Sree Tirumala Spices Vs ITO (ITAT Hyderabad)
The Hyderabad ITAT held that Section 68 cannot be invoked on opening balances, but remanded the matter for factual verification. The case involved addition of ₹55.53 lakh treated as unexplained cash credit, representing an outstanding loan from a creditor.
The assessee contended that the amount was not a fresh credit during the year, but merely a carried-forward opening balance, reduced from ₹92.53 lakh after partial repayment. However, the AO and CIT(A) made the addition citing lack of proof of creditworthiness and genuineness.
The Tribunal observed that if the impugned amount pertains to loans received in earlier years, no addition can be made in the current year under section 68. However, since this claim required verification, the ITAT set aside the issue to the AO.
The AO was directed to verify ledger accounts, confirmations, prior year records, and bank transactions, and delete the addition if it is established that no fresh credit arose during the year.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee firm is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (for short, “CIT(A)”), dated 14/10/2025, which in turn arises from the order passed by the AO under section 143(3) r.w.s 144B of the Income Tax Act, 1961 (for short, “the Act”), dated 26/03/2024 for Assessment Year (AY) 2022-23. The assessee firm has assailed the impugned order of the CIT(A) on the following grounds of appeal before us:
“1) The order of the learned CIT (A) is erroneous to the extent it is prejudicial to the appellant herein;
2) The learned CIT (A) is not justified in confirming the addition made by the Assessing Officer of Rs.55,53,709/- representing an amount due to Sri K. Narasimha Rao;
3) The learned CIT (A) on finding that there was an opening balance and there was a repayment during the year and also finding that the closing balance as on 31.03.2022 was Rs.55,53,709/- is not justified in confirming the addition made by the Assessing Officer particularly when the said amount was not credited during the year under consideration;
4) The learned CIT(A) ought to have seen that the amount was not credited during the year under consideration and therefore, should not have been confirmed.
5) The learned CIT (A) erred in confirming addition of Rs:1,47,000/-representing the disallowance of the expenses;
6) Any other ground/grounds that may be urged at the time of hearing.”
2. Succinctly stated, the assessee firm had filed its return of income for AY 2022-23 on 29/10/2022 declaring an income of Rs.25,96,510/-. Subsequently, the case of the assessee firm was selected for scrutiny assessment under CASS for verifying two issues, viz., (i) high liabilities as compared to low income declared; and (ii) substantial payments shown to entities not registered under GST. During the course of the assessment proceedings, the AO observed that the assessee firm had disclosed an outstanding loan liability towards Sri K. Narasimha Rao of Rs.55,53,709/- on 31/03/2022 towards. The assessee, on being queried, placed on record the confirmation of the aforementioned person. However, the AO observed that the loan claimed to have been advanced by Sri K. Narasimha Rao (supra) to the assessee firm was not commensurate with his returned income for the year under consideration as well as those for the immediately preceding and succeeding year, viz., (i) AY 2021-22: Rs.7,52,490/-; (ii) AY 2022-23: Rs.8,00,560/-; and (iii) AY 2023-24: 8,77,200/-. Apart from that, the AO observed that the “balance sheet” of the assessee firm on 31/03/2021, disclosed a “closing balance” of an outstanding loan towards Sri K. Narasimha Rao at Rs.92,53,709/-. The AO not satisfied with the genuineness of the loan transaction, specifically in the backdrop of the fact that the creditworthiness of the lender to advancer the subject loan was not established, coupled with the fact that the assessee firm had failed to discharge the onus that was cast upon it to prove the genuineness of the loan transactions, held the entire amount of unsecured loan of Rs.55,53,709/- as unexplained cash credit under section 68 of the Act.
