The Delhi Bench of the Income Tax Appellate Tribunal delivered a consolidated order in seven cross-appeals involving Luv Bhardwaj and the DCIT, Central Circle-26, Delhi, for Assessment Years 2019-20, 2020-21, 2021-22 and 2022-23. The decision addresses several recurring income-tax issues, including additions under Sections 68, 69A, 69B and 69C, cash deposits, trade advances, unsecured loans, GST purchase reconciliation, housing-loan interest and jewellery found during search proceedings. The order was pronounced on 29 July 2026.
Section 68 Addition on Customer Advances
A significant issue concerned additions made under Section 68 in respect of closing balances of advances received from customers. For Assessment Year 2019-20, the Assessing Officer treated customer advances of ₹2.45 crore as unexplained credits even though the assessee had received more than ₹16 crore from the parties and adjusted approximately ₹14.76 crore against sales made during the year.
The Tribunal observed that the Assessing Officer had accepted the customer receipts, corresponding sales, books of account and trading results. The names, addresses and PAN details of the customers had also been furnished. In these circumstances, merely treating the remaining closing balances as unexplained, without identifying any specific discrepancy or conducting independent enquiries, was held to be unjustified.
The Tribunal accordingly upheld the deletion of the addition. The same principle was applied to similar customer-advance additions of approximately ₹2.59 crore, ₹1.76 crore and ₹1.36 crore in subsequent assessment years. The decision establishes that genuine trade advances arising during the ordinary course of business cannot be treated as unexplained merely because a portion remains outstanding at the year-end.
Opening Balances Cannot Be Taxed as Current-Year Credits
The Tribunal also examined an addition of ₹15 lakh relating to unsecured loans. The amount was found to be an opening balance carried forward from an earlier year, with no fresh credit received during the relevant assessment year.
The Tribunal held that Section 68 applies where a sum is credited in the books during the relevant previous year. A balance merely carried forward from an earlier year cannot be assessed as a fresh unexplained credit in the current year. The deletion of the addition was therefore sustained.
A similar approach was adopted in relation to the substantial balance standing in the name of Richfield Industries Private Limited. Out of the closing balance of approximately ₹9.43 crore, around ₹8.42 crore represented an opening balance already examined in the preceding year. The related purchases were accepted and supporting records, including confirmation, income-tax return details and GST returns, had been furnished. The Tribunal therefore upheld the deletion of the addition.
Unsecured Loans and the Burden Under Section 68
The Assessing Officer had also added ₹90 lakh received from two corporate lenders on the ground that the companies were loss-making and had advanced interest-free funds.
The Tribunal noted that the assessee had filed confirmations, income-tax returns, financial statements and bank statements of both lenders. The records demonstrated their identity, financial capacity and the movement of funds through banking channels. The fact that the lenders had reported losses during the year was not sufficient by itself to establish absence of creditworthiness.
The Tribunal held that once the assessee furnishes evidence establishing the identity of the creditor, genuineness of the transaction and creditworthiness of the lender, the burden shifts to the Revenue to conduct further enquiry and bring adverse material on record. The Revenue’s appeal against deletion of the ₹90 lakh addition was accordingly dismissed.
Cash Deposits Explained Through Cash Book
For Assessment Year 2019-20, the assessee explained cash deposits through an opening cash balance and cash withdrawals reflected in the books and bank statements. The Tribunal found that the cash book showed an opening balance of approximately ₹11.96 lakh and bank withdrawals of ₹8.50 lakh.
Since the entries in the cash book had not been rejected and the immediate source of the deposits stood explained, the Tribunal deleted the balance addition of ₹6.92 lakh sustained by the Commissioner of Income Tax (Appeals).
For Assessment Year 2020-21, an addition of ₹16.20 lakh relating to bank deposits was also deleted. The Tribunal noted that the deposits were supported by the cash book, opening cash balance and receipts from trading in agricultural produce, while the corresponding turnover and business activity had been accepted.
Credit-Card Payments Through Banking Channels
An addition of ₹18.20 lakh under Section 69C was made on the basis of portal information suggesting that credit-card payments had been made in cash. The assessee demonstrated that the payments were made from disclosed bank accounts forming part of the regular books.
The Tribunal held that an addition based on incorrect third-party or portal information cannot survive when the actual banking records establish the source and mode of payment. The Revenue’s ground was therefore dismissed.
GST Portal Difference Must Be Reconciled Before Addition
The Assessing Officer made an addition of approximately ₹12.23 lakh due to a difference between purchases recorded in the books and figures appearing on the GST or Insight Portal.
The assessee furnished a reconciliation showing that the GST figures included not only trading purchases but also fixed assets and expenses on which GST had been paid. The difference included the purchase of a tempo costing approximately ₹11.63 lakh along with other expenses.
The Tribunal accepted the reconciliation and held that no adverse inference could be drawn merely from a numerical difference between financial accounts and GST data when the difference was satisfactorily explained.
Housing-Loan Interest and Rent Disallowance
The Tribunal upheld the deduction of ₹2 lakh claimed under Section 24(b) towards interest on a housing loan, as the payment was supported by the bank’s interest certificate.
In relation to rent paid without deduction of tax at source, the Tribunal agreed that the disallowance under Section 40(a)(ia) was to be restricted to 30 per cent of the relevant expenditure. Since the business loss had not been set off against income under other heads and was carried forward, the disallowance was required to reduce the carried-forward loss rather than operate as a separate addition to total income.
Search, Cash and Jewellery Additions
For Assessment Year 2022-23, the Tribunal upheld the deletion of an addition relating to ₹6 lakh in cash found during search because the amount was recorded in the regular books and had consequently been released by the search party.
An addition of ₹1,77,290 concerning a gold coin and two ginnis was also deleted. The inventory and valuation report showed that the articles were found in a locker belonging to the assessee’s sister and brother. Since the jewellery was neither found in the assessee’s possession nor admitted to be owned by him, the Tribunal held that the addition could not be made in his hands.
The Tribunal further deleted an addition of approximately ₹13.15 lakh relating to jewellery exceeding the quantity initially treated as explained under CBDT Instruction No. 1916. The assessee produced the wealth-tax assessment of his sister showing ownership of 2,500 grams of gold jewellery. As only 500 grams belonging to her had initially been considered, the Tribunal held that the remaining jewellery could reasonably be attributed to her disclosed holdings.
Final Decision
All four appeals filed by the Revenue for Assessment Years 2019-20 to 2022-23 were dismissed. The three appeals filed by the assessee were partly allowed, with relief granted on cash deposits, jewellery and other additions supported by books, banking records and documentary evidence.
Why This Judgment Matters
The decision is relevant for Advocates, Chartered Accountants, Tax Consultants, corporate tax teams and businesses dealing with additions based on trade creditors, customer advances, opening balances, GST portal differences and search-related assets. It reinforces that additions under Sections 68, 69A, 69B and 69C must be founded on verified facts and objective examination of the books and supporting evidence. Portal information, assumptions, non-response to notices or the existence of closing balances cannot, by themselves, substitute for a proper enquiry by the Assessing Officer.