT
Forum: Income Tax Appellate Tribunal, Delhi Bench
Coram: Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member)
Decision Date: May 29, 2026