ITAT quashes ₹1.26Cr Addition: No Need to Prove ‘Source of Source’ for Pre-2013 Loans [Read Order]

The case involved Pooja Equiresearch Pvt. Ltd., whose assessment for the year 2011-12 was reopened based on information from the Kolkata Investigation Wing. The authorities alleged that the company had received accommodation entries in the form of loans from three entities, namely Brotex Vanijya Pvt. Ltd., Spring Enclave Pvt. Ltd., and Harsharatna Finance and Investment Pvt. Ltd. The Assessing Officer, after issuing notices and examining documents, was not satisfied with the creditworthiness of the creditors and the genuineness of the transactions.

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Despite the assessee furnishing loan confirmations, bank statements, audited balance sheets, and income tax returns of the creditors, the Assessing Officer treated the sum of ₹1.26 crore as unexplained cash credit and made an addition under Section 68. The Commissioner of Income Tax (Appeals) upheld this addition, leading the assessee to file an appeal before the ITAT.

During the hearing, the assessee argued that as per the provisions of Section 68 applicable to assessment year 2011-12, it was only required to prove the identity of the creditors, their creditworthiness, and the genuineness of the transaction, and not the source of funds in the hands of the creditors. The assessee relied on the Bombay High Court’s judgment in the case of CIT V. Gagandeep Infrastructure Pvt. Ltd. (2017), which clarified that the amendment to Section 68, requiring the explanation of the “source of source,” is applicable only from assessment year 2013-14 onwards and does not have retrospective effect.

The Tribunal examined the facts and found that the assessee had submitted all necessary documents to establish the identity of the creditors. The Tribunal further noted that the authorities below had, in substance, applied the amended provisions of Section 68, which were not applicable to the year under consideration. The Tribunal observed that the law prior to April 1, 2013, did not require the assessee to explain the source of the source of the funds received as loans or credits.

The order was pronounced by Narender Kumar Choudhry, Judicial Member, and Prabhash Shankar, Accountant Member, of the Mumbai “C” Bench. The Tribunal concluded that the assessee had discharged its initial burden under Section 68 by providing satisfactory evidence regarding the identity of the creditors and the nature of the transactions. Since the amended law did not apply to the assessment year in question, the addition of ₹1.26 crore was not sustainable.

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Accordingly, the ITAT allowed the appeal of Pooja Equiresearch Pvt. Ltd. and direc2025 TAXSCAN (ITAT) 1130ted that the addition made under Section 68 be deleted. This order reaffirms that for loans or credits received prior to assessment year 2013-14, the assessee’s obligation is limited to proving the identity, creditworthiness, and genuineness of the transaction, and not the source of the source.