Case Law Details
ACIT Vs Antilia Venture Capital (ITAT Chennai)
Chennai ITAT: Once Lender’s Source Is Taxed and Attains Finality, Borrower Cannot Face Section 68 Addition Again
The Chennai ITAT dismissed the Revenue’s appeal and upheld the deletion of an addition of ₹14.50 crore under section 68, holding that where the identity of the lender and genuineness of the loan transaction are undisputed, and the source of funds in the lender’s hands has already been independently examined and subjected to tax, the borrower cannot again be saddled with an addition on the ground of lack of creditworthiness.
In the present case, the Assessing Officer accepted that the loans were received and repaid through banking channels and did not dispute the lender’s identity. The only objection was regarding the lender’s creditworthiness. However, the Tribunal noted that the very cash deposits constituting the source of the loan had already been examined in the lender’s assessment, resulting in an addition under section 68, which subsequently attained finality under the Direct Tax Vivad Se Vishwas Scheme, 2024. Further, part of the deposits had also been admitted before the Settlement Commission by another concerned person.
Rejecting the Revenue’s argument that settlement under the Vivad Se Vishwas Scheme does not amount to acceptance of the tax position, the Tribunal clarified that the CIT(A) had not treated the settlement as an admission of correctness, but merely relied upon the undisputed fact that the source had already been examined and taxed in the lender’s case. In the absence of any material showing that the loan emanated from any different unexplained source, the lender’s creditworthiness could not be doubted again.
Accordingly, the Tribunal held that the assessee had discharged the burden under section 68 by establishing the identity, genuineness, and creditworthiness of the lender, and confirmed the deletion of the addition.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The captioned Appeal filed by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals), CIT(A) Chennai-20 [CIT(A)] dated12.09.2025 Assessment Year 2016-17.
2. The revenue has raised the following grounds of appeal:
The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
(i) The Ld CIT(A) has erred while deleting the unexplained credit of Rs 14,50,00,000/- made u/s 68 on the grounds that the loan creditor, Ms.Alka Khetpalia, has settled her appeal under VsVs 2024, which she had filed before CIT(A) against the addition of Rs. 12,51,29,060/- made u/s 68 of the Income Tax Act.
(ii) The Ld. CIT(A) has failed to consider that filing a declaration under the VSV Scheme is a means to settle a tax dispute and grants immunity from further proceedings, penalties, or interest related to those specific tax arrears for the declarant. It does not imply that the assessee has accepted the tax assessment or that the underlying amount is a legitimate, untaxed source of income that can be transferred and used by a third party as an “explained” source.
(iii) The Ld. CIT(A) has failed to consider that vide section 92(4) of the VsVs Scheme 2024 it is mentioned that making a declaration under this Scheme shall not amount to conceding the tax position and it shall not be lawful for the income-tax authority or the declarant being a party in appeal or writ petition or special leave petition to contend that the declarant or the income-tax authority, as the case may be, has acquiesced in the decision on the disputed issue by settling the dispute.
For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
3. Brief facts of the case are that the assessee is a partnership firm engaged in the business of money lending. For AY 2016-17, it filed its return declaring total income of Rs.23,67,220/-. The case was selected for scrutiny to verify the genuineness and source of unsecured loans. During the course of search proceedings in the case of one of the partners, Shri Sunil Khetpalia, the Assessing Officer (`AO’) noticed that the assessee had received unsecured loans aggregating to Rs.14.50 crore from Smt. Alka Khetpalia through banking channels, which were subsequently repaid during the year. The AO accepted the identity of the lender and the genuineness of the banking transactions but held that the assessee failed to establish the creditworthiness of the lender. Accordingly, the entire amount of Rs.14.50 crore was treated as unexplained cash credit u/s. 68 of the Act.
4. In appeal, the Id.CIT(A) deleted the addition holding that the source of funds in the hands of Smt. Alka Khetpalia had subsequently been examined in her own assessment proceedings and the addition made therein had attained finality under the Direct Tax Vivad Se Vishwas Scheme, 2024, and a further sum of Rs.3.39 crore had already been offered by Shri Sunil Khetpalia before the Settlement Commission. Thus, the source of the loan stood explained.
Now revenue is in further appeal before us.
5. The Id. Departmental Representative (DR) relied upon the assessment order and contended that the CIT(A) erred in treating settlement under the Direct Tax Vivad Se Vishwas Scheme, 2024 as establishing the creditworthiness of the lender. She further stated that settlement under the Scheme merely resolves a tax dispute and does not amount to acceptance of the assessee’s explanation regarding the source of funds. Section 92(4) of the DTVSV Scheme specifically provides that settlement shall not amount to conceding the tax position nor can it be construed as acquiescence on the disputed issue. Therefore, the creditworthiness of Smt. Alka Khetpalia remained unproved and the addition u/s. 68 deserved to be restored.
6. The Id. Authorised Representative (AR) supported the order of the CIT(A) and submitted that the lender is an assessed taxpayer having PAN and regularly filing returns of income. The loan transactions were entirely through banking channels and were duly reflected in the books of both parties. The lender possessed substantial capital and sufficient funds to advance the loan. The source of funds was fully demonstrated through opening bank balance, inter-bank transfers and cash deposits. The cash deposits were independently subjected to tax proceedings in the hands of Smt. Alka Khetpalia, resulting in an addition u/s. 68, which has attained finality upon settlement under the DTVSV Scheme. In addition, Rs.3.39 crore had already been disclosed by Shri Sunil Khetpalia before the Settlement Commission. Once the very source of the lender has been subjected to tax in the hands of the lender/beneficial owner, the same amount cannot again be treated as unexplained in the hands of the borrower. The assessee had discharged the onus regarding identity, genuineness and creditworthiness, and no contrary evidence had been brought by the Revenue.
7. We have considered the rival submissions and perused the material available on record. The sole dispute in the present appeal relates to the deletion of the addition of Rs.14.50 crore made u/s. 68 of the Act. It is an admitted position that the AO has accepted both the identity of the lender, namely Smt. Alka Khetpalia, and the genuineness of the transactions, the amounts having been received and repaid through normal banking channels. The addition has been made solely on the ground that the creditworthiness of the lender was not established. From the material placed before us, we find that the source of the funds available with Smt. Alka Khetpalia was subsequently subjected to independent examination in reassessment proceedings conducted in her own case. The AO therein made an addition of Rs.12,51,29,060/-u/s. 68 in respect of the very deposits which constituted the source of the loans advanced. It is further not in dispute that the said addition has attained finality upon settlement under the Direct Tax Vivad Se Vishwas Scheme, 2024. Besides, an amount of Rs.3,39,90,000/-representing cash deposits had already been admitted by Shri Sunil Khetpalia before the Settlement Commission. Thus, the aggregate amount which has already suffered tax or attained finality in the hands of the concerned persons is admittedly more than the amount advanced to the assessee.The principal contention of the Revenue is that settlement under the DTVSV Scheme does not amount to acceptance of the tax position in view of section 92(4) of the Scheme. We are unable to accept this contention in the facts of the present case. The Id.CIT(A) has not proceeded on the footing that the settlement constitutes a declaration regarding the correctness of the tax position. Rather, the Id.CIT(A) has taken note of the undisputed factual position that the source of the deposits has already been examined in the lender’s own assessment proceedings and the tax liability arising therefrom has attained finality under the statutory scheme. The settlement has been referred to only to demonstrate that the proceedings in the lender’s case have reached finality and the source has already been subjected to taxation. Such factual reliance does not offend the provisions of section 92(4) of the Scheme .Once the source of funds has been independently examined in the hands of the lender and has attained finality, and the Revenue has not brought any material to establish that the funds advanced to the assessee emanated from any source other than those already considered in the lender’s assessment, the creditworthiness of the lender cannot be rejected merely on the same premise. The Revenue has also not disputed the documentary evidence establishing the banking transactions, financial statements and tax records of the lender. We therefore find no infirmity in the conclusion reached by the CIT(A) that the assessee had discharged the burden cast upon itu/s. 68 by establishing the identity of the creditor, genuineness of the transactions and the creditworthiness of the lender. Accordingly, we uphold the order of the CIT(A) deleting the addition of Rs.14,50,00,000/- made u/s. 68 of the Act. The grounds raised by the Revenue are dismissed.
8. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on the 13thday of July 2026
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