ITAT: Section 68 Addition Unsustainable If Alleged Unsecured Loans Are Mere Opening Balances From Earlier Years

May 4, 2026 : The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that additions under Section 68 of the Income-tax Act, 1961 cannot be sustained unless a fresh credit is found in the books of the assessee during the relevant assessment year. The Tribunal observed that where alleged unsecured loans merely represent opening balances carried forward from earlier years, no addition under Section 68 can be made for the year under consideration.

The Bench comprising Accountant Member Bijayananda Pruseth and Judicial Member Sandeep Singh Karhail set aside the orders passed by the Assessing Officer and the Commissioner of Income Tax (Appeals) sustaining an addition of Rs.1.20 crore against Viking Technology & Trade Pvt. Ltd. under Section 68 and restored the matter to the Assessing Officer for fresh adjudication.

The Tribunal observed:

“Therefore, in the present case, it is relevant to determine whether the unsecured loan was credited in the books of the assessee in the year under consideration.”

The assessee-company, engaged in manufacturing, distribution and trading of miscellaneous items, had filed its return for Assessment Year 2019-20 declaring a loss of Rs.25.31 lakh. Reassessment proceedings under Section 147 were initiated after information surfaced during a search and seizure action alleging that the assessee was a beneficiary of accommodation entry transactions involving bogus loans.

During reassessment proceedings, the Assessing Officer examined unsecured loans amounting to Rs.1,20,57,962 reflected in the books of the assessee from four entities, namely Atharva Trademart Pvt. Ltd., A.V. Export, R.K. Export and J.M. Joshi. The AO held that the assessee had failed to furnish sufficient documentary evidence such as bank statements, cash flow statements and proof of the lenders’ creditworthiness.

The assessee explained that J.M. Joshi, father of one of the directors, had advanced interest-free loans for business purposes. It was further submitted that Atharva Trademart Pvt. Ltd. and A.V. Export had entered into a Memorandum of Understanding with the assessee for setting up a mouth freshener manufacturing unit at Silvassa. Regarding R.K. Export, the assessee sought additional time to furnish documents after the chartered accountant handling its finances had left the company.

Rejecting the explanation, the Assessing Officer treated the entire amount of Rs.1.20 crore as unexplained cash credits under Section 68. The Commissioner of Income Tax (Appeals) affirmed the addition.

Before the Tribunal, the assessee contended that no fresh loans had been received during the relevant previous year and that the impugned amounts represented opening balances carried forward from earlier years. It was pointed out that the opening and closing balances in the ledger accounts of all four lenders were identical, indicating that no fresh credits had arisen during the year.

To support its case, the assessee produced additional evidence including ledger accounts from April 1, 2014 to March 31, 2019 and bank statements showing that the loans had been received in preceding years. The Revenue opposed the plea, arguing that these documents had not been produced before the lower authorities.

Examining Section 68, the Tribunal observed that the provision applies only where “any sum is found credited in the books of an assessee maintained for any previous year.” It held that the taxability under Section 68 depends upon the year in which the credit actually arises.

The Tribunal admitted the additional evidence and restored the matter to the jurisdictional Assessing Officer for de novo adjudication. It directed the AO to verify whether the loans were received during the relevant assessment year or merely represented opening balances from earlier years. The Tribunal further directed that if the loans were found not to have been received during the relevant year, the addition under Section 68 must be deleted.

The appeal was accordingly allowed for statistical purposes.

Case Title: Viking Technology & Trade Pvt. Ltd. v. Deputy Commissioner of Income Tax
Case No.: ITA No. 8514/Mum./2025
Coram: Accountant Member Bijayananda Pruseth and Judicial Member Sandeep Singh Karhail