Sreepathy Trust Vs DCIT (ITAT Amritsar)
Section 68 Addition Cannot Be Sustained Without Confronting Discrepancies and Allowing Reconciliation: Cochin ITAT
Sreepathy Trust, an educational institution registered under Section 12AA, received advances of ₹1.33 crore from 22 persons during AY 2013-14 and loans of ₹12.32 lakh from four persons during AY 2016-17. The Assessing Officer treated the amounts as unexplained cash credits under Section 68, and the CIT(A) confirmed the additions, citing mismatches in the documents and non-production of creditors’ balance sheets and bank statements.
For AY 2013-14, the Cochin ITAT observed that the confirmations contained the creditors’ names, addresses, PANs, occupations, amounts advanced, banking particulars and sources such as savings or retirement benefits. Individuals were not required to maintain personal balance sheets unless mandated by law. Further, if the CIT(A) noticed discrepancies between the amounts stated and the supporting documents, the Trust ought to have been given an opportunity to reconcile them instead of the addition being summarily sustained. Since the confirmations had not been examined by the AO, the matter was restored for verification.
For AY 2016-17, the Tribunal held that confirmation letters, income-tax return acknowledgements and particulars of the four creditors prima facie established their identity, creditworthiness and the genuineness of the transactions. However, since the Trust’s bank statement was not produced, the issue was remanded to the AO for the limited purpose of verifying the receipt of funds. The Tribunal directed that the addition must be deleted if the Trust establishes that the amounts were received from the identified creditors.
FULL TEXT OF THE ORDER OF ITAT COCHIN
1. These two appeals have been filed by Sreepathy Trust, Thrissur (“the assessee”/ “the appellant trust”), for assessment years 2013-14 and 2016-17, against the appellate order dated 17 August 2023 passed by the learned CIT(A), whereby the assessee’s appeals were dismissed to the extent they challenged the additions made under section 68 of the Income Tax Act.
2. Originally, both appeals were disposed of against the assessee by a common order dated 12 June 2025 passed by the Coordinate Bench. That order was challenged before the Hon’ble Kerala High Court, which restored the appeals to the Tribunal by order dated 26 March 2026.
3. For AY 2013-14, The appeals have been restored to us by the order of the Hon’ble Kerala High Court dated 25 March 2026 in ITA No. 44 of 2026. By that order, the High Court set aside the order of the Coordinate Bench and directed the Tribunal to reconsider the matter after examining all contentions of the appellant, including the contention that only one list of depositors had been furnished and that the other list was obtained by the first appellate authority without notice to the assessee. The Tribunal was also directed to consider whether the relevant documents had, in fact, been produced before the first appellate authority. These directions are contained on page 7 of the High Court’s order.
4. For AY 2013-14 The Assessee has raised the following grounds of appeal:
i. On the facts and in the circumstances of the case and in Law the Appeal U/s 250 of the I.T Act the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre is not justified in adding bonafied advances received as unexplained cash credit u/s 68.
ii. On these and such other grounds that may be put forth the time of hearing. It is requested that order of Deputy Commissioner of Income Tax (Appeals), National Faceless Appeal be set aside and the demand may be deleted.
5. Briefly, the assessee is a trust running an educational institution and is registered under section 12AA of the Income Tax Act by registration certificate dated 28 August 2009. The original assessment was completed on 28 March 2016. Thereafter, the assessment was reopened by issuing a notice under section 148 of the Act on 28 March 2018. In response, the assessee filed its return of income on 18 April 2018. Subsequently, notice under section 143(2) was issued on 16 August 2018.
6. The issue concerns verification of credits received by the assessee. In response to the notice, the assessee furnished details such as the creditors’ names, addresses, dates of deposit, permanent account numbers, interest paid, and tax deducted at source on such interest. During the assessment proceedings, the assessee was asked to produce confirmation letters and was granted one week to do so. As submitted, the assessee thereafter submitted the confirmation certificates before the learned Assessing Officer.
7. The learned Assessing Officer observed that the assessee had produced a fresh list of persons from whom advances were allegedly received. According to the Assessing Officer, the assessee failed to substantiate the entries satisfactorily and had introduced its own unaccounted income in the guise of advances. Accordingly, ₹1,33,19,327, being advances received from members and relatives during the year, was added to the assessee’s total income under section 68 of the Income Tax Act.
8. Consequently, the reassessment order under sections 143(3) read with 147 of the Act was passed on 27 December 2018. The income originally assessed at ₹2,07,34,216 by order dated 28 March 2016 was enhanced by the aforesaid unexplained cash credits.
9. On appeal before the learned CIT(A), the assessee submitted that the advances were received from existing deposit holders whose creditworthiness had been accepted in earlier assessment years. It was therefore contended that the Assessing Officer was not justified in treating the advances as the assessee’s unaccounted income. The assessee further submitted that the trust had received deposits from its members and their relatives, all through banking channels. The depositors had permanent account numbers and had explained the source of funds; some were retired officials who had advanced amounts out of their retirement savings and were also income-tax assessees. The assessee furnished a list of depositors showing the mode of payment, bank details, and cheque numbers, along with confirmations and copies of income-tax returns filed by the depositors. It was submitted before the learned CIT(A) that the assessee had established the identity and capacity of the depositors and the genuineness of the transactions, thereby discharging the initial onus under section 68. Accordingly, the assessee contended that the addition made by the learned Assessing Officer was not sustainable.
10. The learned CIT(A) examined the list of creditors in paragraph 4.3.6 of his order and noted that, in some cases, the balance sheets of the creditors were not available, and certain creditors were not income-tax assessees. On that basis, he upheld the Assessing Officer’s action in invoking section 68 of the Income Tax Act and dismissed the assessee’s appeal.
11. For assessment year 2016-17, in ITA No. 66/COCH/2024, the facts are like those for assessment year 2013-14. The assessee filed its return of income on 17 October 2016, and notice under section 143(2) was issued on 11 September 2017. During the year, the assessee received loans from members and relatives amounting to ₹12,31,760. The Assessing Officer called for details such as the names and addresses of the lenders, the amount and mode of loan, rate of interest, and particulars of tax deducted at source. The Assessing Officer recorded that, despite repeated requests, the assessee failed to furnish the required details. Accordingly, by assessment order dated 28 December 2018, the Assessing Officer added ₹12,31,760 under section 68 of the Income Tax Act.
12. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The assessee contended that it had received funds from four parties to meet the trust’s expenses and had also accepted deposits from its members and their relatives. It was submitted that these persons were retired officials who had sufficient retirement savings and were income-tax assessees, and that the transactions were routed through banking channels. The assessee stated that it had furnished the creditors’ names, permanent account numbers, addresses, amounts, and mode of payment, along with declarations received from them and copies of their income-tax returns. According to the assessee, it had discharged the initial onus under section 68 by establishing the identity and creditworthiness of the creditors and the genuineness of the amounts received.
13. However, the learned CIT(A) confirmed the addition on the ground that bank statements of the creditors or of the assessee were not produced to show that the transactions had actually taken place through banking channels. The assessee is, therefore, in appeal before us.
14. The learned authorised representative, Smt. Preetha Shenoy, Chartered Accountant, submitted that the assessee had furnished all necessary details, including the names and addresses of the creditors, their permanent account numbers, the dates and amounts of advances received, interest paid, if any, details of repayment, and bank particulars relating to the amounts advanced. The assessee had also filed confirmation letters from the creditors. It was therefore contended that, despite these materials, the addition under section 68 of the Income Tax Act was unjustified. The learned authorised representative submitted that the assessee had discharged the initial onus cast upon it, and that, without bringing any contrary material on record, the lower authorities were not justified in making or sustaining the addition.
15. The learned Departmental Representative submitted that the Assessing Officer had categorically recorded that the assessee had not furnished the necessary confirmations or supporting evidence to establish that the loans were received through banking channels. It was therefore contended that the assessee had failed to discharge the initial onus under section 68 of the Income Tax Act, and that the addition was rightly made by the Assessing Officer and confirmed by the learned CIT(A).
16. We have carefully considered the rival submissions and perused the orders of the lower authorities. For assessment year 2013-14, the assessee received ₹1,33,19,327 as advances from twenty-two parties. In support, the assessee furnished details of the amounts received, including the names and addresses of the creditors, confirmations, and, in some cases, copies of income-tax returns. It is, however, an admitted position that some creditors did not maintain annual accounts and, therefore, their balance sheets were not available. In some cases, bank statements evidencing transfer of funds were also not produced. Before us, the assessee submitted that all creditors had furnished confirmations containing their names, addresses, permanent account numbers, and sources of funds, and that the deposits were made out of their savings or retirement benefits. The assessee also claimed that the creditors were income-tax assessees. The Assessing Officer made the addition as the confirmations were not available before him. When the matter came before the learned CIT(A), the assessee furnished the relevant details; however, in paragraph 4.3.8 of the appellate order, the learned CIT(A) confirmed the addition on the ground that there were mismatches between the amounts stated by the assessee and the details produced. He held that these discrepancies cast doubt on the transactions and, accordingly, sustained the addition.
17. Similarly, for assessment year 2016-17, the learned CIT(A) confirmed the addition in respect of four parties shown by the assessee as unsecured loan creditors. Although the assessee had furnished confirmation letters and acknowledgements of income-tax returns, it did not produce the bank statements of either the creditors or the assessee. In the absence of such bank statements, the learned CIT(A) held that the assessee had failed to establish that the transactions had actually taken place and, accordingly, sustained the addition.
18. For assessment year 2013-14, we find that the assessee did not produce complete details before the Assessing Officer, though confirmations and other particulars were furnished before the learned CIT(A) and placed before us. These confirmations contain the names, addresses, amounts advanced, payment details through banking channels, dates of transactions, occupations or engagements of the creditors, their status as regular taxpayers, and the stated sources of the deposits, including savings or retirement benefits. The creditors were not required to maintain balance sheets for their personal affairs unless mandated by law or any regulatory requirement. Further, the addition could not have been confirmed merely because of a mismatch between the amount stated by the assessee and the amount reflected in the documents furnished. If such a discrepancy was noticed, the learned CIT(A) ought to have called upon the assessee to reconcile it. Without granting such an opportunity, the addition could not have been sustained. On this basis, the assessee contends that it has discharged the initial onus under section 68 by establishing the identity and creditworthiness of the creditors and the genuineness of the transactions. Since the confirmation letters were not available before the Assessing Officer, and the learned authorised representative has agreed to remand the matter for verification, we restore this issue to the file of the Assessing Officer. The Assessing Officer shall examine the details submitted by the assessee and conduct any further inquiry considered necessary, after granting the assessee a reasonable opportunity of being heard. Accordingly, the appeal for assessment year 2013-14 is allowed for statistical purposes.
19. For assessment year 2016-17, we find that the learned CIT(A) confirmed the addition mainly because the assessee had not produced the bank statements of either itself or the creditors to show the flow of funds. The learned CIT(A) therefore held that, in the absence of such evidence, it could not be verified whether the transactions had actually taken place. In our view, if no amount was actually credited in the books of the assessee, no addition can be made under section 68. At the same time, section 68 applies only where a sum is found credited in the books of the assessee. In the present case, the assessee has furnished confirmation letters, acknowledgements of income- tax returns and other particulars to show that the four creditors advanced the amounts. These materials establish, at the initial stage, the identity and creditworthiness of the creditors and the genuineness of the transactions. All four persons are income-tax assessees and have stated their sources of income. Accordingly, the addition sustained by the learned CIT(A) is not justified on the present record. However, since the assessee has not produced its bank account to show whether the credits were actually received, we restore the issue to the file of the Assessing Officer for the limited purpose of verifying the assessee’s bank account and the advances received from these four persons during the year. If the assessee satisfies the Assessing Officer that the amounts were received from these four persons, the addition shall be deleted. Accordingly, the appeal for assessment year 2016-17 is allowed for statistical purposes.
20. In the result, both appeals filed by the assessee are allowed for statistical purposes in the terms indicated above.
Order pronounced in the open court on 10.08.2026.
