An addition under Section 68 of the Income-tax Act, 1961, is invalid if the assessee successfully proves the identity, creditworthiness, and genuineness of the transaction with documentary evidence.

By | October 10, 2025
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An addition under Section 68 of the Income-tax Act, 1961, is invalid if the assessee successfully proves the identity, creditworthiness, and genuineness of the transaction with documentary evidence.

Issue

Can an Assessing Officer (AO) make an addition for an unexplained cash credit under Section 68 if the taxpayer has provided a complete and comprehensive set of documentary evidence to establish the identity, creditworthiness of the creditor, and the genuineness of the transaction?

Facts

  • The assessee-company received a sum of ₹15 lakhs from an investor company through a proper banking channel.
  • To prove the legitimacy of this transaction and discharge their burden of proof under Section 68, the assessee submitted a full set of documents to the Assessing Officer (AO). This evidence included:
    • The investor company’s PAN card.
    • Its income tax return acknowledgments and computation.
    • Its complete audited financial statements (balance sheet and P&L account).
    • Its bank statements.
    • Its corporate documents, like the Memorandum of Association.
  • The AO, in the final assessment order, acknowledged that they had considered all these documents.
  • However, despite the comprehensive evidence provided, the AO proceeded to treat the entire ₹15 lakh transaction as an unexplained cash credit and made an addition to the assessee’s income under Section 68.

Decision

The court ruled decisively in favour of the assessee.

  • It held that the assessee had successfully discharged the initial onus that is cast upon them under Section 68.
  • The array of documents provided was sufficient to prove the three essential ingredients required by law:
    1. The identity of the investor.
    2. The genuineness of the transaction (which was supported by the banking channel).
    3. The creditworthiness (financial capacity) of the investor (as shown by their audited financials).
  • Since the assessee had proven all three of these essential ingredients, the AO was not justified in making the addition without bringing any contrary evidence on record. The addition was therefore directed to be deleted.

Key Takeways

  1. The Three Pillars of Section 68: To successfully defend against an addition for an unexplained credit, the taxpayer must provide evidence to prove three fundamental things about the person or entity giving the money: their identity, their creditworthiness (financial capacity), and the genuineness of the transaction itself.
  2. Comprehensive Documentation is the Best Defense: Providing a full and complete paper trail, as was done in this case, is the most effective way to discharge the initial burden of proof that lies on the taxpayer.
  3. Once the Onus is Discharged, it Shifts to the AO: Once the taxpayer provides this primary evidence, the responsibility shifts to the Assessing Officer. The AO cannot then make an addition based on mere suspicion or without bringing some specific, adverse evidence on record to actively disprove the taxpayer’s claims.
  4. “Considering” the Evidence is Not Enough: The AO’s order in this case mentioned that they had “considered” the documents, but this is not sufficient. If an AO is going to reject credible, comprehensive evidence, they must provide clear and cogent reasons for doing so in the assessment order. Simply ignoring the evidence and making an addition is an arbitrary action that will not be upheld.
IN THE ITAT NAGPUR BENCH ‘SMC’
Annuva Infrastructure (P.) Ltd.
v.
Income-tax Officer
NARENDER KUMAR CHOUDHRY, Judicial Member
IT Appeal No. 84 (NAG) of 2025
[Assessment year 2011-12]
SEPTEMBER  23, 2025
Manoj Moriyani, Ld. Adv. for the Appellant. Surjit Kumar Saha, Ld. Sr.D.R. for the Respondent.
ORDER
1. This appeal has been preferred by the Assessee against the order dated 28/03/2024 impugned herein passed by the ADDL/JCIT (Appeals)-2, Kolkata (in short, ‘Ld. Commissioner’) u/sec. 250 of the Income Tax Act, 1961 (in short, ‘Act’) for the A.Y. 2011-12.
2. At the outset, it is observed that there is a delay of 252 days in filing the instant appeal, on which, the Assessee by filing an application for condonation of delay along with duly sworn affidavit has claimed as under: –
“1. The deponent/assessee has received ex-parte order U/s. 250 of the Income Tax Act, 1961 dated 28/03/2024 passed by the Commissioner of Income Tax Appeal, ADDL/JCIT(A)-2, Kolkata on 30/01/2025.
2. The Commissioner of Income Tax Appeal, ADDL/JCIT(A)-2, Kolkata has not issued the order on mail therefore the ID of the deponent/assessee deponent/assessee has not made any compliance to the notices.
3. The director of the deponent/assessee company is senior citizen not well equipped with mail service. The secretary of the company while searching case history of the case from portal found that the Commissioner of Income Tax Appeal, ADDL/JCIT(A)-2, Kolkata has passed ex-parte order on 28/03/2024 and considering the part reply confirmed the addition made by the assessing officer.
4. The deponent/assessee has communicated the ex-parte order to its counsel and as per advice of the counsel the deponent/assessee is filing this appeal on 07/02/2025 alongwith delay of 256 days. There is no fault on the part of the deponent/assessee and reason cause believe to file the appeal before this Hon’ble ITAT.
5. However, due to above reason the Assessee is being filed appeal on 07/02/2025 therefore delay of 256 days, delay be kindly condoned in the interest of justice.”
3. On the contrary, learned Departmental Representative (DR) refuted the claim of the Assessee.
4. Considering the reasons stated by the Assessee, which are duly supported with duly sworn affidavit, as genuine, bonafide and unintentional, the delay involved is condoned.
5. Coming to the merits of the case, it is observed that the Assessee by filing its return of income on dated 18/12/2017 declared loss of Rs. 191/-. Subsequently, on the basis of search conducted at the residence and various premises of Mr. Shirish C. Shah, who happened to be main persons engaged in providing bogus accommodation entries like, long term capital gain, share capital with huge share premium, turnover, loan etc. and controlling more than 200 companies and providing accommodation entries and have made payments of Rs. 15 Lac to the Assessee company as well. The reasons for reopening of the instant case, were recorded and the case was reopened u/sec. 147 of the Act by issuing notice dated 30/03/2017 u/sec. 148 of the Act. Thereafter, various statutory notices were issued, in response to which the Assessee has claimed that he had received Rs. 15 Lac on dated 29/03/2011 from M/s. Praneeta Industries Ltd. through proper banking channel as reflects from bank statement of the Assessee. The Assessee further claimed that M/s. Praneeta Industries Ltd. is assessed to tax vide PAN-AAHCA0371L. The Assessee also provided the copy of PAN card, postal address of the company M/s. Praneeta Industries Ltd. (presently known as Adhar Venture India Limited). The Assessee also enclosed copy of memorandum of article of association, Income Tax return, balance sheet, copy of confirmation pertains to/issued by M/s. Praneeta Industries Ltd., confirming the payment of Rs. 15 Lac. The AO in order to verify, further issued notice to M/s. Praneeta Industries Ltd. which was returned unserved by the speed-post authorities. The Assessee vide written submissions dated nil furnished on 19/12/2017, asked the AO to issue notice u/sec. 131 of the Act to Shri Omprakash Kandelwar, Promoter of M/s. Praneeta Industries Ltd. and Shri Radheshyam Sharma, Manager of M/s. Praneeta Industries Ltd. for crossexamination and proper adjudication of the matter. However, the AO vide letter dated 20/12/2017 directed the Assessee to discharge the burden of proof and not to shift the burden of proof on the Department. The AO though considered the submissions/documents filed by the Assessee, however, ultimately treated the said transaction as unexplained cash credit in the books of accounts of the Assessee and consequently added to the total income of the Assessee u/sec. 68 of the Act.
6. The Assessee, being aggrieved, challenged the said addition by filing first appeal before the Ld. Commissioner, however, failed to get any relief, as the Ld. Commissioner dismissed the appeal affirming the aforesaid addition of Rs. 15 Lac by observing and holding as under: –
“From the above, it is seen that appellant company miserably failed to prove the genuineness of the above transactions or failed to file any written explanation in this matter. The appellant company alleged that enough opportunity was not given to rebut the evidences. But on going through the submission of the appellant company and the observation of the AO it is crystal clear that appellant company was given enough opportunity during the assessment proceedings. Therefore, the claim that proper opportunity of being heard was not given is not correct. The appellant has cited various case laws upon the issue regarding unexplained cash credit which have been perused and the same are distinguishable. The appellant has received share application money from a company whose affair must be known to the appellant. The creditor company has been found to be giving accommodation entries by the department and the appellant could not discharge its onus u/s 68 of the IT Act. Similarly, the appellant could not file any satisfactory explanation backed by any supportive evidence during the appellate proceedings. Therefore, upon perusal of the grounds raised by the appellant and the reasoning given the Assessing Officer it is held that the Assessing Officer has rightly made the addition of Rs 15,00,000-/ as unexplained cash credit U/s 68 of the Income Tax Act, 1961. Ground Nos 02 to 06 are dismissed.”
7. The Assessee, being aggrieved, has preferred the instant appeal challenging the decision of the Ld. Commissioner in affirming the addition made by the AO. Admittedly, Assessee, during the proceedings before the authorities below, has claimed that it has received a sum of Rs. 15 Lacs, through banking channel on dated 29/03/2011 from M/s. Praneeta Industries Ltd. (presently known as Adhar Venture India Limited) as it clearly reflected from bank statement. Further, the Assessee in support of its claim qua transaction of Rs. 15 Lac has also filed copy of acknowledgment and computation of income of M/s. Praneeta Industries Ltd.; copy of audited balance sheet; profit and loss account; copy of bank statement; copy of PAN card; and, copy of acknowledgment of return of M/s. Praneeta Industries Ltd. along with audit report, balance sheet, profit and loss account and copy of memorandum of article of association of M/s. Praneeta Industries Ltd., copy of confirmation, the details of payment made and, therefore, this Court is of the considered opinion that more or less Assessee has been able to prove the identity, genuineness and creditworthiness in order to discharge the onus casted u/sec. 68 of the Act. The Hon’ble Apex Court in the case of CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC) has also dealt with identical issue and held “If the share application money is received by the Assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the appellant company”.
8. Thus, considering the peculiar facts and circumstances of the case, this Court is of the considered view that the addition in hand is unsustainable, and therefore the same is deleted.
9. In the result, Assessee’s appeal is allowed.