The Income Tax Appellate Tribunal set aside a Rs 5 crore addition under Section 68 of the Income-Tax Act, emphasizing that the assessee’s documentary proof of creditworthiness and full repayment within the same financial year discharged its onus and that the Assessing Officer must conduct independent enquiry before deeming income.
Background & Facts
The Dispute
The appellant, OMGL Refinery LLP, filed its return of income for Assessment Year 2023-24 on 21.10.2023, declaring total income of Rs 6,58,12,780. During scrutiny, the Assessing Officer issued a show-cause notice demanding proof of an unsecured loan of Rs 5,00,00,000 allegedly received from M/s Synergy Tradelink, whose declared income for the year was only Rs 11,57,230. The Assessing Officer added the loan amount as unexplained income under Section 68 and levied tax under Section 115BBE.
Key Facts
- Loan details: Unsecured loan of Rs 5,00,00,000 availed on 13.04.2022 and repaid in full by 08.06.2022 (repayments: Rs 1,95,50,000 on 21.04.2022, Rs 1,00,00,000 on 20.05.2022, balance Rs 2,04,50,000 on 08.06.2022).
- Lender’s financials: Audited accounts of Synergy Tradelink showed unsecured loans of Rs 60,03,28,391 as on 31.03.2023, indicating sufficient funds to advance the loan.
- Assessee’s submissions: Ledger confirmations (01.04.2022-31.03.2023), ITR acknowledgement of the lender for AY 2023-24, audited financial statements of the lender for FY 2022-23, and bank statements of the lender’s HDFC account (No. 00060340030743) covering April-June 2022.
- Revenue’s position: Argued that the lender’s meagre income rendered the loan “inherently doubtful” and that the assessee had not proved the lender’s creditworthiness or the commercial justification for an interest-free loan.
Procedural History
- 21.10.2023: Return of income filed by OMGL Refinery LLP.
- (Date not specified): Show-cause notice issued by the Assessing Officer.
- (Assessment order date not specified): Addition of Rs 5,00,00,000 under Section 68 and tax under Section 115BBE.
- 10.10.2025: Order of the Commissioner of Income Tax (Appeals) (CIT(A)) deleting the addition.
- 08.07.2026: Hearing of the present appeal before the Income Tax Appellate Tribunal, B Bench, Jaipur.
- 25.08.2026: Judgment pronounced by the Tribunal.
Relief Sought
The Revenue, as appellant, sought reinstatement of the addition of Rs 5,00,00,000 under Section 68 and the corresponding tax liability. The assessee, as respondent, sought confirmation of the deletion of the addition.
The Legal Issue
Whether, on the facts of the case, the addition of Rs 5 crore under Section 68 of the Income-Tax Act, 1961 is maintainable when the assessee has furnished documentary evidence of the lender’s creditworthiness and has repaid the loan in full within the same financial year, and consequently, whether the burden of proof shifts to the revenue to disprove the assessee’s explanation.
Arguments Presented
For the Appellant (Revenue)
- The revenue contended that the assessee failed to establish the lender’s genuine creditworthiness, pointing to the lender’s low declared income of Rs 11,57,230 as disproportionate to a Rs 5 crore unsecured loan.
- It argued that the Assessing Officer was correct in adding the amount under Section 68 because the loan was interest-free, short-term, and lacked any commercial justification.
- The revenue maintained that the onus to prove the nature and source of the credit rests on the assessee under Section 3 of the Act, and that the documents produced were insufficient without independent verification under Sections 133(6) or 131.
For the Respondent (Assessee)
- The assessee submitted comprehensive documentary evidence - ledger confirmations, bank statements, ITR acknowledgement, and audited accounts of the lender - establishing the lender’s capacity and the authenticity of the loan.
- It highlighted that the loan was repaid in full within two months, a fact undisputed by the revenue, and relied on several High Court and Supreme Court precedents that a repayment within the same FY defeats an addition under Section 68.
- The assessee argued that the Assessing Officer failed to exercise the statutory power to summon the lender or to seek further material, thereby shifting the burden back to the revenue, which it did not discharge.
The Court's Analysis
The Tribunal began by reiterating the statutory framework of Section 68, a deeming provision that shifts the initial onus to the revenue to raise a prima facie doubt, after which the assessee must prove the satisfactory nature of the transaction. The Tribunal quoted the Supreme Court’s pronouncement in Principal Commissioner of Income Tax v. Himachal Fibers Ltd. that “the onus, thereafter, shifts to the assessee to prove that the gift is genuine… If the assessee furnishes all relevant facts, the onus reverts to the revenue to prove the contrary.”
"The principle that governs a deeming provision is that the initial onus lies upon the revenue to raise a prima facie doubt on the basis of credible material. The onus, thereafter, shifts to the assessee to prove that the gift is genuine…"
The Tribunal observed that the assessee had complied with the three ingredients required to satisfy Section 68: (1) identity of the lender, (2) creditworthiness of the lender, and (3) genuineness of the transaction. The ledger confirmations, bank statements, and audited financials of Synergy Tradelink demonstrated the lender’s capacity to extend a Rs 5 crore unsecured loan. Moreover, the loan was repaid through banking channels on 21.04.2022, 20.05.2022 and 08.06.2022, as evidenced by the ledger and bank-statement extracts placed on record.
The Tribunal noted that the Assessing Officer did not issue any notice under Section 133(6) or Section 131 to summon the lender or to seek additional material, despite the revenue’s own submission that the lender’s low income raised doubts. The lack of such enquiry, the Tribunal held, amounted to a failure to satisfy the statutory duty to collect relevant facts before making an addition.
Reliance was placed on several precedents:
- Dy. CIT v. Rohini Builders (Gujarat HC) which held that repayment of a loan within the same financial year negates an addition under Section 68.
- Principal Commissioner of Income Tax v. Himachal Fibers Ltd. (Supreme Court) emphasizing the shift of burden after the assessee’s satisfactory explanation.
- Jawahar Lal Oswal (P&H HC) clarifying that suspicion or the quantum of the amount alone cannot justify a deeming addition.
The Tribunal distinguished the revenue’s argument that the lender’s income was “meagre” by pointing out that the lender’s balance sheet disclosed substantial unsecured loans of Rs 60 crore, indicating availability of funds. The Tribunal further held that the revenue’s reliance on the lender’s Form 3CD omission was misplaced, as there is no statutory requirement for the lender to disclose the loan in its own return.
Consequently, the Tribunal concluded that the addition of Rs 5,00,00,000 under Section 68 was not maintainable. The revenue had not produced any material to rebut the assessee’s documentary evidence, nor had it exercised its investigative powers. The onus had fully shifted back to the revenue, which failed to discharge it.
The Verdict
The Income Tax Appellate Tribunal dismissed the revenue’s appeal and deleted the addition of Rs 5,00,00,000 made under Section 68 of the Income-Tax Act, 1961. No tax, interest, or penalty was levied on the amount. The Tribunal directed that the order of the Commissioner of Income Tax (Appeals) dated 10.10.2025, which had deleted the addition, stand affirmed.
What This Means For Similar Cases
Burden of Proof Shifts After Satisfactory Explanation
- Once the assessee furnishes documentary proof of the lender’s identity, creditworthiness and the transaction’s genuineness, the onus reverts to the revenue to produce independent evidence or to conduct statutory enquiries.
- Practitioners must ensure that all three ingredients under Section 68 are addressed in the initial appeal to compel the revenue to bear the evidential burden.
Repayment Within the Same Financial Year Defeats Deeming Additions
- Full repayment of an unsecured loan through banking channels before the end of the assessment year is a strong defence against an addition under Section 68.
- Lawyers should obtain and submit bank-statement extracts showing dates and amounts of repayment as part of the defence.
Revenue Must Exercise Powers Under Sections 133(6) and 131
- The Assessing Officer is obligated to summon the creditor or seek further material when doubts persist after the assessee’s submissions.
- Failure to issue such notices will be viewed as a procedural lapse, rendering any addition vulnerable to reversal.
Practical takeaways:
- Compile ledger confirmations, bank statements, lender’s audited accounts, and ITR acknowledgements before the assessment proceedings.
- Anticipate revenue’s challenge on creditworthiness and be prepared to demonstrate the lender’s capacity through balance-sheet disclosures.
- Request that the Assessing Officer issue a notice under Section 133(6) if the revenue’s doubts remain, thereby preserving the procedural record.
