No Addition Under Section 68 Where Identity, Creditworthiness and Genuineness Are Established; ‘Source of Source’ Not Required For AY 2014–15

Background

The Delhi Bench of the Income Tax Appellate Tribunal has granted substantial relief to Singla Realtors Ltd for Assessment Year 2014-15, setting aside major additions made under Sections 37 and 68 of the Income Tax Act. The dispute arose from disallowances of construction material and travelling expenses, along with additions of unsecured loans aggregating to ₹1.69 crore. The Assessing Officer had disallowed most of the expenditure on the ground that complete supporting vouchers were not produced and further treated unsecured loans from five parties as unexplained cash credits under Section 68, primarily alleging failure to establish the “source of source.”

Outcome

On the issue of business expenditure, the Tribunal adopted a balanced approach. Noting deficiencies in documentation but also observing that the books were not rejected, the Bench restricted the disallowance to 20 percent of the unsubstantiated construction and travelling expenses, holding that outright rejection was excessive. The Tribunal recorded that the assessee had furnished income tax returns, confirmations, balance sheets, and bank statements of all lenders. Loans were advanced through banking channels, confirmed under Section 133(6), and in most cases repaid subsequently. Crucially, the Bench observed that during AY 2014-15, there was no statutory requirement to prove the “source of source,” a condition introduced much later.

Holding that the assessee had satisfactorily established identity, creditworthiness, and genuineness, the Tribunal deleted additions exceeding ₹1.62 crore. The decision reinforces that suspicion cannot replace evidence and that pre-amendment Section 68 did not mandate deeper source verification beyond the three settled parameters.