In Income-tax Officer v. Aashna Developers (P.) Ltd. [2026] 186 taxmann.com 1073 (Ahmedabad – Trib.), the Income Tax Appellate Tribunal (ITAT), being the final fact-finding appellate authority, reiterated the settled legal position governing additions under section 68 of the Income-tax Act, 1961 (corresponding to section 102 of the Income-tax Act, 2025). The Tribunal highlighted on the settled law that such additions cannot be sustained merely on the basis of generalized investigation reports or suspicion once the assessee furnishes prima facie evidence establishing the identity, genuineness, and creditworthiness of the creditor. At the same time, where surrounding circumstances raise legitimate doubts regarding the true source of funds or the financial capacity of the creditor, the matter may warrant proper verification by the Assessing Officer.
In this case the assessee received an unsecured loan which has been considered as shell company loan by the Income Tax Officer who then begin the verification process u/s 131 and made an addition u/s 68 not being satisfied with the explanations provided by the assessee. While deleting the addition, the Commissioner of Income tax (Appeals) noted that the assessee had furnished extensive documentary evidence, including confirmations, bank statements, audited financial statements, income-tax returns of the lender, an affidavit of the lender’s director, and evidence of repayment of the loan along with interest after deduction of tax at source (TDS). It was further observed that the lender possessed substantial reserves and that no cash deposits had been made in its bank account immediately prior to the advancement of funds to the assessee.
The Income Tax Officer preferred an appeal before the Tribunal against the order of the Commissioner (Appeals).
After considering the submissions of both parties, the Tribunal however restored the matter to the Income Tax Officer for fresh adjudication. The Tribunal consciously refrained from expressing any opinion on the merits of the addition and observed that the issue requires deeper factual verification balancing both sets of circumstances emerging from the record.
For this purpose, it placed reliance on the following legal decisions:
- Dy. CIT v. Rohini Builders [2003] 127 Taxman 523/[2002] 256 ITR 360 (Guj.);
- CIT v. Ranchhod Jivabhai Nakhava [2012] 21 taxmann.com 159/208 Taxman 35 (Guj.); and
- Pr. CIT (Central) v. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48/262 Taxman 74/412 ITR 161 (SC).
Interestingly, in all three decisions relied upon by the Tribunal, the Courts and the Tribunal adjudicated the issue either in favour of or against the assessee on the basis of the explanations offered and the evidence available on record. None of these decisions contemplated or directed a further round of verification by the ITO.
For instance the Tribunal in dismissing the appeal of the revenue in Ragini Builders noted that because the assessee has furnished names and addresses of the alleged creditors and GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders, the burden shifts to the Department to establish the Revenue’s case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In this case six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. On such pointed facts and circumstances of the case the High Court dismissed the appeal of the revenue.
Also the Tribunal in Ranchhod Jivabhai Nakhava case set-aside the deletion made by the Assessing Officer because of an erroneous approach by wrongly shifting the burden again upon the assessee without verifying the Income Tax return of the creditors. Holding it as right decision the High Court further held that the position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officers. Not finding any merit in the Appeal of the revenue the High Court dismissed it.
Again the decision in NRA Iron & Steel (P.) Ltd. related to receipt of share capital/share premium credit where the Tribunal dismissed the appeal on ground that the assessee had discharged their primary onus to establish the identity and creditworthiness of the investors, especially when the investor companies had filed their returns and were being assessed. It is in the context of this case that the Supreme Court observed that the practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. In this case the field inquiries and survey revealed that the parties were non-existent and had no office at the address mentioned by the assessee. The Court held that in such scenario the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the Assessing Officer, failure of which, would justify addition of the said amount to the income of the assessee.
The principles governing additions under section 68 are now well settled and ordinarily permit adjudication either in favour of the assessee or the Revenue on the basis of the material already available on record. In Aashna Developers, the Assessing Officer had examined the lender’s financial capacity and bank statements, while the CIT(A) recorded findings regarding regular banking transactions, availability of funds, and the absence of cash deposits immediately preceding the advancement of the loan. In such circumstances, a remand merely because the Revenue seeks further verification or alleges inadequate inquiry as in this reported case may not be justified. In the right course in any such instance it is for the revenue to choose either section 147 course of reopening or revision under section 263.
Accordingly, it may be more appropriate for the final fact finding authority to render a definitive finding on the issue rather than initiate another cycle of litigation through remand proceedings. A final adjudication based on the existing record would better serve the principles of certainty, finality, and judicial economy in tax administration.