You proved who your investor is and that the money came by bank. Must you also prove where the investor got it?
No. Section 68 asks for three things — identity, genuineness and creditworthiness. There is no obligation to prove the source of the source. On these facts NRA Iron & Steel was distinguished and a Rs 34 crore addition was deleted.
Decided by the High Court (Bombay High Court — Ujjal Bhuyan J and Milind N. Jadhav J) on 2020-01-29, reported as [2020] 116 taxmann.com 34 (Bom) / [2020] 271 Taxman 75 (Bom) / [2020] 424 ITR 219 (Bom); IT Appeal No. 1231 of 2017. It bears on section 68 of the Income Tax Act 1961, in Cash Credits & Unexplained Money matters.
NRA Iron & Steel is quoted in almost every s.68 notice. This is the decision that shows where its limit lies: NRA turned on the officer having actually gone and looked. Where the department's own enquiry confirms the investor exists, the same reasoning cuts the other way.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2010-11 the assessee received share application money of Rs 34 crore from three Kolkata-based companies — Parasmani Merchandise Pvt Ltd Rs 13.50 crore, Ratanmani Vanijya Pvt Ltd Rs 2 crore and Rosberry Merchants Pvt Ltd Rs 18.50 crore. The Assessing Officer took the view that the whereabouts of these companies were doubtful and their identity could not be authenticated, that they were entities on paper without proper addresses with no funds of their own, and that they had not answered the letters written to them; by order dated 28 March 2013 under s.143(3) he treated the whole Rs 34 crore as unexplained cash credit under s.68. The Commissioner (Appeals), by order dated 18 June 2014 and after admitting additional evidence, held the burden discharged and deleted the addition. The Tribunal confirmed that by order dated 26 August 2016 in IT Appeal No. 5181/Mum/2014. The revenue appealed under s.260A on three proposed questions.
The appeal was dismissed under s.260A: the Court held that no question of law, much less any substantial question of law, arose from the Tribunal's order (para 24). Its operative finding was that the first appellate authority had returned a clear finding of fact that the assessee had discharged its onus of proving the identity of the creditors, the genuineness of the transactions and their creditworthiness, that this finding stood affirmed by the Tribunal, that there were therefore concurrent findings of fact by two appellate authorities, and that the revenue had not been able to show any perversity in them (para 23). On the law the Court stated two settled propositions: that under s.68 the assessee is required to prove the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor (para 14), and that the assessee is not required to prove the source of the source (para 15). It distinguished PCIT v. NRA Iron & Steel (P.) Ltd. on the footing that there the Assessing Officer had made an independent and detailed inquiry including a survey of the investor companies, and the field report revealed the shareholders were either non-existent or lacked creditworthiness (para 22).
The Court set out s.68 and recorded the two settled propositions — the three-limb burden, and that the source of the source need not be proved, a position it had itself stated days earlier in Gaurav Triyugi Singh v. ITO (IT Appeal No. 1750 of 2017, 22 January 2020) (paras 13 to 15). It then recited what each authority below had done. The findings the entry relies on are not this Court's own: it was the first appellate authority which held that there is no requirement under s.68 to explain the source of the source, that share application money need not come out of taxable income and may come from borrowed funds, and that a failure to answer a notice does not ipso facto mean the creditor lacked creditworthiness (para 18); and it was the Tribunal which listed the PAN numbers, returns, confirmation letters and bank statements, and which recorded that the Assessing Officer had referred the matter to the investigation wing at Kolkata, that the report said the companies existed and had filed returns, that the officer neither considered it nor gave a copy to the assessee, and that the enquiries had in fact proved the source of the source (paras 19 and 20). The Court's own contribution was to hold that on those materials the identity was not in doubt (para 21), that NRA Iron & Steel was distinguishable because there the officer had made an independent and detailed inquiry including a survey which showed the shareholders to be non-existent or lacking creditworthiness (para 22), and that with concurrent findings of fact and no perversity shown, no substantial question of law arose (paras 23 and 24).
It is also a settled proposition that assessee is not required to prove source of source.
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Handle my notice → Ask a CA on WhatsAppNo. Section 68 asks for three things — identity, genuineness and creditworthiness. There is no obligation to prove the source of the source. On these facts NRA Iron & Steel was distinguished and a Rs 34 crore addition was deleted. This was decided by the High Court (Bombay High Court — Ujjal Bhuyan J and Milind N. Jadhav J) and bears on section 68 of the Income Tax Act 1961. It is reported as [2020] 116 taxmann.com 34 (Bom) / [2020] 271 Taxman 75 (Bom) / [2020] 424 ITR 219 (Bom); IT Appeal No. 1231 of 2017. NRA Iron & Steel is quoted in almost every s.68 notice. This is the decision that shows where its limit lies: NRA turned on the officer having actually gone and looked. Where the department's own enquiry confirms the investor exists, the same reasoning cuts the other way. If it applies to you, the first step is this: Assemble the three-limb file: PAN and returns for identity, bank and RTGS trail for genuineness, investor's own accounts for creditworthiness.
For assessment year 2010-11 the assessee received share application money of Rs 34 crore from three Kolkata-based companies — Parasmani Merchandise Pvt Ltd Rs 13.50 crore, Ratanmani Vanijya Pvt Ltd Rs 2 crore and Rosberry Merchants Pvt Ltd Rs 18.50 crore. The Assessing Officer took the view that the whereabouts of these companies were doubtful and their identity could not be authenticated, that they were entities on paper without proper addresses with no funds of their own, and that they had not answered the letters written to them; by order dated 28 March 2013 under s.143(3) he treated the whole Rs 34 crore as unexplained cash credit under s.68. The Commissioner (Appeals), by order dated 18 June 2014 and after admitting additional evidence, held the burden discharged and deleted the addition. The Tribunal confirmed that by order dated 26 August 2016 in IT Appeal No. 5181/Mum/2014. The revenue appealed under s.260A on three proposed questions. The matter was decided on 2020-01-29 by the High Court (Bombay High Court — Ujjal Bhuyan J and Milind N. Jadhav J). On those facts the High Court held as follows. The appeal was dismissed under s.260A: the Court held that no question of law, much less any substantial question of law, arose from the Tribunal's order (para 24). Its operative finding was that the first appellate authority had returned a clear finding of fact that the assessee had discharged its onus of proving the identity of the creditors, the genuineness of the transactions and their creditworthiness, that this finding stood affirmed by the Tribunal, that there were therefore concurrent findings of fact by two appellate authorities, and that the revenue had not been able to show any perversity in them (para 23). On the law the Court stated two settled propositions: that under s.68 the assessee is required to prove the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor (para 14), and that the assessee is not required to prove the source of the source (para 15). It distinguished PCIT v. NRA Iron & Steel (P.) Ltd. on the footing that there the Assessing Officer had made an independent and detailed inquiry including a survey of the investor companies, and the field report revealed the shareholders were either non-existent or lacked creditworthiness (para 22).
The Court set out s.68 and recorded the two settled propositions — the three-limb burden, and that the source of the source need not be proved, a position it had itself stated days earlier in Gaurav Triyugi Singh v. ITO (IT Appeal No. 1750 of 2017, 22 January 2020) (paras 13 to 15). It then recited what each authority below had done. The findings the entry relies on are not this Court's own: it was the first appellate authority which held that there is no requirement under s.68 to explain the source of the source, that share application money need not come out of taxable income and may come from borrowed funds, and that a failure to answer a notice does not ipso facto mean the creditor lacked creditworthiness (para 18); and it was the Tribunal which listed the PAN numbers, returns, confirmation letters and bank statements, and which recorded that the Assessing Officer had referred the matter to the investigation wing at Kolkata, that the report said the companies existed and had filed returns, that the officer neither considered it nor gave a copy to the assessee, and that the enquiries had in fact proved the source of the source (paras 19 and 20). The Court's own contribution was to hold that on those materials the identity was not in doubt (para 21), that NRA Iron & Steel was distinguishable because there the officer had made an independent and detailed inquiry including a survey which showed the shareholders to be non-existent or lacking creditworthiness (para 22), and that with concurrent findings of fact and no perversity shown, no substantial question of law arose (paras 23 and 24). In the words reproduced by the source cited on this page: "It is also a settled proposition that assessee is not required to prove source of source." The decision followed or applied Pr. CIT v. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 / 262 Taxman 74 / 412 ITR 161 (SC) — distinguished on the facts (para 22); Gaurav Triyugi Singh v. ITO [IT Appeal No. 1750 of 2017, 22.01.2020] (Bom) — the Court's own earlier statement that the source of the source need not be proved (para 15).
It was decided by the High Court on 2020-01-29 and is reported as [2020] 116 taxmann.com 34 (Bom) / [2020] 271 Taxman 75 (Bom) / [2020] 424 ITR 219 (Bom); IT Appeal No. 1231 of 2017. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 68, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed under s.260A: the Court held that no question of law, much less any substantial question of law, arose from the Tribunal's order (para 24). Its operative finding was that the first appellate authority had returned a clear finding of fact that the assessee had discharged its onus of proving the identity of the creditors, the genuineness of the transactions and their creditworthiness, that this finding stood affirmed by the Tribunal, that there were therefore concurrent findings of fact by two appellate authorities, and that the revenue had not been able to show any perversity in them (para 23). On the law the Court stated two settled propositions: that under s.68 the assessee is required to prove the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor (para 14), and that the assessee is not required to prove the source of the source (para 15). It distinguished PCIT v. NRA Iron & Steel (P.) Ltd. on the footing that there the Assessing Officer had made an independent and detailed inquiry including a survey of the investor companies, and the field report revealed the shareholders were either non-existent or lacked creditworthiness (para 22). It arises in Cash Credits & Unexplained Money matters, on section 68 of the Income Tax Act 1961, and was decided by Bombay High Court — Ujjal Bhuyan J and Milind N. Jadhav J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Ask what independent enquiry the officer actually conducted — NRA rests on that, and its absence is the distinction. Resist any demand to prove the source of the source unless the assessment year attracts the s.68 proviso for closely held companies.
Still good law. No citator banner and no CASE REVIEW entry recording later treatment of this decision appeared in the database. It is cited by the Delhi High Court in Pr. CIT v. Agson Global (P.) Ltd. [2022] 134 taxmann.com 256 (Delhi), decided 19 January 2022, at para 14.1, in a s.68 share capital appeal decided in the assessee's favour. Its evidentiary premise is nonetheless dated: the Finance Act 2012 proviso already required the shareholder's own source to be explained for share application money, share capital and share premium of closely held companies from assessment year 2013-14; the Finance Act 2022 extended that onus to loans and borrowings from assessment year 2023-24; and s.115BBE has taxed s.68 additions at 60 per cent plus surcharge since assessment year 2017-18, a rate the Finance Act 2026 reduced to 30 per cent under the Income-tax Act 2025. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
High Court — binding in Maharashtra and Goa, but read the disposition carefully before relying on it. The appeal was dismissed under s.260A because no substantial question of law arose from concurrent findings of fact that the revenue could not show to be perverse (paras 23 and 24). What the High Court itself lays down is confined to two sentences of settled law at paras 14 and 15 — the three-limb burden, and that the source of the source need not be proved — plus the distinction of NRA Iron & Steel at para 22 on the ground that there the officer had made an independent inquiry and a survey. The findings about PAN numbers, returns, confirmations, bank statements and the unshared investigation wing report are the Tribunal's, recited at paras 19 to 21. Check the proviso to s.68 for share capital in closely held companies, which changes the source-of-source position from assessment year 2013-14 and did not apply to this year. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed under s.260A: the Court held that no question of law, much less any substantial question of law, arose from the Tribunal's order (para 24). Its operative finding was that the first appellate authority had returned a clear finding of fact that the assessee had discharged its onus of proving the identity of the creditors, the genuineness of the transactions and their creditworthiness, that this finding stood affirmed by the Tribunal, that there were therefore concurrent findings of fact by two appellate authorities, and that the revenue had not been able to show any perversity in them (para 23). On the law the Court stated two settled propositions: that under s.68 the assessee is required to prove the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor (para 14), and that the assessee is not required to prove the source of the source (para 15). It distinguished PCIT v. NRA Iron & Steel (P.) Ltd. on the footing that there the Assessing Officer had made an independent and detailed inquiry including a survey of the investor companies, and the field report revealed the shareholders were either non-existent or lacked creditworthiness (para 22).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
You have a document that says so. Does that settle it?
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