The Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has delivered a significant ruling clarifying the application of Section 68 of the Income Tax Act, 1961. The Tribunal held that where an assessee has repaid loans taken from creditors in subsequent financial years and furnished all documentary evidence to establish the identity, creditworthiness, and genuineness of the transactions, no addition can be made under Section 68 merely on the ground that the creditors were shell entities. This decision reinforces the principle that repayment of loans in subsequent years is a critical factor in determining the genuineness of transactions and discharges the burden cast on the assessee.
Background & Facts
The Genesis
The appeals before the ITAT, Kolkata Bench, arose from orders of the National Faceless Appeal Centre (NFAC), Delhi, for Assessment Years (AYs) 2017-18 and 2018-19. The Revenue had filed appeals against the deletion of additions made under Section 68 of the Income Tax Act, 1961, amounting to ₹1,40,00,000 for AY 2017-18 and a similar issue for AY 2018-19.
Key Facts
- The assessee, Lumino Industries Limited, filed its return of income for AY 2017-18 on 25.10.2017, declaring a loss of ₹9,88,605.
- A search under Section 132 and a survey under Section 133A were conducted on the Goel Group of cases on 15.03.2022, which included the assessee as a group company.
- Incriminating material/documents were found during the search, including documents pertaining to the assessee.
- A notice under Section 148 was issued on 31.03.2024, and the assessee filed a return of income on 22.05.2024, declaring the same income as in the original return.
- The assessee took unsecured loans from two parties during the year, on which interest was paid after deduction of TDS at source.
- The Assessing Officer (AO) treated the loans as unexplained cash credit under Section 68, relying on seized documents and a statement recorded from Shri Nabin Kumar Saraf on 02.03.2023.
- Summons under Section 131 were issued to the loan creditors but were returned unserved.
Procedural History
- 25.10.2017: Original return of income filed for AY 2017-18.
- 15.03.2022: Search and survey conducted on Goel Group, including the assessee.
- 31.03.2024: Notice under Section 148 issued to the assessee.
- 22.05.2024: Assessee filed return of income in response to notice under Section 148.
- 08.08.2025 and 01.08.2025: Orders passed by the Ld. CIT(A) deleting the addition under Section 68 for AYs 2017-18 and 2018-19, respectively.
- 06.07.2026: Appeals filed by the Revenue before the ITAT, Kolkata Bench, with a delay of 34 days, which was condoned.
- 16.07.2026: Orders pronounced by the ITAT, dismissing the Revenue's appeals.
The Parties' Positions
Revenue's Contention
The Revenue argued that the loans were taken from shell entities and were merely colorable transactions used to plough back the assessee's own money. It relied on the seized documents and the statement of Shri Nabin Kumar Saraf to contend that the transactions lacked genuineness and were designed to evade tax.
Assessee's Contention
The assessee contended that it had furnished all documentary evidence to establish the identity, creditworthiness, and genuineness of the loan creditors, including:
- Copy of MCA database,
- Ledger accounts,
- Loan confirmations,
- Audited accounts,
- Extracts of bank statements,
- Income Tax Returns (ITRs) of the loan creditors.
The assessee also demonstrated that the loans were repaid in subsequent financial years and that interest was duly accounted for and TDS deducted.
Relief Sought
The Revenue sought to set aside the orders of the Ld. CIT(A) and restore the additions made under Section 68 for AYs 2017-18 and 2018-19, amounting to ₹1,40,00,000 and a similar amount for AY 2018-19.
The Legal Issue
The central question was whether Section 68 of the Income Tax Act, 1961, permits an addition to be made in respect of unsecured loans taken from creditors, where the assessee has repaid the loans in subsequent financial years and furnished all documentary evidence to establish the identity, creditworthiness, and genuineness of the transactions.
Arguments Presented
For the Appellant (Revenue)
The Revenue argued that the loans were taken from shell entities and were merely colorable transactions. It relied on the seized documents and the statement of Shri Nabin Kumar Saraf to contend that the transactions lacked genuineness. The Revenue emphasized that the three ingredients required under Section 68 - identity, creditworthiness, and genuineness - were not satisfied.
For the Respondent (Assessee)
The assessee relied on the decisions of the Hon'ble Gujarat High Court in CIT v. Apex Therm Packaging Private Limited and the Hon'ble Calcutta High Court in PCIT-9 v. M/s Sreeleathers and PCIT v. Overtop Marketing (P.) Ltd, to argue that the repayment of loans in subsequent years and the furnishing of documentary evidence discharged its burden under Section 68. The assessee also relied on the decision of the Hon'ble Gujarat High Court in Ambe Tradecorp (P.) Ltd. to support its contention.
The Court's Analysis
The ITAT, Kolkata Bench, examined the issue in detail and noted the following:
- The assessee had furnished all documentary evidence to establish the identity, creditworthiness, and genuineness of the loan creditors, including MCA database, ledger accounts, loan confirmations, audited accounts, bank statements, and ITRs.
- The loans were repaid in subsequent financial years, which was recorded by the Ld. CIT(A).
- The AO had not conducted any independent enquiry beyond issuing notices under Section 133(6), which were duly responded to by the loan creditors.
- The decisions of the Hon'ble Gujarat High Court in Apex Therm Packaging Private Limited and Ambe Tradecorp (P.) Ltd. and the Hon'ble Calcutta High Court in Sreeleathers and Overtop Marketing (P.) Ltd. supported the assessee's contention that repayment of loans in subsequent years and the furnishing of documentary evidence discharged the burden under Section 68.
The ITAT observed:
"The case of assessee is squarely covered by the decisions of the Hon'ble Calcutta High court in number of cases namely PCIT-2, Kolkata Vs. Rahul Premier India Agency Private Limited in ITAT/133/2025, IA No.GA/2/2025 vide order dated 05.08.2025, PCIT Vs. M/s Narayan Tradecom Pvt. ltd. in ITAT/76/2025, IA No. GA/1/2025 dated 10.06.2025, PCIT Vs. Alom Extrusions Ltd. ITAT/268/2024, IA no. GA/1/2024, GA/2/2024 dated 17.12.2024, PCIT Vs. M/s Edmond Finvest Pvt. ltd., in ITAT/28/2024, GA/2/2024 dated 26.02.2024, PCIT Vs. Parwati Lakh Udyong, ITAT/2/2024, IA No.GA/1/2024 dated 19.02.2024. In all the above decisions the Hon'ble court has held that where the assessee has filed all the evidences qua the loan creditors before the ld. AO and loans are also repaid then the same cannot be added u/s 68 of the Act if the assessee has furnished all the evidences qua the loan creditors before the AO and AO has not done any enquiry."
The ITAT also relied on the decision of the Hon'ble Gujarat High Court in Ambe Tradecorp (P.) Ltd., wherein it was held:
"Once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries were carried out in the later years. Thus, in the given facts and circumstances, we hold that there is no infirmity in the order of the Ld.CIT-A."
The Verdict
The ITAT, Kolkata Bench, dismissed the Revenue's appeals for both AYs 2017-18 and 2018-19. The Tribunal upheld the orders of the Ld. CIT(A) and deleted the additions made under Section 68 of ₹1,40,00,000 for AY 2017-18. The decision for AY 2018-19 was rendered mutatis mutandis, and the appeal was dismissed.
What This Means For Similar Cases
Repayment of Loans in Subsequent Years is a Critical Factor
- Where loans are repaid in subsequent financial years and the assessee has furnished all documentary evidence to establish the identity, creditworthiness, and genuineness of the transactions, no addition can be made under Section 68 merely on the ground that the creditors were shell entities.
- The ITAT has consistently held that repayment of loans in subsequent years is a critical factor in determining the genuineness of transactions and discharges the burden cast on the assessee.
Documentary Evidence is Key
- Assessees must ensure that all documentary evidence, including MCA database, ledger accounts, loan confirmations, audited accounts, bank statements, and ITRs of the loan creditors, is furnished to the AO.
- The AO must conduct independent enquiries and not merely rely on seized documents or assumptions to make additions under Section 68.
Precedents Reinforce the Principle
-
The decisions of the Hon'ble Gujarat High Court in Apex Therm Packaging Private Limited and Ambe Tradecorp (P.) Ltd. and the Hon'ble Calcutta High Court in Sreeleathers and Overtop Marketing (P.) Ltd. provide strong precedents for assessees to rely on in similar cases.
-
These decisions emphasize that where the assessee has furnished all evidences and the loans are repaid, the transactions cannot be treated as unexplained cash credit under Section 68.
Practical Takeaways for Practitioners
- Documentation: Ensure that all documentary evidence is meticulously maintained and furnished to the AO.
- Repayment Evidence: Maintain evidence of repayment of loans in subsequent years, as this is a critical factor in defending additions under Section 68.
- Precedent Reliance: Rely on the decisions of the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court to support arguments in similar cases.
- AO Enquiry: Argue that the AO must conduct independent enquiries and not merely rely on seized documents or assumptions to make additions under Section 68.
