Addition under Section 68 for unsecured loans from financially

Addition under Section 68 for unsecured loans from financially sound entities is legally unsustainable.

Issue

Whether additions made under Section 68 of the Income-tax Act, 1961 (corresponding to Section 102 of the Income-tax Act, 2025) as unexplained cash credits on account of unsecured loans received by the assessee-company are legally sustainable, where the lenders established identity, creditworthiness, and transaction genuineness, and where lower income tax returns alone formed the basis of the Assessing Officer’s additions.

Facts

Assessee & Proceedings: The assessee-company filed its return of income declaring a loss for Assessment Year 2020-21. The case was selected for complete scrutiny to examine unsecured loans.
Lender 1 — M/s Hallow Securities Pvt. Ltd.:
- The Assessing Officer (AO) treated the unsecured loan as unexplained under Section 68 citing the lender’s low ITR income and lack of a formal loan agreement or collateral.
- The lender was a registered Non-Banking Financial Company (NBFC) with share capital and reserves of ₹98 crores, declared revenue of ₹7.52 crores, MAT income of ₹1.41 crores, and Compulsorily Convertible Debentures (CCDs) of ₹60 crores raised from a Reliance group company.
Lender 2 — M/s Sundram Consultant Pvt. Ltd.:
- The AO treated loans from three entities, including M/s Sundram Consultant Pvt. Ltd., as unexplained cash credits.
- The CIT(A) deleted the addition after finding that the assessee fulfilled the statutory onus under Section 68. Furthermore, the identity, genuineness, and creditworthiness of transactions with this lender were already upheld in a group concern’s case, where the Revenue’s departmental appeal was dismissed by the Tribunal.
Lender 3 — M/s NV Ruchi Barter Pvt. Ltd.:
- The AO made an addition under Section 68 regarding unsecured loans received from this entity.
- The lender was a registered NBFC with share capital and reserves of ₹2.30 crores and total declared revenue of ₹7.16 crores during the relevant financial year.

Decision

On Low ITR Income vs. Financial Capacity: Addition under Section 68 cannot be sustained merely because the lender reported low taxable income in its return, provided the overall financial strength (net worth, reserves, and total revenues) supports the loan capacity.
On M/s Hallow Securities Pvt. Ltd.: Given the lender’s substantial net worth (₹98 crores reserves) and active NBFC status, the addition made by the AO was held to be unjustified and ordered to be deleted.
On M/s Sundram Consultant Pvt. Ltd.: The assessee successfully discharged its primary onus to establish identity, genuineness, and creditworthiness. Following the binding precedent set in the group concern’s case involving the same lender, the addition under Section 68 was directed to be deleted.
On M/s NV Ruchi Barter Pvt. Ltd.: The lender’s substantial revenue (₹7.16 crores) and registered NBFC status established creditworthiness; hence, the addition was set aside.

Key Takeaways

Low ITR Income Is Not Determinative: A lender’s low taxable income in its ITR does not automatically invalidate its creditworthiness under Section 68 if its balance sheet reflects high net worth, large capital reserves, or substantial top-line revenue.
NBFC Standing & Capital Reserves: Unsecured loans sourced from RBI-registered NBFCs backed by documented share capital, reserves, or institutional funding (e.g., CCDs) satisfy the statutory requirement of proving creditworthiness and genuineness.
Binding Precedents for Group Concerns: Once a lender’s identity, capacity, and transaction validity are examined and accepted by the Tribunal in the case of an assessee’s group concern, the Revenue cannot re-adjudicate the same lender’s credibility unfavorably for the same assessment year.

IN THE ITAT DELHI BENCH ‘G’

Joint Commissioner of Income-tax (OSD)

Starcity Real Estates (P.) Ltd.

ANUBHAV SHARMA, Judicial Member
and Manish Agarwal, Accountant Member

IT Appeal No. 3131 (Delhi) of 2026
[Assessment year 2020-21]

AUGUST 31, 2026

Virender Singh, CIT(DR) for the Appellant. Vir Sain Aggarwal and Rohit Kapoor, Advs. for the Respondent.

ORDER

Anubhav Sharma, Judicial Member. – This appeal preferred by the revenue against the order dated 16.01.2026 of Ld. Commissioner of Income Tax (Appeals)-3, Noida (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in DIN & Order No: ITBA/APL/M/250/2025-26/1084858002(1)arising out of the assessment order dated 30.09.2022 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by DCIT, CC-1, Noida,for AY: 2020-21.

2. Heard and perused the records. The appellant company had filed return of income indicating loss of Rs.35,55,78,301/- on the basis of duly audited account and the case of assesse was selected for complete scrutiny and during the assessment proceedings ld. AO examine unsecured loans received from various parties and finding the submissions of assesse not satisfactory had made additions on account of loans received from M/s Hallow Securities Pvt. Ltd.; M/s Sundram Consultant Pvt. Ltd. and NV Ruchi Barter Pvt. Ltd. and the same have been thus added u/s 68 of the Act totaling Rs.12,42,25,000/- and the returned loss was assessed at Rs.23,13,53,300/- and the same have been deleted by the ld. CIT(A) primarily on findings that assesse had discharged the onus by filing relevant evidences and the relevant part of the order of ld. CIT(A) is reproduced:

” Conclusion

The AR in the said grounds of appeal has challenged the addition of unsecured loans raised from three entities during the year under consideration. The receipt of unsecured loans is discussed para-wise as under:

(a) Loan received from Hallow Securities Pvt. Ltd.

The assessee has received an amount of Rs. 9,62,25,000/- from the above entity during the year under consideration. The AO has stated that the said entity does not possess the requisite creditworthiness to advance the impugned loan. The appellant on the other hand has stated that in case the lender shows a loss or a nominal income, the same cannot be a conclusive ground to reject the creditworthiness as the audited financials must be looked into holistically to arrive at the creditworthiness of an entity. The appellant has also stated that the AO was requested to invoke provisions of Section 133(6) as the lender being a third party was not in control of the assessee and reluctant to share the entire records with the assessee. The appellant further stated that enquiries u/s 250(4) were conducted by the O/o CIT(A) in the ACE Group of cases, wherein, the loans were received from M/s. Hallow Securities Pvt. Ltd. and the lender had furnished complete bank account statement in the case of M/s. Allure Developers Pvt. Ltd. (sister concern of the assessee) for AY 2020-21. Further, as per appellant, during the said enquiry, all the credits appearing in the bank account of the Hallow Securities Pvt. Ltd. were duly explained. The AO has further stated that no formal loan agreement or collateral security was furnished. The appellant in response has stated that Section 68 requires satisfaction of three ingredients namely Identity, Genuineness and Creditworthiness of the transactions which have been duly justified. The appellant has stated that the identity of the lender has never been disputed by the AO and the PAN and address of the lender was furnished before the AO. Further, as per appellant, the lender is a duly registered NBFC and confirmation of account, bank account statement, Profit & loss account and other financial particulars of the lender were furnished before the AO. Further, as perappellant, interest has been paid on the unsecured loan after deducting tax and the confirmed ledger has also been furnished. The appellant has stated that nonfurnishing of loan agreement cannot be a ground to make the addition u/s 68 as all the rigors of Section 68 stands duly satisfied. The appellant with respect to above contentions has placed reliance on a number of judgments which are part of its submissions. The appellant has further stated that the lender has share capital & reserves exceeding Rs. 98 crores during the year under consideration. Further, as per appellant, the lender had declared a total revenue of Rs. 7.52 crores and the return was filed under MAT at an income of Rs. 1.41 crores. Further, as per appellant, the lender has maintained fixed deposits totaling to Rs. 11.5 crores and has also raised CCDs of Rs. 60 crores from Teesta Retails Pvt. Ltd. (a Reliance Group Company). The appellant has further stated that, even if, the source of the lender entity are examined, the same are funded from the earlier advances or new loans raised from various entities. The appellant has provided a detailed chart explaining the source of source of unsecured loans which has already been reproduced in the submissions of the appellant above which need not be reproduced again for sake of brevity. Moreover, the AO has not questioned the source of source of the said entity and has only relied upon the creditworthiness of the transactions before arriving at the conclusion. The appellant has further stated that the unsecured loans received from the said entity have been fully repaid during the year or subsequent years.

The issue of receipt of unsecured loan from Hallow Securities Pvt. Ltd. was also examined in the case of a sister concern of the assessee i.e. M/s. Allure Developers Pvt. Ltd. for the same assessment year i.e. AY 2020-21 by CIT(A). The relevant part of the order of CIT(A) in the case mentioned above in Appeal No. CIT(A), Noida-3/10020/2019-20 vide order dated 12.03.2025 is reproduced below for ready reference:

“Conclusion

Accordingly, in view of the above discussion, following conclusions can be drawn:

1. The money advanced by Hallow Securities Pvt. Ltd. to the assessee company is out of the return back of advances given to other concerms by Hallow Securities Put. Ltd. during the earlier years or the year under consideration (or routed through the genuine entities like Teesta Retails Put. Ltd. and HFCL in ACE Group) meaning thereby that the creditworthiness of entities like Manak Estate & Finance Pvt Ltd, Sundram Consultants Pvt Ltd, AKJ Engineers Pvt Ltd, Kanta Credits and Holdings Put Lid. becomes irrelevant. Hence, the application of Section 68 using the source of source theory to the case of the appellant becomes uncalled for in above circumstances. 2. The fund flow statement of M/s. Hallow Securities Put. Ltd. from AY 2017- 18 to AY 2022-23 reveals that there were sufficient funds available with Hallow Securities Pvt. Ltd. out of additions made by AO which wereadvanced to various concerns including the appellant. Without prejudice to the above findings and discussion, it is observed that the bank credits in the hands of M/s. Hallow Securities Pvt. Ltd. have already been added by the AO in the assessment orders of M/s. Hallow Securities Pvt. Ltd. for AY 2017-18 to AY 2022-23, the adding the same money emanating from the said accounts in the hands of the assessee company would amount to double taxation of the same money.

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5. The loans received from M/s. Hallow Securities Put. Ltd. have been returned back in future years.

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8. The AO has applied the source of source theory in ACE Group while giving relief with respect to the funds received from Hallow Securities Pvt. Ltd. via Teesta Retails Put. Ltd. Applying the same theory as applied by the AO to the other funds received by the appellant reveals that the said money majorly emanated out of the coffers of Hallow Securities Pvt. Ltd. during earlier years which were advanced to various entities and returned back.

In view of the discussion on various issues carried out above, the addition made by the AO is not found to be sustainable and accordingly these grounds of appeal are allowed.”

The said decision of CIT(A) was contested by the Department before the Ld. ITAT Delhi “G” Bench, Delhi which in its order No. 3559/Del/2025 dated 26.11.2025 has held as under:

40. In view of the above discussion and further looking to the fact that when all the relevant details and documentary evidences produced by the assessee to establish the identity, creditworthiness and genuineness of the transactions, the said evidences cannot be rejected based on the statements of third party without any contrary documentary evidence. It is seen that transactions have been done through banking channels and on the date of making of loans, there was sufficient balance available in the bank account of the lender company, which proves the creditworthiness and genuineness of the transactions. It is also relevant that out total amount of loans of 27.27 crores received, the AO has despite of doubting the creditworthiness, had made the addition of INR. 17.74 crores only meaning thereby the creditworthiness for the remaining amount is not doubted though the facts and the circumstances while granting these loans remained the same. This creates serious doubts about the mode and manner of the additions made by the AO. Once it is accepted that the lender has creditworthiness for part of the amount, the remaining amount cannot be held as unexplained. There is no case of any cash deposited in the account of any of the lender company at the time of issuing cheques/RTGS in favour of the Assessee. Therefore, Appellant has duly discharged the burden casted upon it u/s 68 of the Act 41. It is trite law that suspicion, howsoever strong, cannot take the place of proof as held in Umacharan Shaw & Bros. v. CIT (1959) 37 ITR 271 (SC). The Hon’ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax (1954) 26 ITR 775 (SC) has observed that powers given to the Revenue authority, howsoever, wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material. The assessment cannot be framed only on bare suspicion The assessment should rest on principles of law and one should avoid presumption of evasion in every matter. The assessee, in the instant case, has sufficiently demonstrated the genuineness of transaction and creditworthiness of the loan creditors. On a broader reckoning, the apprehension raised by the Revenue authorities militates against the tangible material and is thus extraneous. Accordingly, we find no infirmity in the order of ld. CIT(A) in deleting the additions made u/s 68 towards the unsecured loans of Rs. 17.74 crores by holding the same as accommodation entries. Accordingly, all the grounds of appeal of the revenue are dismissed.

42. In the result, appeal of the Revenue in ITA No.3559/Del/2025 is dismissed.

In view of the documents submitted to prove the identity, creditworthiness and the genuineness of the transaction with the said lender and the fact that the loan received from the same entity by a group concern of the appellant has been considered as genuine by the Ld. Jurisdictional ITAT Bench, the addition made by the AO in the case of the appellant on account of loan received from Hallow Securities Pvt. Ltd. is not found sustainable and is deleted.

(b) Loan received from Sundram Consultant Pvt. Ltd.

The AO has made addition of Rs. 1.5 crores on account of loan received from M/s. Sundram Consultant Pvt. Ltd. The appellant has stated that the loan received from the said entity is genuine as the identity, credibility and genuineness of the transaction has been fully established. It shall be important to highlight that the issue of loan received from M/s. Sundram Consultant Pvt. Ltd. was also examined in a group concern of the assessee i.e. M/s. ACE Infracity Developers Pvt. Ltd. for AY 2019-20 by CIT(A) and in Appeal No. CIT(A), Noida-3/10036/2018-19 vide order dated 28.10.2025, wherein, the addition made by the AO on account of loan received from M/s. Sundram Consultant Pvt. Ltd. has been sustained. The relevant para of the order of the CIT(A) is reproduced below for ready reference:

“The facts, submissions, and documentary evidence placed on record by the appellant, including the audited financial statements, Income Tax Returns, ledger accounts, and other supporting documents filed at various pages of the Paper Book have been considered. The appellant has raised an unsecured loan of 230,00,000/-from M/s Sundram Consultants Pvt. Ltd. During the course of assessment proceedings, the appellant was directed by the AO to provide the copy of bank account statement of the said entity. The bank account statement was not furmished during the assessment proceedings. The appellant was directed during the appellate proceedings as well to furnish the bank account statement of M/s. Sundram Consultants Pvt. Ltd. but the appellant has furnished only a limited copy of the bank account statement wherein, the entries only relevant to the transactions with the assessee are being reflected. This leaves little scope of ascertaining the genuineness of transactions in absence ofdetailed statement of bank account. Furnishing of complete bank account statement is a basic prerequisite for fulfilling the conditions as prescribed under Section 68 of the Income Tax Act, 1961. Even during the course of assessment proceedings u/s 147 for AY 2013-14 in the case of Sundram Consultants Pvt. ltd. in order dated 23.03.2022, the AO has made the addition of Rs. 1,21,10,111/- u/s 68 on account of unexplained credits received by the said entity. Further, it is seen that another order Under section 147 dated 30.03.2022 has been passed by the AO for AY 2018-19 in the case of Sundram Consultant Pvt. Ltd., where addition of Rs. 17,05,000/-has been made u/s 68 on account of unexplained credit, Rs. 29,92,000/-on account of bogus LTCG, Rs. 51.99 crores on account of unexplained sundry creditors and Rs. 3.26 crores u/s 68 on account of Bogus Unsecured loans. Keeping in view the above factors, the Assessing Officer’s observations regarding the source and credibility of funds have not been adequately rebutted. In the absence of compelling evidence, the addition made under section 68 and 69C stands justified. Accordingly, the addition made by the AO is sustained on this issue.”

Following the above decision of CIT(A) in a group case of the assessee, the addition made by the AO on account of loan received from M/s. Sundram Consultant Pvt. Ltd. is sustained.

The assessee has received an amount of Rs. 1,30,00,000/-from the above entity during the year under consideration. The AO has stated that the said entity does not possess the requisite creditworthiness to advance the impugned loan. The appellant has stated that in case the lender shows a loss or a nominal income, the same cannot be a conclusive ground to reject the creditworthiness as the audited financials must be looked into holistically to arrive at the creditworthiness of an entity. The appellant further stated that the AO had issued notice u/s 133(6) to the said lender which had itself furnished comprehensive documentary evidence to the AO including its ITR, audited financial statements, confirmed ledger and bank statements reflecting the loan transaction.

The appellant has further stated that the AO himself got conducted enquiry u/s 133(6) and the said lender had fully furnished the requisite reply before the AO. The AO has further stated that no formal loan agreement or collateral security was furnished. The appellant in response has stated that Section 68 requires satisfaction of three ingredients namely Identity, Genuineness and Creditworthiness of the lender/transactions which have been duly justified. The appellant has stated that the identity of the lender has never been disputed by the AO and the PAN and address of the lender was furnished before the AO.

Further, as per appellant, the lender is a duly registered NBFC and confirmation of account, bank account statement, Profit & loss account and other financial particulars of the lender were furnished before the AO. Further, as per appellant, interest has been paid on the unsecured loan after deducting tax and the confirmed ledger was also been furnished by the said lender in response toenquiry u/s 133(6). The appellant has stated that non-furnishing of loan agreement cannot be a ground to make the addition u/s 68 as all the rigors of Section 68 stands duly satisfied. The appellant with respect to above contentions has placed reliance on a number of judgments which are part of its submissions. The appellant has further stated that the lender has share capital & reserves exceeding Rs. 2.30 crores during the year under consideration. Further, as per appellant, the lender had declared a total revenue of Rs. 7.16 crores during the year ending 31.03.2020 and Rs. 15.26 crores during year ending 31.03.2019. As per appellant, against sales of Rs. 6.81 crores and interest income of Rs. 35.37 lac, expenses of Rs. 7.13 crores have been booked resulting in profit of Rs. 2.72 lacs. Further, as per appellant, the lender liquidated its entire investment in shares amounting to Rs. 40.07 crores as reflected in the balance sheet during year ending 31.03.2019, thereby generating substantial liquid funds. Further, as per appellant, the company possessed non-current loans & advances of Rs. 29.11 crores as on 31.03.2020 and trade receivables of Rs. 13.88 crores in immediately preceding financial year which were realized during the year under consideration. Hence, as per appellant, the contentions of the AO that the lender had nominal income cannot be a justified criteria to make an addition u/s 68, once substantial evidence in the nature of financial statements of the lender show the credibility of the said entity.

The contentions of the AO that an entity with low income has poor credibility cannot be accepted at face value as the overall financials of the lender need to be taken into consideration. Mere low income cannot be a criteria to judge the credibility of the entity. The overall availability of funds and the financial statements reflect the true state ofthe credibility of an entity.”

3. Though Id. DR has heavily relied the contentions of ld. AO but, we find that ld. AO had merely drawn inferences on the basis of low income reported by the lender companies alleging that the income shown by these entities in their ITR doesnot commensurate with the amount of loan given. It was also alleged that there is no copy of agreement of loan and when the project of the assesse is in initialstage why anyone would give such a huge loan. However, as we appreciate findings of ld. CIT(A) we find that as with regard to loan received from M/s Hallow Services Pvt. Ltd. we find that the same is registered NBFC having share capital and reserves of Rs.98 crores and declared revenue of Rs.7.52 crores and return was filed under MAT at income of Rs. 1.41 crores. It has raised CCD’s of Rs.60 crores from Teesta details Pvt. Ltd.,a reliance group companies.

4. In the case of loan received from M/s Sundram Consultant Pvt. Ltd. we find that the identity, credibility and genuineness of this transaction has been considered in the case of group concern of assesse M/s Ace Infracity Development Pvt. Ltd. and the appeal of the department has been dismissed by Coordinate Bench in which one of us, judicial member was on the Bench. Ld. CIT(A) has also taken into consideration the said fact of giving benefit to the assesse on the basis of findings in the case of M/s Ace Infracity Development Pvt. Ltd. for AY: 2019-20.

5. Coming the loans received from M/s NV Ruchi Barter Pvt. Ltd. we find that this is also a registered NBFC having share capital and reserves of Rs.2.30 crores and declared total revenue of Rs.7.16 crores during year ending 31.03.2020. Thus, we find that merely on the basis of low income reported by the lenders additions in the case of assesse were not sustainable and Id. CIT(A) hasrightly deleted the same. Once, Id. First Appellate Authority has duly examined the issue in context to Section 68 revenue is under obligation to bring on record material facts which can counter the conclusions drawn by Id. CIT(A) by suggesting that the same are not sustainable in law and that is not the case here.

6. Thus, the ground raised by the department have no substance. The appeal of revenue is dismissed.