The officer accepts my lender exists but says the lender's own purchases were bogus. Do I have to explain where the lender got the money?
No, not for an assessment year before 2023-24. Once identity, creditworthiness and genuineness are established the assessee does not have to prove the genuineness of the funds in the lender's hands, and the officer cannot travel into the lender's own purchases without material connecting them to the assessee. The requirement to explain the source of the source of a loan came in with the Finance Act 2022 and operates from assessment year 2023-24.
Decided by the High Court (Delhi High Court — V. Kameswar Rao J and Vinod Kumar J) on 2025-11-13, reported as [2025] 180 taxmann.com 502 (Delhi) / [2026] 486 ITR 88 (Delhi); IT Appeal No. 494 of 2024, on appeal from the Tribunal's order in ITA No. 3963/Del/2019 dated 8 June 2023; assessment year 2014-15. It bears on section 68, section 153A, section 143(3), section 36(1)(iii), section 133(6) of the Income Tax Act 1961, in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters.
This is a High Court answer, on a search assessment, to the commonest form the source-of-source demand takes: the lender is real and confirms the loan, but the investigation wing has something on the lender, so the officer adds the credit in the borrower's hands. The Court's answer is that material against the lender has to be connected to the assessee before it can be used, and that the statutory source-of-source burden for loans has a start date. The department's usual counter is NRA Iron & Steel; the distinction is that NRA turned on the officer's own enquiry showing the investors were not there at all.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A search under s.132 was carried out on the KRBL group on 13 March 2016. For assessment year 2014-15 the company had returned a loss of about Rs 3.49 crore, processed under s.143(1) and then taken up for scrutiny. It had received an unsecured loan of Rs 10 crore from a corporate lender in financial year 2013-14 and paid interest on it. By an assessment order dated 31 December 2017 under ss.153A and 143(3) the Assessing Officer determined income at about Rs 7.54 crore, adding the Rs 10 crore under s.68 as a bogus unsecured loan and disallowing interest of about Rs 1.03 crore on it. He relied on post-search enquiries doubting the lender's creditworthiness and the genuineness of the transaction, on the lender allegedly lacking its own funds and having made bogus purchases, and on the absence of collateral or a loan agreement. The lender's director had confirmed the advance in survey proceedings and again in reply to a notice under s.133(6). The Commissioner (Appeals) deleted the Rs 10 crore addition and the interest disallowance relatable to that loan, about Rs 19.10 lakh, holding that the loan and interest had passed through banking channels, that identity, creditworthiness and genuineness were established, and that the officer's enquiries into the lender's own purchases went to the source of the source. The Tribunal dismissed the Revenue's appeal. The loan was repaid, with interest, in the following financial year.
Both substantial questions of law were answered in favour of the assessee and the Revenue's appeal was dismissed (paras 48-49). The identity of the lender was proved by documentary evidence, by its director's statement in survey and by its reply to the s.133(6) notice; its creditworthiness was proved because the loan was advanced out of funds credited in its bank account, and the Revenue had put nothing on record to show those funds were not available in the relevant year; and genuineness followed from the loan having come through banking channels, having been repaid in the following financial year, and having carried interest (paras 35-36). Once the assessee has discharged that initial onus, it is not required to prove the genuineness of the funds in the lender's hands - the source of the source - so the allegation that the lender's own purchases were not genuine was immaterial to this assessment, as was the Revenue's point that only four of the lender's twelve creditors could be identified (paras 37, 43). The requirement to explain the source of the source of funds credited as unsecured loans was introduced by the Finance Act 2022 and did not apply to assessment year 2014-15 (paras 40, 42). The Revenue's theory that money circulated between the groups, built on financial year 2015-16 transactions, could not be used to unsettle a concurrent finding of fact about a financial year 2013-14 loan which was a plausible and not a perverse view (para 46). Nova Promoters & Finlease and N.R. Portfolio, relied on by the Revenue, were distinguished (para 45).
The Court's route is the ordinary three-ingredient test under s.68 and its limit. Identity, creditworthiness and genuineness were each established on the material: documents and the lender's director's statements for identity; the advance having been made out of funds credited in the lender's bank account for creditworthiness, with the concurrent findings of the Commissioner (Appeals) and the Tribunal at variance with the Assessing Officer's assertion that the funds were not there, and nothing produced by the Revenue to support that assertion; and banking channels, repayment in the next financial year and payment of interest for genuineness (paras 35-36). The limit is that once the initial onus is discharged the assessee is not required to prove the source of the source. The Court took that from the Gujarat High Court in Dy. CIT v. Rohini Builders, which held that an assessee can be asked to prove the source of the credits in its books but not the source of the source, and that capacity is proved by receipt through account payee cheques drawn on the creditors' bank accounts (para 39). It applied the same reasoning as this Court had in Sheela Overseas (P.) Ltd. v. Pr. CIT, where it was held that the source-of-source requirement was introduced by the Finance Act 2022 and did not apply to an earlier year (para 40). On the Revenue's factual case, the Court treated the genuineness of the loan as a pure question of fact concurrently found by two authorities, which was a plausible view and not perverse, so later-year transactions between other entities gave no occasion to reopen it (para 46).
This it is said so, for the reason that once the assessee discharges its initial onus of proving the identity and creditworthiness of the creditor and also the genuineness of the transaction, it is not incumbent upon the assessee to prove the genuineness of the funds at the hands of its lender, i.e., the 'source of the source' of the funds.
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Handle my notice → Ask a CA on WhatsAppNo, not for an assessment year before 2023-24. Once identity, creditworthiness and genuineness are established the assessee does not have to prove the genuineness of the funds in the lender's hands, and the officer cannot travel into the lender's own purchases without material connecting them to the assessee. The requirement to explain the source of the source of a loan came in with the Finance Act 2022 and operates from assessment year 2023-24. This was decided by the High Court (Delhi High Court — V. Kameswar Rao J and Vinod Kumar J) and bears on section 68, section 153A, section 143(3), section 36(1)(iii), section 133(6) of the Income Tax Act 1961. It is reported as [2025] 180 taxmann.com 502 (Delhi) / [2026] 486 ITR 88 (Delhi); IT Appeal No. 494 of 2024, on appeal from the Tribunal's order in ITA No. 3963/Del/2019 dated 8 June 2023; assessment year 2014-15. This is a High Court answer, on a search assessment, to the commonest form the source-of-source demand takes: the lender is real and confirms the loan, but the investigation wing has something on the lender, so the officer adds the credit in the borrower's hands. The Court's answer is that material against the lender has to be connected to the assessee before it can be used, and that the statutory source-of-source burden for loans has a start date. The department's usual counter is NRA Iron & Steel; the distinction is that NRA turned on the officer's own enquiry showing the investors were not there at all. If it applies to you, the first step is this: Fix the assessment year first — for a loan credited before assessment year 2023-24 the first proviso to s.68 does not apply, and say so in terms in the reply.
A search under s.132 was carried out on the KRBL group on 13 March 2016. For assessment year 2014-15 the company had returned a loss of about Rs 3.49 crore, processed under s.143(1) and then taken up for scrutiny. It had received an unsecured loan of Rs 10 crore from a corporate lender in financial year 2013-14 and paid interest on it. By an assessment order dated 31 December 2017 under ss.153A and 143(3) the Assessing Officer determined income at about Rs 7.54 crore, adding the Rs 10 crore under s.68 as a bogus unsecured loan and disallowing interest of about Rs 1.03 crore on it. He relied on post-search enquiries doubting the lender's creditworthiness and the genuineness of the transaction, on the lender allegedly lacking its own funds and having made bogus purchases, and on the absence of collateral or a loan agreement. The lender's director had confirmed the advance in survey proceedings and again in reply to a notice under s.133(6). The Commissioner (Appeals) deleted the Rs 10 crore addition and the interest disallowance relatable to that loan, about Rs 19.10 lakh, holding that the loan and interest had passed through banking channels, that identity, creditworthiness and genuineness were established, and that the officer's enquiries into the lender's own purchases went to the source of the source. The Tribunal dismissed the Revenue's appeal. The loan was repaid, with interest, in the following financial year. The matter was decided on 2025-11-13 by the High Court (Delhi High Court — V. Kameswar Rao J and Vinod Kumar J). On those facts the High Court held as follows. Both substantial questions of law were answered in favour of the assessee and the Revenue's appeal was dismissed (paras 48-49). The identity of the lender was proved by documentary evidence, by its director's statement in survey and by its reply to the s.133(6) notice; its creditworthiness was proved because the loan was advanced out of funds credited in its bank account, and the Revenue had put nothing on record to show those funds were not available in the relevant year; and genuineness followed from the loan having come through banking channels, having been repaid in the following financial year, and having carried interest (paras 35-36). Once the assessee has discharged that initial onus, it is not required to prove the genuineness of the funds in the lender's hands - the source of the source - so the allegation that the lender's own purchases were not genuine was immaterial to this assessment, as was the Revenue's point that only four of the lender's twelve creditors could be identified (paras 37, 43). The requirement to explain the source of the source of funds credited as unsecured loans was introduced by the Finance Act 2022 and did not apply to assessment year 2014-15 (paras 40, 42). The Revenue's theory that money circulated between the groups, built on financial year 2015-16 transactions, could not be used to unsettle a concurrent finding of fact about a financial year 2013-14 loan which was a plausible and not a perverse view (para 46). Nova Promoters & Finlease and N.R. Portfolio, relied on by the Revenue, were distinguished (para 45).
The Court's route is the ordinary three-ingredient test under s.68 and its limit. Identity, creditworthiness and genuineness were each established on the material: documents and the lender's director's statements for identity; the advance having been made out of funds credited in the lender's bank account for creditworthiness, with the concurrent findings of the Commissioner (Appeals) and the Tribunal at variance with the Assessing Officer's assertion that the funds were not there, and nothing produced by the Revenue to support that assertion; and banking channels, repayment in the next financial year and payment of interest for genuineness (paras 35-36). The limit is that once the initial onus is discharged the assessee is not required to prove the source of the source. The Court took that from the Gujarat High Court in Dy. CIT v. Rohini Builders, which held that an assessee can be asked to prove the source of the credits in its books but not the source of the source, and that capacity is proved by receipt through account payee cheques drawn on the creditors' bank accounts (para 39). It applied the same reasoning as this Court had in Sheela Overseas (P.) Ltd. v. Pr. CIT, where it was held that the source-of-source requirement was introduced by the Finance Act 2022 and did not apply to an earlier year (para 40). On the Revenue's factual case, the Court treated the genuineness of the loan as a pure question of fact concurrently found by two authorities, which was a plausible view and not perverse, so later-year transactions between other entities gave no occasion to reopen it (para 46). In the words reproduced by the source cited on this page: "This it is said so, for the reason that once the assessee discharges its initial onus of proving the identity and creditworthiness of the creditor and also the genuineness of the transaction, it is not incumbent upon the assessee to prove the genuineness of the funds at the hands of its lender, i.e., the 'source of the source' of the funds." The decision followed or applied Dy. CIT v. Rohini Builders [2003] 127 Taxman 523 / [2002] 256 ITR 360 (Gujarat) - relied on for the proposition that an assessee can be asked to prove the source of the credits in its books but not the source of the source (para 39); Sheela Overseas (P.) Ltd. v. Pr. CIT [IT Appeal No. 546 of 2023, dated 28 May 2025] (Delhi) - relied on for the prospectivity of the Finance Act 2022 source-of-source requirement (para 40); ACIT v. KRBL Foods Ltd., ITA No. 3963/Del/2019, dated 8 June 2023 (Delhi - Trib.) - affirmed (para 44); CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 18 taxmann.com 217 / 342 ITR 169 (Delhi) and CIT v. N.R. Portfolio (P.) Ltd. [IT Appeal No. 1081 of 2021] - relied on by the Revenue and distinguished (para 45).
It was decided by the High Court on 2025-11-13 and is reported as [2025] 180 taxmann.com 502 (Delhi) / [2026] 486 ITR 88 (Delhi); IT Appeal No. 494 of 2024, on appeal from the Tribunal's order in ITA No. 3963/Del/2019 dated 8 June 2023; assessment year 2014-15. 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, section 153A, section 143(3), section 36(1)(iii), section 133(6), 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. Both substantial questions of law were answered in favour of the assessee and the Revenue's appeal was dismissed (paras 48-49). The identity of the lender was proved by documentary evidence, by its director's statement in survey and by its reply to the s.133(6) notice; its creditworthiness was proved because the loan was advanced out of funds credited in its bank account, and the Revenue had put nothing on record to show those funds were not available in the relevant year; and genuineness followed from the loan having come through banking channels, having been repaid in the following financial year, and having carried interest (paras 35-36). Once the assessee has discharged that initial onus, it is not required to prove the genuineness of the funds in the lender's hands - the source of the source - so the allegation that the lender's own purchases were not genuine was immaterial to this assessment, as was the Revenue's point that only four of the lender's twelve creditors could be identified (paras 37, 43). The requirement to explain the source of the source of funds credited as unsecured loans was introduced by the Finance Act 2022 and did not apply to assessment year 2014-15 (paras 40, 42). The Revenue's theory that money circulated between the groups, built on financial year 2015-16 transactions, could not be used to unsettle a concurrent finding of fact about a financial year 2013-14 loan which was a plausible and not a perverse view (para 46). Nova Promoters & Finlease and N.R. Portfolio, relied on by the Revenue, were distinguished (para 45). It arises in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters, on section 68, section 153A, section 143(3), section 36(1)(iii), section 133(6) of the Income Tax Act 1961, and was decided by Delhi High Court — V. Kameswar Rao J and Vinod Kumar 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 the officer to identify the material that connects the lender's alleged bogus purchases to you; absent that link, object to its use. Put the s.133(6) confirmation, the lender's statement and the banking trail on record together, so the three limbs are answered credit by credit. Where the interest on the same loan has also been disallowed, argue it as consequential and take the point in the same ground.
Validity check could not be completed. Decided 13 November 2025 and now reported at [2025] 180 taxmann.com 502 / [2026] 486 ITR 88 (Delhi). No later decision applying, following or affirming it was found, and the report carries no citator banner, so nothing establishes how it has been treated; it is too recent for that to be surprising. Absence of contrary authority is not good law, so the status stays unverified. The holding is in any event confined by its own terms to years before the Finance Act 2022 amendment took effect: for a credit falling in a year to which the amended s.68 applies, the person in whose name the credit is recorded must explain his own source, and this decision does not help on that footing. Its reasoning follows the Delhi High Court's own earlier decision in Sheela Overseas (P.) Ltd. v. Pr. CIT [IT Appeal No. 546 of 2023, dated 28 May 2025] and the Gujarat High Court in Dy. CIT v. Rohini Builders [2002] 256 ITR 360 (Gujarat). 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.
The reasoning is year-specific. For a credit falling in a year governed by the amended s.68, the first proviso requires the person in whose name the credit is recorded to explain his own source, and this decision does not help on that footing; the Court's answer turns on the Finance Act 2022 requirement not applying to assessment year 2014-15. The conflict between digests about the interest disallowance is resolved by the judgment: the Assessing Officer disallowed about Rs 1.03 crore of interest on the impugned loan, and what the Commissioner (Appeals) deleted was the part relatable to that loan, about Rs 19.10 lakh. Two further points are useful in practice. The Court refused to let the Revenue unsettle a concurrent finding of fact about a financial year 2013-14 loan by pointing to transactions between other entities in financial year 2015-16 - the finding was plausible and not perverse. And it treated the Revenue's inability to identify eight of the lender's twelve creditors as immaterial, since that too was an enquiry into the source of the source. Note that the report anonymises the lender as 'S' and gives the Tribunal's case title as ACIT v. KRBL Foods Ltd. although the assessee before the High Court is KRBL Infrastructure Ltd. The report anonymises the lender as 'S', so the lender's name is not established from the judgment. The report gives the Tribunal's case title as ACIT v. KRBL Foods Ltd. while the assessee before the High Court is KRBL Infrastructure Ltd.; the discrepancy is in the report. No later treatment of this judgment was found and the report carries no citator banner, so whether the Revenue has taken it further is not established. 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.
Both substantial questions of law were answered in favour of the assessee and the Revenue's appeal was dismissed (paras 48-49). The identity of the lender was proved by documentary evidence, by its director's statement in survey and by its reply to the s.133(6) notice; its creditworthiness was proved because the loan was advanced out of funds credited in its bank account, and the Revenue had put nothing on record to show those funds were not available in the relevant year; and genuineness followed from the loan having come through banking channels, having been repaid in the following financial year, and having carried interest (paras 35-36). Once the assessee has discharged that initial onus, it is not required to prove the genuineness of the funds in the lender's hands - the source of the source - so the allegation that the lender's own purchases were not genuine was immaterial to this assessment, as was the Revenue's point that only four of the lender's twelve creditors could be identified (paras 37, 43). The requirement to explain the source of the source of funds credited as unsecured loans was introduced by the Finance Act 2022 and did not apply to assessment year 2014-15 (paras 40, 42). The Revenue's theory that money circulated between the groups, built on financial year 2015-16 transactions, could not be used to unsettle a concurrent finding of fact about a financial year 2013-14 loan which was a plausible and not a perverse view (para 46). Nova Promoters & Finlease and N.R. Portfolio, relied on by the Revenue, were distinguished (para 45).
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