ITAT Mumbai Holds Section 68 Applies Only to Fresh Credits, Deletes ₹1.20 Crore Addition

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 4 May held that additions under Section 68 of the Income-tax Act, 1961 cannot be made in the absence of any fresh credit arising during the relevant previous year, and remanded the matter for fresh verification.

A Bench comprising Accountant Member Bijayananda Pruseth and Judicial Member Sandeep Singh Karhail set aside the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals), who had sustained an addition of Rs. 1.20 crore against Viking Technology & Trade Pvt. Ltd. It observed:

“Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not in the opinion of the AO satisfactory, the sum so credited shall be charged to income tax as income of the assessee of that previous year.”

The Assessing Officer (AO) reopened the assessment against Viking Technology for the AY 2019–20 under Section 147. The AO treated unsecured loans of Rs. 1.20 crore as unexplained cash credits under Section 68, relying on search-related information alleging accommodation entries. The Commissioner of Income Tax (Appeals) upheld the addition.

Before the ITAT, Viking Technology asserted that it did not receive any fresh loans during the year. It submitted that the amounts reflected in the books represented only opening balances carried forward from earlier years. The ledger accounts showed identical opening and closing balances, indicating no fresh credit entries during the year. It also produced additional evidence, including earlier ledger extracts and bank statements.

The Tribunal observed that Section 68 applies only when a sum is actually credited in the books during the relevant previous year. It held that taxability depends on the year in which the credit arises, and the provision cannot be invoked where no such credit occurs in that year.

It admitted the additional evidence, noting that the lower authorities had not examined it, and set aside their findings. The Bench directed the AO to verify whether any unsecured loan was credited during the year under consideration.

The Bench further observed that “it is relevant to determine whether the unsecured loan was credited in the books of the assessee in the year under consideration,” and directed that if the amounts are found to be only opening balances with no fresh loans, the Section 68 addition must be deleted.

Accordingly, the ITAT allowed the appeal and remanded all issues to the Assessing Officer for fresh adjudication.

For Appellant: Rajiv Khandelwal, Advocate 

For Respondent: Rajesh Sakhardande, Sr. DR