ITAT: Section 68 Addition Unsustainable If Alleged Loans Are Mere Opening Balances, No Fresh Credit During AY

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 the alleged unsecured loans merely represent opening balances carried forward from earlier years, the provisions of Section 68 cannot be invoked for the year under consideration.

The Bench comprising Bijayananda Pruseth and Sandeep Singh Karhail set aside the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals), which had sustained an addition of Rs.1.20 crore against Viking Technology & Trade Pvt. Ltd. under Section 68 of the Act. The matter was restored to the Assessing Officer for fresh verification.

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 the business of manufacturing, distributing and trading 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 was received 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 parties, namely Atharva Trademart Pvt. Ltd., A.V. Export, R.K. Export and J.M. Joshi. The Assessing Officer held that the assessee 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 also submitted that Atharva Trademart Pvt. Ltd. and A.V. Export had entered into a Memorandum of Understanding with the assessee for establishing a mouth freshener manufacturing unit at Silvassa. Regarding R.K. Export, the assessee sought time to furnish details after its auditor handling financial affairs had left the company.

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

Before the Tribunal, the assessee contended that no fresh loans had been received during the relevant previous year and that the amounts shown in the books were merely 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 under consideration.

To support its claim, the assessee produced additional evidence before the Tribunal, 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 and that the contention regarding absence of fresh loans was being raised for the first time before the Tribunal.

Examining Section 68 of the Income-tax Act, 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.” The Bench held that taxability under Section 68 depends upon the year in which the credit actually arises.

The Tribunal noted that while the assessee claimed the amounts were opening balances from earlier years, the Assessing Officer had proceeded on the assumption that the loans were availed on April 1, 2018 during the relevant year. Since the additional documents produced by the assessee had not been examined earlier, the Tribunal admitted the additional evidence in the interest of justice and fair play.

Restoring the matter for fresh adjudication, the Tribunal directed the Assessing Officer to verify the ledger accounts and bank statements produced by the assessee. It further held that if it is found that the loans were not received during the relevant assessment year and merely represented opening balances, 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: Bijayananda Pruseth and Sandeep Singh Karhail