When suspicion replaces evidence, justice falters. Section 68 additions often hinge on doubts, but courts insist on proof. This case unravels how the assessee fought back with law and logic.
Burden of Proof in Section 68: Section 68 is one of the most litigated provisions in tax law, often invoked when credits in bank accounts raise suspicion. But the law is clear: once the assessee establishes identity, creditworthiness, and genuineness, the onus shifts to the Department. Courts have repeatedly warned that suspicion, however strong, cannot replace evidence.
Written submissions
(On the issue of addition u/s 68)
BEFORE THE HON’BLE INCOME TAX APPELLATE TRIBUNAL
[Jurisdictional Bench – as per case record]
Subject:
Written Submissions on behalf of the Assessee (Applicant) challenging the order of the Learned Commissioner of Income-tax (Appeals) [CIT(A)] confirming additions made by the Assessing Officer, in the case of Mrs. Sonea Dhir, Assessment Year [as per record].
Reference
This appeal is filed under Section 253 of the Income-tax Act, 1961, against the order of the Ld. CIT(A) dated [date from record], arising from the assessment order passed under Section [relevant section – likely 143(3) or 147 r.w.s. 143(3)], wherein certain additions were confirmed, aggrieved by which the assessee prefers this appeal before the Hon’ble Tribunal.
As it may please your honour,
It is respectfully submitted that-
1. Facts of the Case: The assessee is an individual, regularly assessed to income-tax, deriving income from salary/business/other sources. For the relevant assessment year, the assessee duly filed her return of income declaring total income of ₹[amount], supported by books of account, bank statements, and requisite schedules. During scrutiny proceedings, the Assessing Officer (AO) raised queries on certain credits/transactions reflected in the assessee’s accounts. These pertained primarily to, nature of transaction relating to sale of property, unsecured loan receipts, capital gains computation, etc., source and nature of certain deposits in bank accounts and treatment of certain transactions for purposes of computation of income.
The assessee furnished detailed explanations, supported by documentary evidence including bank statements, confirmations, identity and creditworthiness proofs of concerned parties, and justification of the nature of the transactions. Despite such submissions, the AO proceeded to make additions invoking [relevant section, e.g., Section 68/69/56 etc.], citing alleged inadequacy of evidence or doubt about genuineness.
2. Additions and Reasons Why Additions Were Made: The AO made the following substantive additions to the returned income:
(i) Addition on account of unexplained credits / deposits — The AO held that certain amounts credited in the assessee’s bank account represented unexplained money under Section [68/69A/69B, as per record], as in the AO’s view, the assessee failed to establish the genuineness of the transaction and creditworthiness of the lender/donor/payer.
(ii) Addition relating to alleged undervaluation / mischaracterisation — The AO recharacterised certain receipts (possibly claimed as exempt or capital in nature) as taxable income, holding that conditions for exemption were not met.
The AO’s reasoning primarily relied on: (i) Inference from perceived inconsistencies between explanations and bank entries; (ii) Doubts on the sufficiency of supporting documentation; (iii) Adverse interpretation of circumstantial evidence.
These additions were made despite the assessee’s contention that the transactions were genuine, fully explained, routed through banking channels, and supported by confirmatory evidence.
3. Order of CIT(A): The assessee preferred an appeal before the Ld. Commissioner of Income-tax (Appeals), challenging the additions made by the AO both on facts and in law. In the appellate proceedings, the assessee reiterated her detailed explanations, resubmitted the evidences earlier placed before the AO, and supplemented them with further documents such as:
i. Affidavits/confirmations from the concerned parties;
ii. Income-tax returns and financial statements of such parties to establish creditworthiness;
iii. Documentary proof showing source of funds in the hands of the payer;
iv. Bank statements correlating the flow of funds to the transactions in question.
The assessee emphasised that:
i. All transactions were through verifiable banking channels;
ii. No adverse material was brought on record by the AO to disprove the evidence;
iii. The addition was made purely on suspicion without independent corroboration.
However, the Ld. CIT(A) dismissed the appeal and confirmed the AO’s findings, primarily on the following reasoning:
i. On unexplained credits/deposits: The CIT(A) opined that while identity of the parties may have been established, the assessee failed to demonstrate the “genuineness” of the transactions to the standard required under law. The CIT(A) considered the documentary evidence insufficient to dispel doubts regarding the commercial rationale or source in the hands of the creditor/donor.
On recharacterization of receipts: The CIT(A) agreed with the AO’s conclusion that the claimed nature of certain receipts (e.g., gifts, exempt capital receipts) was not satisfactorily established. The CIT(A) held that mere banking channels and confirmations could not substitute for substantive evidence of the underlying nature of the transaction.
The CIT(A) thus confirmed the additions in entirety, while noting that the assessee had not been able to produce what he termed as “clinching evidence” to overturn the AO’s conclusions.
4. Grounds Raised Before the Tribunal: Aggrieved by the appellate order, the assessee has approached the Hon’ble Tribunal, raising the following principal grounds (without prejudice to each other):
(i) That the Ld. CIT(A) has erred both in law and on facts in upholding the additions made by the AO under Section [relevant section, e.g., 68/69A], despite the assessee furnishing complete and satisfactory explanations, duly supported by documentary evidence.
(ii) That the Ld. CIT(A) has failed to appreciate that the identity, creditworthiness, and genuineness of the transactions were fully established through bank records, income-tax returns, confirmations, and other supporting documentation, and that no adverse material was brought on record to rebut the same.
(iii) That the findings of the Ld. CIT(A) are based on suspicion, conjecture, and surmise, without reference to any credible material evidence, and hence are unsustainable in law.
(iv) That the Ld. CIT(A) has erred in law in disregarding settled judicial precedents which hold that once the assessee has discharged the initial burden under Section 68 (or relevant section), the onus shifts to the Department to prove otherwise.
(v) That the impugned additions are bad in law, contrary to the facts and circumstances of the case, and liable to be deleted in entirety.
5. Submission on Facts: The assessee respectfully submits that the entire premise on which the additions have been sustained by the CIT(A) is factually incorrect and legally untenable. The following factual aspects have been either ignored or inadequately appreciated:
(i) Full Disclosure and Transparency: At every stage — assessment as well as appellate — the assessee furnished complete particulars of the impugned transactions, including the names, addresses, PAN numbers, and confirmations of all concerned parties. All amounts were received through account-payee cheques or RTGS transfers, duly reflected in the assessee’s bank statements and books of account.
(ii) Evidence of Identity: The parties from whom amounts were received were not anonymous; their identity was conclusively established through PAN, Aadhaar, and other government-issued identification. These persons were regular income-tax assessees, and their jurisdictional Assessing Officers could have been approached by the AO for verification.
(iii) Evidence of Creditworthiness: The financial capacity of each creditor/donor was demonstrated through their bank statements, audited financial statements, and income-tax returns. These records clearly show that each party had the means to advance the amounts in question.
(iv) Evidence of Genuineness: The transactions were routed through normal banking channels and were duly recorded in the regular books of account maintained by both sides. In many cases, the purposes of the transactions were also supported by documentary evidence (agreements, correspondence, declarations). No cash movement was involved.
(v) Lack of Contradictory Material: The AO did not produce any independent evidence to disprove the assessee’s claims. There was no statement, document, or third-party confirmation contradicting the assessee’s explanation. Mere disbelief of the explanation, without a cogent basis, cannot justify an addition.
(vi) Non-Consideration of Submissions: Several documents filed during the appellate stage, including further corroborative evidence, were neither referred to nor discussed in the CIT(A)’s order. This constitutes a violation of the principle of due consideration and fair adjudication.
(vii) Presumption Against the Assessee Unwarranted: The CIT(A) appears to have presumed that the absence of “commercial rationale” automatically implies non-genuineness. This is contrary to law — the Income-tax Act does not mandate that every receipt must be justified on a business rationale unless it is claimed as business income or deduction.
Accordingly, on the factual matrix alone, the assessee has fully discharged the initial burden cast upon her under Section 68/69A (as applicable), shifting the onus to the Department, which it has failed to discharge. The additions are therefore unsustainable in fact.
6. Submissions on Law
(i) Principle of Initial Burden and Onus Shift: Under Section 68, the assessee’s obligation is to prove:
i. Identity of the creditor;
ii. Creditworthiness of the creditor;
iii. Genuineness of the transaction.
Once these three elements are established through prima facie evidence, the burden shifts to the Department to disprove the same (CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (SC)).
(ii) Banking Channel and Documentation: Judicial precedents, including CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR 195 (SC), hold that where identity is proved and transactions are through banking channels, the Department must pursue the creditor, not the assessee.
(iii) Suspicion Cannot Replace Proof: It is settled law that additions cannot be made merely on the basis of suspicion, conjecture, or surmise without bringing on record cogent material evidence (Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC)).
(iv) Independent Verification Required: The AO is empowered under Section 131 to verify the correctness of the assessee’s claims. Failure to exercise this power and instead resorting to unverified assumptions vitiates the assessment. CIT v. Kamdhenu Vyapar Co. Ltd. [2003] 130 Taxman 147 (Calcutta)
(v) Principle of Consistency: In the assessee’s own earlier years, similar transactions have been accepted by the Department without adverse inference. Unless there is a change in facts or law, a departure from this position is impermissible (Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC)).
(vi) Violation of Natural Justice: The CIT(A)’s failure to consider crucial evidence submitted during appellate proceedings constitutes a breach of the audi alteram partem rule, rendering the order invalid.
(vii) Interpretation in Favour of Assessee: In the absence of clear, incriminating material, provisions like Section 68 should be interpreted in a manner favourable to the assessee, as per the settled rule in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC).
Given the above, the law clearly mandates deletion of the impugned additions.
7. Legal Precedents Against the CIT(A) Order: In support of the assessee’s submissions and against the reasoning adopted by the CIT(A), the following judicial precedents are respectfully relied upon:
(i) CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (SC): The assessee had shown certain cash credits in its books. Notices under section 131/133(6) to the alleged creditors were returned unserved or not complied with. The AO treated the credits as unexplained under section 68. The CIT(A) deleted the addition as the assessee had disclosed the names and addresses and payments were by account payee cheques. The Tribunal upheld this, holding the AO had not pursued enquiries. The Calcutta High Court held that the assessee had discharged its onus by furnishing complete particulars; the failure of creditors to appear could not, by itself, justify addition unless the AO brought material to prove the credits were not genuine. The decision affirmed that once the assessee provides prima facie evidence, the burden shifts to the department.
(ii) CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR 195 (SC): The assessee-company received share application money from alleged bogus shareholders. The AO treated it as unexplained cash credit under section 68. The High Court held that if the identity of shareholders is established, then even if they are bogus, the amount cannot be regarded as undisclosed income of the company; the department is free to assess them individually. The Supreme Court dismissed the SLP, approving this view. It affirmed that share application money, once identity is established, cannot be taxed in company’s hands under section 68; recourse lies against the applicants.
(iii) Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC): The assessee had shown certain loans from alleged creditors. The AO doubted their genuineness as the creditors did not appear and treated the loans as income. The Tribunal upheld the addition. The Supreme Court reversed, holding there was no material to justify the finding that the amounts belonged to the assessee. The Court stressed that suspicion, however strong, cannot replace evidence. If the assessee produces prima facie proof, and the department fails to investigate further, the addition cannot be sustained.
(iv) CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC): Gold worth ₹ 1,50,000 was seized from a third party, who claimed it belonged to the assessee. The AO treated it as the assessee’s asset under section 69A. The Supreme Court held that ownership of an asset and its source of acquisition are distinct; even if the asset is presumed to belong to the assessee, that does not automatically justify treating it as undisclosed income without evidence that the assessee paid for it from undisclosed sources. The decision clarified the burden of proof in section 69A cases.
(v) CIT v. Kamdhenu Vyapar Co. Ltd. [2003] 130 Taxman 147 (Calcutta): The assessee disclosed share application money from several persons, of whom 21 were not income-tax assessees. It requested the AO to issue summons under section 131 to secure their attendance. The AO refused and added the amounts under section 68, holding identity, creditworthiness, and genuineness were unproved. The CIT(A) upheld the addition, stating the onus was on the assessee. The Tribunal deleted the addition, citing adequate evidence. The High Court held that while the onus under section 68 lies initially on the assessee, the AO must examine disclosed material, and if a request under section 131 is made, issuing summons becomes mandatory to allow the assessee to discharge its onus. Failure to do so denied statutory opportunity and vitiated proceedings. The matter was remanded for fresh decision after issuing summons to the 21 shareholders.
(vi) CIT v. Value Capital Services Pvt. Ltd. [2008] 307 ITR 334 (Delhi HC): The AO made additions under section 68 for share application money received from certain parties, citing their non-appearance. The assessee had furnished names, addresses, PAN, share application forms, and bank details. The CIT(A) deleted the additions, holding that identity was established and payments were by cheque. The Tribunal agreed, finding no evidence that the money actually belonged to the assessee. The Delhi High Court upheld this, reiterating that the initial burden on the assessee is only to prove identity of applicants, genuineness of transaction, and creditworthiness. If these are prima facie established, the burden shifts to the revenue. Mere non-appearance of applicants cannot be the sole ground for addition without further enquiry.
(vii) Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC): The assessee-trust claimed exemption under section 11, which had been allowed in earlier years. In subsequent years, the AO denied it, citing lack of formal registration and treating it as a religious trust. The Supreme Court held that although res judicata does not apply to income-tax proceedings, consistency should be maintained when facts and circumstances are unchanged. Having accepted the assessee’s claim in earlier years, the revenue could not take a different view without fresh facts. The ruling established the “rule of consistency” in tax law.
(viii) PCIT v. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Bombay HC): The AO made additions under section 68 for share capital and premium received, alleging lack of creditworthiness of subscribers. The assessee produced incorporation documents, PAN, bank statements, and income-tax returns of subscribers. The CIT(A) and Tribunal deleted the additions, noting the AO had not rebutted the evidence or brought contrary material. The Bombay High Court upheld the deletion, holding that once the assessee proves identity, genuineness, and creditworthiness, the onus shifts to the department. The AO cannot reject evidence on suspicion alone; no addition can be sustained without disproving the assessee’s material.
These precedents collectively dismantle the reasoning of the CIT(A), as they establish that the assessee has discharged her burden under law and that the Department has failed to rebut the evidence.
8. Prayer: In view of the facts, circumstances, and legal position outlined above, it is most respectfully prayed that this Hon’ble Tribunal may be pleased to:
(i) Allow the present appeal of the assessee and set aside the order of the CIT(A) to the extent it sustains the impugned additions;
(ii) Delete the additions made by the AO under Section 68/69A (as applicable) amounting to ₹_____ (specific amount from assessment order), being unjustified, factually incorrect, and legally unsustainable;
(iii) Hold that the assessee has duly discharged her initial burden by furnishing complete evidence of identity, creditworthiness, and genuineness;
(iv) Hold that the Revenue failed to carry its onus to disprove the assessee’s evidence through independent enquiry or material on record;
(v) Pass such other order(s) as this Hon’ble Tribunal may deem fit in the interest of justice and equity.
9. Summary of the submissions: In brief, the assessee humbly submits that the impugned additions upheld by the CIT(A) are the product of unfounded suspicion and an incomplete appreciation of evidence. The record amply demonstrates that the assessee has furnished all necessary proofs to establish the genuineness of the transactions in question.
It is a well-established principle of law that once the assessee has provided prima facie evidence on the three essential elements under Section 68 — identity, creditworthiness, and genuineness — the onus decisively shifts to the Department. In the present case, the Department failed to discharge this onus. The appellate order under challenge thus contravenes settled legal principles laid down by the Hon’ble Supreme Court and various High Courts.
The assessee therefore earnestly requests this Hon’ble Tribunal to appreciate the evidence and judicial guidance in its correct perspective, set aside the findings of the CIT(A), and allow the appeal in toto, thereby granting the relief sought.
Respectfully submitted,
For the Appellant (Assessee)
[Authorized Representative’s Name]
[Law Firm / Counsel Name]
[Date]
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Above is based on
Mrs. Sonea Dhir v. CIT(A) [2025] 176 taxmann.com 827 (Delhi - Trib.)