Delhi Income Tax Appellate Tribunal deletes Section 68 tax additions after lenders proved legitimacy

The Delhi Income Tax Appellate Tribunal (ITAT) overturned a Section 68 addition of ₹5.5 million for R N Creations Private Limited. The tribunal found that the company had supplied satisfactory documentary proof of the identity, creditworthiness and genuineness of three lenders, and therefore the addition could not be sustained. While the tribunal upheld the validity of the reassessment proceedings under Section 147, it removed the tax addition.

In a separate case, the ITAT also deleted an ₹80 million Section 68 addition for Cinflex Infotech Pvt Ltd. The tribunal held that mere suspicion of circular fund movements was insufficient evidence once the assessee demonstrated the lenders’ legitimacy. Additionally, the tribunal limited the disallowance of interest under Section 36(1)(iii) to the actual interest paid, rejecting the revenue’s use of a notional 8% rate. Both decisions reaffirm that taxpayers must be allowed to prove lender credibility to defeat Section 68 additions.