Delhi ITAT Strikes Down Section 68 Addition on Unsecured Loans: Assessee Establishes Identity, Creditworthiness and Genuineness While AO Skips Independent Verification

Overview of the Dispute

The Delhi bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of Sanraj Hospitality Pvt Ltd Vs ITO (ITAT Delhi), concerning Assessment Year 2017-18, where additions aggregating to Rs. 2,13,29,429/- had been made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 on account of unsecured loans treated as unexplained credits. The Tribunal ultimately ruled in favour of the assessee, holding that the burden of proof had been duly discharged and that the Revenue had failed to conduct any independent verification to rebut the documentary evidence placed on record.

This ruling carries considerable importance for assessees dealing with Section 68 additions in scrutiny assessments, particularly where complete documentation may not have been produced at the assessment stage but is subsequently furnished during appellate proceedings.

Background and Facts of the Case

Sanraj Hospitality Pvt Ltd is engaged in the business of providing onboard catering services on trains. For Assessment Year 2017-18, the assessee filed its return of income on 29.03.2018, declaring a total income of Rs. 28,28,080/-.

During the course of scrutiny assessment proceedings conducted under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer noted that the assessee had received unsecured loans totalling Rs. 3,31,75,000/- from five lender entities, comprising companies, partnership firms, and individuals. The outstanding balance at the year-end stood at Rs. 2,13,29,429/-.

The AO took the view that the assessee had not furnished sufficient material to establish:

  • The identity of the lending parties
  • The creditworthiness of the lenders
  • The genuineness of the loan transactions

Accordingly, the entire outstanding loan amount was brought to tax under Section 68, and the consequential levy of tax at special rates was imposed under Section 115BBE of the Income Tax Act, 1961.

Additional Disallowances Made by the AO

Beyond the Section 68 addition, the AO also made the following disallowances:

  • Rs. 1,96,800/- paid as ROC fee for increase in authorised share capital — treated as capital expenditure and disallowed as a revenue deduction
  • Rs. 1,10,000/- donated to a charitable entity — disallowed as it was not considered to be linked to the business activity
  • Rs. 65,824/- representing income tax interest claimed as a business expenditure — disallowed

As a consequence, the total assessed income was revised upward to Rs. 2,45,30,230/-.

Proceedings Before the CIT(A)

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-30, New Delhi under Section 250 of the Income Tax Act, 1961.

At the appellate stage, the assessee filed comprehensive additional evidence under Rule 46A of the Income Tax Rules, 1962 through a letter dated 17.03.2025. The documentary package submitted included:

  • Confirmation letters from each of the lender parties
  • Financial statements of the lenders covering three consecutive financial years (FY 2015-16 to FY 2017-18)
  • Bank statements reflecting all transactions through banking channels
  • GST registration certificates of the lenders
  • ROC records and MCA data establishing the existence and identity of lending entities
  • Evidence of loan repayments made during and after the year under appeal