Once the source and nature of a transaction are accepted in an earlier year, a subsequent receipt of outstanding consideration for that transaction cannot be taxed as unexplained income under Section 68 of the Income Tax Act, 1961.

Headnote:(A) Income Tax Act, 1961 - Section 68 - Appeal against deletion of addition - Addition under Section 68 made by AO on the ground that assessee had not proved creditworthiness of the person from whom amount was received, was deleted by the CIT(A) on the ground that the amount received was part consideration for sale of shares which was disclosed and accepted in an earlier year - Tribunal upheld the deletion, holding that once the source and nature of a transaction have been accepted in an earlier year, mere realization of outstanding consideration cannot be taxed again under Section 68 in a subsequent year - An amount received that is neither share capital nor loan does not fall within the purview of unexplained cash credit under Section 68 - Addition cannot be made under Section 68 in a year subsequent to the year of credit when the credit is a brought-forward balance - The burden is on the Revenue to establish that funds originated from the assessee and came back as payment; mere allegation based on third-party inquiries without specific evidence against the assessee does not justify addition. (Paras 9-10, 12-15)

(B) Appeal - Court sitting in appeal is not to substitute its view for that of the lower authority unless the decision is perverse, illegal, or otherwise unsustainable - An order is not to be interfered with simply because another view is possible. (Para 16)

Facts of the case:
The appeals and cross-objection arose from orders passed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 250 of the Income Tax Act, 1961, for the assessment years 2013-14 and 2014-15. The Revenue challenged the deletion of additions of Rs.21,06,50,000/- made by the Assessing Officer (AO) under Section 68 of the Act. The AO had added this amount as unexplained cash credit received from a company (the party), based on an investigation report concerning another company (the intermediary) that identified the party as an accommodation entry provider. The AO held that the assessee had failed to establish the creditworthiness of the party. The assessee contended that the amount was part consideration for the sale of shares of two companies to the party, which had been fully disclosed and accepted by the AO in the assessment year 2012-13, and the receipt in the year under consideration was merely the realization of an already accounted-for balance.

Findings of Court:
The Tribunal held that the amount received was part payment towards the sale consideration of shares sold in a previous financial year, which had been duly disclosed, examined, and accepted by the AO in that earlier year. Therefore, the receipt did not represent a new credit entry but merely a brought-forward balance against a duly accounted-for and accepted transaction. Consequently, the amount could not be treated as unexplained cash credit under Section 68. The Tribunal also noted that the AO had no direct evidence linking the assessee to the alleged accommodation entries and that the addition was based on mere assumptions and third-party inquiries. The Revenue failed to provide new evidence to controvert the findings of the CIT(A).

Issues: The main issues were: (1) whether the amount received by the assessee from a company represented a deferred sale consideration for a transaction already taxed in an earlier year, or an unexplained cash credit under Section 68; (2) whether the CIT(A) was justified in deleting the addition made under Section 68; and (3) whether the Revenue could rely on investigation findings against a third party to make an addition against the assessee without specific evidence connecting the assessee.

Ratio Decidendi: The court ruled that when an amount is received in a subsequent year as part of a sale consideration for a transaction that was disclosed, examined, and accepted in an earlier year, it is not a fresh credit but a realization of an existing balance. Such a receipt cannot be taxed under Section 68, which applies only to unexplained credits. The Revenue cannot make an addition based solely on third-party inquiries without establishing a nexus between the assessee and the alleged illicit fund routing. Result : Revenue's appeals dismissed; Cross-objection of assessee held to be infructuous and not adjudicated."

ORDER

PER SANDEEP GOSAIN:

The present appeals have been filed by the Revenue and cross objection by the assessee challenging the different impugned orders dt. 09.06.2025 and 10.06.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) /CIT(A) for the assessment year 2013-14 and 2014-15.

2. Since all the issues involved in these appeals and cross objection are common and identical and belongs to one assessee therefore, they have been clubbed, heard together and consolidated order is being passed.

Firstly, we shall take ITA No. 5307/Mum/2025, A.Y 2013-14 as lead case and facts narrated therein.

The Revenue has raised the following grounds of appeal:

1. Whether the Ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 21,06,50,000/- made under Section 68 of the Income Tax Act, 1961, without properly appreciating that the assessee failed to establish the creditworthiness of M/s Startree Dealer Pvt. Ltd., from whom the amount was received in A.Y. 2013-14?

2. Whether the Ld. CIT(A) was justified in holding that the receipt was a deferred sale consideration for a transaction disclosed in an earlier assessment year, despite the fact that no supporting documentary evidence such as bank statements, financials, or confirmations for A.Y. 2013-14 were produced to substantiate the claim?

3. Whether the Ld. CIT(A) erred in ignoring the investigation findings in the case of M/s Sukalyan Complex Put. Ltd., which identified M/s Startree Dealer Put. Ltd. as an accommodation entry provider, thereby casting serious doubt on the genuineness and source of the receipt shown by the assessee?

4. Whether the Ld. CIT(A) erred in law in deleting the addition merely on the basis of a prior transaction assessment without independently verifying the genuineness and source of the actual receipt during the year under appeal?

5. The appellant craves leave to add, alter, amend or withdraw any of the above grounds at the time of hearing. "

3. All the grounds raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in deleting the additions made by the AO under Section 68 of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

4. The Ld. DR, appearing on behalf of the Revenue, while relying upon the order of assessment, submitted that the Ld. CIT(A) erred in deleting the additions without properly appreciating that the assessee failed to establish the creditworthiness of M/s. Startree Dealers Pvt. Ltd., from whom the amount was received in the year under consideration. It was further submitted that the Ld. CIT(A) had also wrongly held that the receipts were deferred sale consideration for a transaction disclosed in an earlier assessment year, despite the fact that no supporting documentary evidence such as bank statements, financials, or confirmations for the year under consideration were produced to substantiate the same. The Ld. DR further submitted that the Ld. CIT(A) ignored the investigation findings in the case of M/s. Sukalyan Complex Pvt. Ltd., which identified M/s. Startree Dealers Pvt. Ltd. as an accommodation entry provider, thereby casting serious doubts on the genuineness and source of the receipts shown by the assessee.

5. Whereas, on the contrary, the Ld. AR appearing on behalf of the assessee relied upon the order passed by the Ld. CIT(A) and also his written submissions filed before us, the same is reproduced herein below:

The grounds taken up by the Department is not sustainable as CIT (A) has examined the facts and has made clear findings supported by legal decisions.

1. Whether the Ld. CIT (A) erred in law and on facts in deleting the addition of Rs.21,06,50,000/- made under Section 68 of the Income Tax Act, 1961, without properly appreciating that the assessee failed to establish the creditworthiness of M/s. Startree Dealer Pvt. Ltd., from whom the amount was received in A.Y. 2

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2026 Supreme(Online)(ITAT) 10799

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)DCIT CCE-8(2) MUMBAI MUMBAI – AppellantVersusMENTOR CAPITAL LIMITED MUMBAI – RespondentITA 5307/MUM/2025[2013-14]

Once the source and nature of a transaction are accepted in an earlier year, a subsequent receipt of outstanding consideration for that transaction cannot be taxed as unexplained income under Section 68 of the Income Tax Act, 1961.

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
DCIT CCE-8(2) MUMBAI MUMBAI – Appellant
Versus
MENTOR CAPITAL LIMITED MUMBAI – Respondent
ITA 5307/MUM/2025[2013-14]