ITAT Delhi Holds Section 68 Addition Invalid When Forfeited Loan Is Taxed in Subsequent Year

Background and Context

In a recent decision in Ahuja and Anand Buildwell Private Limited Vs DCIT (ITAT Delhi), the Delhi Bench of the Income Tax Appellate Tribunal examined whether the same amount could be subjected to tax twice – once as an unexplained cash credit under Section 68 in the year of receipt, and again as business income on account of forfeiture in a later year.

The dispute revolved around unsecured loans received by the assessee from Bhavishya Invest Serve Pvt. Ltd. and Nandini Tradex Pvt. Ltd. during A.Y. 2020-21, which were subsequently forfeited and voluntarily offered to tax in A.Y. 2023-24 as part of “other income”. The Assessing Officer had invoked Section 68 to tax the loans in A.Y. 2020-21, despite the assessee having already paid tax on the forfeited amounts in A.Y. 2023-24.

The Tribunal ultimately directed deletion of the Section 68 addition, emphasizing the impermissibility of double taxation and relying on the revenue neutrality principle recognized by the Hon’ble Supreme Court in CIT vs. Excel Industries Ltd. (358 ITR 295).

Appeal Before ITAT Delhi

Issues Raised in the Appeal

The assessee challenged the order of the Ld. CIT(A)-3, Noida, dated 13.08.2025 for A.Y. 2020-21, wherein the first appellate authority had confirmed additions made under Section 68 in respect of unsecured loans from:

  • Bhavishya Invest Serve Pvt. Ltd.
  • Nandini Tradex Pvt. Ltd.

Although multiple grounds were originally taken, the assessee, through its counsel, decided to press only the substantive grounds on merits (Ground Nos. 5 and 6), relating to the validity of the Section 68 additions. The legal and technical grounds (Ground Nos. 1 to 4) were not pursued before the Tribunal.

Facts of the Case

Unsecured Loans in A.Y. 2020-21

During A.Y. 2020-21, the assessee had obtained unsecured loans from the following entities:

  • A sum of Rs. 35,23,010/- from Bhavishya Invest Serve Pvt. Ltd.
  • A sum of Rs. 1,66,02,685/- from Nandini Tradex Pvt. Ltd.

These amounts were treated by the Assessing Officer as unexplained cash credits under Section 68 in the year of receipt, i.e., A.Y. 2020-21, and brought to tax accordingly.

Forfeiture and Offer to Tax in A.Y. 2023-24

In a later year, the assessee forfeited the above loans. Instead of continuing to treat these balances as liabilities, the assessee recognized the forfeited sums as income in its books in A.Y. 2023-24.

Referring to the Profit and Loss Account for the year ended 31.03.2023, the assessee’s counsel pointed out:

  • The assessee had disclosed “other income” of Rs. 22,24,62,543/-.
  • This “other income” category included the forfeited loans.
  • The assessee’s profit before tax was Rs. 14.39 lakhs, which exactly matched the profit figure used in the computation of income for A.Y. 2023-24.

The computation of income for A.Y. 2023-24, placed on record before the Tribunal, clearly indicated that the forfeited loan amounts had been offered to tax, and the corresponding tax liability had been discharged for that year.

Assessee’s Argument

The assessee contended that: