Additions u/s 68/69A Cannot Survive Once Creditor Details Identity, Creditworthiness, and Genuineness Are Proved: ITAT [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, held that the addition made under Section 68/69A of the Income Tax Act, 1961, could not be sustained once the details of the creditors were verified. The tribunal thus set aside the ₹1.20 crore addition.

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The assessee, Arvindbhai R Nanavati, a Hindu Undivided Family (HUF), did not file an income tax return for the Annual Year (AY) 2017-18. During reassessment, the Assessing Officer (AO) noted unexplained credits of ₹1.20 crore in the assessee’s bank account.

The assessee declared nil income but could only partially explain loans of ₹1.12 crore from 11 creditors. The AO treated the entire amount as unexplained under Section 69A of the Income Tax Act, 1961.

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Aggrieved by the AO's order, the assessee appealed to the Commissioner of Income Tax (Appeal) ( CIT(A) ). CIT(A) conducted a detailed examination, called for additional evidence, and obtained a remand report from the AO. After verifying the authenticity of the creditors, the CIT(A) deleted the addition. The Revenue then challenged this order before the ITAT.

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B. P. Srivastav, the counsel representing the revenue, argued that several lenders had disproportionately low declared income compared to the loans advanced. They contended that incomplete bank statements and absent books of accounts weakened the assessee’s case.

Meanwhile, A. K. Khandelwal, the counsel representing the assessee, countered that all loans were received via bank accounts, with creditors confirming transactions through affidavits and bank statements. They highlighted that the AO’s remand report validated the creditors’ identity, creditworthiness, and genuineness.

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The ITAT bench, comprising Dr. BRR Kumar (Vice President) and T.R. Senthil Kumar (Judicial Member), carefully examined the factual and legal metrics of the case and  noted that the AO, in the remand report, had confirmed the creditors’ authenticity after issuing notices under Section 133(6) of the Income Tax Act, 1961. Nine creditors were income tax assesses, and the remaining two submitted sworn affidavits.

The ITAT observed that the Revenue failed to disprove the remand findings or provide contrary evidence. Citing the precedent of CIT vs. Lovely Exports (P) Ltd. (2008), it held that once creditor details are verified, additions under Section 68/69A of the Act cannot stand.

The tribunal thus dismissed the revenue’s appeal and upheld the decision of the CIT(A).

To Read the full text of the Order CLICK HERE

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