No “Source of Source” Requirement for Genuine Unsecured Loans Prior to Finance Act 2022 – Commentary on PCIT‑4 Delhi v. KRBL Infrastructure Ltd (2025 DHC 9908‑DB)

No “Source of Source” Requirement for Genuine Unsecured Loans Prior to Finance Act 2022 – Commentary on PCIT‑4 Delhi v. KRBL Infrastructure Ltd (2025 DHC 9908‑DB)

1. Introduction

The Delhi High Court’s decision in Principal Commissioner of Income Tax‑4, Delhi v. KRBL Infrastructure Ltd, ITA 494/2024, judgment dated 13 November 2025, is a significant addition to the jurisprudence on Section 68 of the Income‑tax Act, 1961, especially in the context of:

  • Unsecured loans scrutinised in search assessments under Section 153A, and
  • The scope of an assessee’s obligation to prove the “source of the source” of such credits for assessment years prior to the Finance Act, 2022.

The judgment reaffirms and sharpens a key principle: for pre‑Finance Act 2022 assessment years, once an assessee has satisfactorily proved the creditor’s identity, creditworthiness and the genuineness of the loan transaction, the Revenue cannot insist that the assessee also explain the origin of the creditor’s own funds. Attempts by the Assessing Officer (AO) to probe into the creditor’s suppliers, creditors or alleged bogus purchases amount, in such cases, to an impermissible “source of source” enquiry.

The case arises out of a search on the KRBL Group and a subsequent assessment under Section 153A, where the AO treated a loan of ₹10 crore from M/s Shashi Foods (India) Pvt. Ltd. as a bogus unsecured loan and added it under Section 68, along with disallowance of related interest. The CIT(A) and ITAT both deleted the addition, leading to the present appeal by the Revenue.

2. Factual and Procedural Background

2.1 Parties and Proceedings

  • Appellant (Revenue): Principal Commissioner of Income Tax‑4, Delhi.
  • Respondent (Assessee): KRBL Infrastructure Ltd, a group company within the KRBL Group.
  • Forum: High Court of Delhi, Division Bench (Hon’ble Mr. Justice V. Kameswar Rao and Hon’ble Mr. Justice Vinod Kumar).
  • Impugned order: ITAT Delhi order dated 08.06.2023 in ITA No. 3963/DEL/2019, Assessment Year (AY) 2014‑15.

2.2 Search and Assessment

A search and seizure operation under Section 132 was conducted on the KRBL Group on 30.03.2016. A warrant was also issued against the respondent, KRBL Infrastructure Ltd. For AY 2014‑15:

  • The assessee filed its return declaring a loss of ₹3,49,55,515.
  • Return was processed under Section 143(1); notice under Section 143(2) followed.
  • Post‑search, a notice under Section 153A was issued on 02.05.2017; earlier proceedings abated under the second proviso to Section 153A(1).
  • The AO framed an assessment under Section 153A read with Section 143(3) on 31.12.2017, determining income at ₹7,53,55,250.

2.3 Additions by the AO

The main disputed additions were:

  1. ₹10,00,00,000 – treated as bogus unsecured loan allegedly received from M/s Shashi Foods (India) Pvt. Ltd. (Shashi Foods) and added under Section 68.
  2. Interest disallowance:
    • On this ₹10 crore loan, the AO disallowed interest of ₹1,03,10,760 as not genuine (though, as the CIT(A) later clarified, only ₹19,10,760 of this related to Shashi Foods; the balance related to another lender, M/s Index Securities & Research Pvt. Ltd., which was a separate issue).

The AO’s reasoning centred on:

  • Alleged bogus purchase bills being issued to KRBL Ltd by entities controlled by one Shri Dinesh Jain.
  • Alleged circular routing of funds among Shashi Foods, Gautam Techagro India Pvt. Ltd., entities of the Dinesh Jain group and KRBL entities.
  • Enquiries into Shashi Foods’ trade creditors, a number of whom were allegedly not traceable at their stated addresses.
  • Suspicion that Shashi Foods lacked real business and sufficient own funds, making its creditworthiness doubtful.

2.4 First Appeal before CIT(A)

KRBL Infrastructure Ltd appealed. The CIT(A) partly allowed the appeal (order dated 30.01.2019):

  • Deleted the ₹10 crore addition under Section 68 in respect of the Shashi Foods loan.
  • Deleted the related interest disallowance of ₹19,10,760 pertaining to that loan.
  • Confirmed only the other interest disallowance of ₹84,00,000 relating to a different lender (Index Securities) – an issue not in dispute before the High Court in this appeal.

The CIT(A) held that:

  • The assessee had satisfactorily established identity, creditworthiness and genuineness in relation to Shashi Foods.
  • The AO’s enquiries into Shashi Foods’ purchases and creditors were, at best, enquiries into the source of the source and were legally irrelevant in the borrower‑assessee’s assessment.

2.5 ITAT Proceedings

The Revenue appealed to the ITAT, which dismissed the appeal on 08.06.2023. The ITAT:

  • Affirmed that the assessee had discharged its burden under Section 68 by:
    • Producing loan confirmations;
    • Providing Shashi Foods’ income‑tax returns, bank statements and audited financials;
    • Showing that the loan was through banking channels and repaid with interest.
  • Held that the AO brought no contrary material directly impeaching the genuineness of the specific loan transaction.
  • Found the AO’s reliance on alleged bogus purchases and on non‑traceability of some of Shashi Foods’ trade creditors insufficient to taint the loan advanced to the assessee.

2.6 Appeal before the High Court & Questions of Law

The High Court admitted the Revenue’s appeal on two substantial questions of law:

  1. Section 68 addition: Whether the ITAT erred in deleting the addition of ₹10 crore and related interest on the unsecured loan from Shashi Foods.
  2. Section 153A & Abhisar Buildwell: Whether the ITAT erred in confirming the CIT(A)’s order, particularly in light of the Supreme Court’s decision in PCIT (Central‑3) v. Abhisar Buildwell Pvt. Ltd. (2023) 149 taxmann.com 399 (SC).

3. Summary of the Judgment

The High Court dismissed the Revenue’s appeal and answered both substantial questions of law in favour of the assessee.

3.1 On the Section 68 Addition (Question 1)

The Court held:
  • The assessee had proved the identity of Shashi Foods through documentary evidence and the statement of its Director, recorded both during survey and in response to notice under Section 133(6).
  • Creditworthiness was established because:
    • The loan was demonstrably advanced from Shashi Foods’ bank account (para 35); and
    • The Revenue had not shown that requisite funds were absent in that account in AY 2014‑15 (para 35).
  • The genuineness of the transaction was reinforced by:
    • Loan being received and repaid through banking channels (paras 30, 36);
    • Repayment with interest in the subsequent year, FY 2015‑16 (paras 21, 36);
    • Uncontroverted confirmations from the lender (paras 28, 29).
  • The AO’s focus on the alleged bogus purchases of Shashi Foods or on the non‑traceability of its own creditors amounted to an enquiry into the “source of the source”, which is legally impermissible in the assessee‑borrower’s case for pre‑FA‑2022 assessment years (paras 32, 37–43).

Accordingly, the deletion of the ₹10 crore addition and related interest disallowance was upheld.

3.2 On Section 153A and Abhisar Buildwell (Question 2)

On the second question, the Court noted that:

  • The AO’s assessment order did not rely on any specific incriminating material found during search to justify the addition (para 47).
  • In any event, because the Court had already upheld the ITAT’s order on merits of the Section 68 addition, the Revenue’s reliance on Abhisar Buildwell could not salvage the addition (para 47).

As a result, the Court affirmed the ITAT’s order in toto and dismissed the appeal.

4. Detailed Analysis

4.1 The Core Legal Issue: Scope of Section 68 in Loan Cases

Section 68 empowers the AO to treat any sum credited in the books of an assessee as income if:

  1. The assessee offers no explanation about the nature and source of the credit; or
  2. The explanation offered is, in the AO’s opinion, not satisfactory.

Over time, courts have distilled a “triple test” for the assessee’s initial burden:

  • Identity of the creditor;
  • Creditworthiness of the creditor; and
  • Genuineness of the transaction.

The Delhi High Court in this case squarely applies that framework. It finds that, on the facts, all three prongs were satisfied and, therefore, any further scrutiny into how the creditor itself sourced its funds was beyond the legitimate scope of Section 68 for AY 2014‑15.

4.2 The AO’s Approach: From Bogus Purchases to Loan Addition

The AO’s reasoning can be broken down as follows:
  1. A search on the KRBL Group revealed that KRBL Ltd had allegedly been availing bogus purchase bills from entities controlled by Shri Dinesh Jain, who admitted to providing such bogus bills on commission (paras 5.1.1, 6).
  2. Shashi Foods – the lender to KRBL Infrastructure – was found to have business and fund flows entangled with entities of the Dinesh Jain group (paras 11, 27, 5.2.8, 5.3).
  3. On examination of Shashi Foods’ balance sheet, the AO noted trade payables of ₹34.96 crore to 12 parties. On field enquiries, Inspectors reported that only four of these creditors were found operating at the stated addresses (paras 10, 27, 5.2.5–5.2.6).
  4. Some of the impounded bills (e.g., from Deepak Kumar & Brothers and Asharfi Overseas Pvt. Ltd.) were found:
    • Unsigned;
    • In the same handwriting across many dates;
    • Lacking transport and other standard details;
    • Suggestive of being bogus (para 5.2.7).
  5. An analysis of Shashi Foods’ bank accounts allegedly showed layering of funds through multiple entities, including those controlled by Dinesh Jain, supporting a narrative of accommodation entries (paras 11, 27, 5.2.8, 5.3).

From these pieces, the AO inferred:

  • Shashi Foods lacked genuine business activity and its own funds;
  • Its creditworthiness was doubtful; and
  • The loan to KRBL Infrastructure Ltd was likely non‑genuine and formed part of a circuitous accommodation entry arrangement.

The AO also argued that mere movement of funds through banking channels and the absence of collateral security are insufficient, by themselves, to establish genuineness (paras 13–16, 34).

4.3 CIT(A)’s Reversal: Focusing on the Borrower’s Burden, Not the Lender’s Suppliers

The CIT(A) carefully separated the requirements under Section 68 vis‑à‑vis the borrower‑assessee from the AO’s broad attack on Shashi Foods’ commercial conduct.

Key aspects of the CIT(A)’s reasoning (paras 5.2.2–5.2.4):

  • Undisputed banking trail: The loan of ₹10 crore was received via bank transfers; interest was paid through banking channels. There was no evidence of cash‑based or off‑record transactions.
  • Two‑fold confirmation by the creditor:
    • Shashi Foods’ Director, Shri Gian Chand Sethi, in his survey statement, admitted giving the loan at 9% interest and explained that the source was sales proceeds for which payments from customers were yet to be received (paras 5.2.1–5.2.2).
    • In response to notice under Section 133(6), Shashi Foods again confirmed the loan and interest and stated that the company had sufficient funds to lend (para 5.2.3).
  • Availability of funds in lender’s bank account: The CIT(A) concluded that Shashi Foods had lent the money out of sums credited in its bank account. On that basis, its creditworthiness towards this loan could not be doubted (para 5.2.3).
  • Irrelevance of enquiries into Shashi Foods’ creditors: Whether Shashi Foods’ own purchases were genuine, or its trade creditors were existing and traceable, might be relevant in its own assessment, but:
    • “cannot be examined in the case of the appellant (borrower)” (para 5.2.3); and
    • in effect, amounted to seeking to prove the source of source, which multiple judicial decisions have held to be impermissible in the borrower’s hands (para 5.2.3).
  • Onus shifted to Revenue: Having furnished confirmations, bank statements, ITRs, financial statements etc., the assessee had discharged its initial onus under Section 68. The burden then shifted to the AO to rebut the evidence, which he failed to do (para 5.2.3).

On this basis, the CIT(A) held the loan to be genuine, deleted the addition of ₹10 crore and also deleted the related interest disallowance of ₹19,10,760 (para 5.2.4).

4.4 ITAT’s Affirmation: No Contrary Material Against the Specific Loan

The ITAT essentially upheld the CIT(A) on two critical grounds (paras 6–8):

  1. Evidence in favour of the assessee: The assessee had:
    • Express confirmation from Shashi Foods (twice: survey and notice 133(6));
    • Loan and interest payments via banking channels;
    • Lender’s ITRs, bank statements and audited accounts on record.
    Collectively, these satisfied the identity, creditworthiness and genuineness requirements.
  2. Insufficiency of the AO’s adverse material: The AO’s main objection was that Shashi Foods had allegedly availed bogus purchase bills; however:
    • The AO had not examined the genuineness of Shashi Foods’ sales, even though the lender specifically claimed that the loan emanated from its sales receipts (para 8).
    • Non‑location of some trade creditors on field enquiries, several years after the relevant FY, did not conclusively prove non‑existence of those creditors or the bogus nature of all purchases (para 8).
    • There was no concrete finding that Shashi Foods’ entire business was sham, nor any direct link drawn between alleged bogus purchases and the specific loan transaction (para 8).

The ITAT concluded that without “contrary material” specifically impeaching the loan, the AO’s addition under Section 68 was unsustainable.

4.5 High Court’s Legal Reasoning

4.5.1 Reaffirmation of Section 68 “Triple Test” and Onus

The High Court endorsed the CIT(A) and ITAT’s application of the triple test and reiterated established principles (paras 30–37):

  • Identity: The creditor’s identity was not in doubt:
    • Shashi Foods is a private limited company;
    • Its Director’s statements were recorded; and
    • It responded to statutory notices.
  • Creditworthiness:
    • Loan originated from Shashi Foods’ own bank account (para 35);
    • The Revenue did not demonstrate non‑availability of funds in that bank account in AY 2014‑15 (para 35);
    • Therefore, creditworthiness stood established.
  • Genuineness of the transaction:
    • Loan received through banking channels (para 36);
    • Loan repaid in FY 2015‑16, with interest (paras 21, 36);
    • No evidence of cash circulation or fictitious entries was directly tied to this specific loan.

Once these elements are proved, any further demands by the AO for deeper explanation of where the lender got its funds is a demand to prove the “source of the source”, which the Court held to be impermissible for AY 2014‑15.

4.5.2 The “Source of Source” Question and Finance Act 2022

The Court devoted substantial attention to the “source of source” issue (paras 37–43). Its key conclusions:

  • The AO’s concern about Shashi Foods’ possibly bogus purchases and its inability to establish the existence of all of Shashi Foods’ own creditors is, in substance, an enquiry into the origin of the creditor’s funds, i.e., the source of the source (para 37).
  • Such an enquiry is not to be conducted in the borrower’s assessment once the borrower has:
    • Proved the identity of the creditor;
    • Shown that funds came from the creditor’s bank account; and
    • Established that the loan and its repayment are through verifiable banking channels.
  • The Court underscored, with reference to Sheela Overseas Pvt. Ltd. v. PCIT, that:
    the requirement of explaining the source of the source of funds credited as unsecured loans … was introduced by virtue of the Finance Act, 2022. The same was not applicable during the relevant assessment year … Thus … the Assessee cannot be burdened with the requirement to explain the source of funds …
    (para 40, quoting para 17 of Sheela Overseas).
  • Accordingly, for AY 2014‑15, the pre‑amendment legal position applied: the assessee need not prove the source of the source (paras 40, 42).

In other words, the Court treats the Finance Act 2022 amendment as a substantive new requirement, not a mere clarificatory codification of existing law, and therefore prospective in operation.

4.5.3 Reliance on Precedents Supporting Limited Burden on the Assessee

The Court relies on and reaffirms earlier decisions:
  1. CIT v. Dwarkadhish Investment (P) Ltd., (2011) 330 ITR 298 (Delhi) (para 38):
    • Once the assessee proves the identity of the creditor/share applicant and the genuineness of the transaction (e.g., via account payee cheques) the onus shifts to the Revenue.
    • Mere non‑traceability of creditors/share applicants at a given address does not justify invoking Section 68.
    • Crucially, it is “settled law that the assessee need not to prove the ‘source of source’”.
  2. DCIT v. Rohini Builders, (2002) 256 ITR 360 (Guj.) (para 39):
    • Assessee had received and repaid loans by account payee cheques and paid interest after TDS.
    • The Gujarat High Court held that:
      • The assessee must prove the identity of the creditors, and that the loans came through their bank accounts.
      • The assessee is not required to prove the genuineness of the cash deposits in the creditors’ own bank accounts—again, no obligation to prove the source of the source.
  3. Sheela Overseas Pvt. Ltd. v. PCIT, Delhi‑08, ITA 546/2023 (Del., 28.05.2025) (para 40):
    • Delhi High Court had already clarified that the obligation to explain the source of source with respect to unsecured loans was introduced only by Finance Act 2022.
    • Therefore, it does not apply to AY 2015‑16 in that case, nor to AY 2014‑15 in the present case.

By relying on these decisions, the Court firmly aligns itself with the strand of jurisprudence that limits the Section 68 enquiry in the borrower’s hands to the immediate source and not beyond, for earlier assessment years.

4.5.4 Distinguishing Revenue’s Authorities: Nova Promoters and N.R. Portfolio

The Revenue relied on:

  • CIT v. Nova Promoters and Finlease (P) Ltd., 342 ITR 169 (Delhi), and
  • CIT v. N.R. Portfolio Pvt. Ltd., ITA No. 1081/2011 (Del.)

to argue that mere routing of money through banks and bare confirmations are insufficient; deeper scrutiny into creditworthiness and genuineness, including the background of investors/creditors, is warranted.

In N.R. Portfolio, the Delhi High Court had underscored that:

  • Merely providing PAN, bank details or ROC data may be insufficient where surrounding circumstances suggest a cover‑up (para 15, extracted in the present judgment).
  • Identity, creditworthiness and genuineness must be examined pragmatically, and in private company share transactions the assessee cannot simply “remain quiet” when shareholders/subscribers are unresponsive or untraceable.

However, the present Bench found those authorities inapplicable on facts (para 45), because:

  • Here, the creditor itself appeared and confirmed the loan, both at survey and on statutory notice; it was not a case of unreachable or incommunicado investors.
  • The assessee had supplied comprehensive documentation—much more than bare incorporation details—and there was no glaring implausibility (such as unknown “angel” investors putting in large sums in a closely‑held company without explanation).
  • There was no evidence that the loan transaction was a mere paper entry lacking commercial purpose; it carried interest and was duly repaid.

Thus, while Nova Promoters and N.R. Portfolio continue to apply where facts show sham investors or clear badges of accommodation entries, the present case was fundamentally different: the factual presumption of sham did not arise on the record.

4.5.5 Later Fund Flows (FY 2015‑16) and Alleged Rotation

The Revenue attempted to show, through an intricate fund trail (paras 5.3.1, 46), that:

  • The loan repaid by KRBL Infrastructure Ltd to Shashi Foods in FY 2015‑16 (₹10.63 crore) was substantially (₹9.70 crore) routed back to KRBL Ltd via Gautam Techagro India Pvt. Ltd..
  • Another entity, G A Grain Merchant, allegedly transferred funds (₹75 lakh) to Gautam Techagro, which then passed them on to KRBL Ltd.
  • These patterns suggested circular movement of funds among related/accommodation entities.

The High Court, however, declined to base its decision on these later‑year trails (para 46):

  • The relevant question was whether the loan transaction in FY 2013‑14 (AY 2014‑15) was genuine.
  • The CIT(A) and ITAT had concurrently held, on the basis of evidence for that year, that the transaction was genuine.
  • This conclusion was not perverse and was a plausible view on the evidence.
  • In an appeal under Section 260A, the High Court does not re‑appreciate pure questions of fact unless the findings are perverse.

Accordingly, the alleged rotation of funds in FY 2015‑16 could not be used to overturn concurrent factual findings regarding the genuineness of the loan in AY 2014‑15.

4.5.6 The Role of Abhisar Buildwell and Incriminating Material

The second substantial question of law concerned whether the ITAT erred in confirming the CIT(A)’s order “in light of” the Supreme Court’s decision in PCIT (Central‑3) v. Abhisar Buildwell Pvt. Ltd., which deals with the scope of Section 153A and the necessity of incriminating material in search cases.

The Revenue’s stance was nuanced:

  • It emphasised that AY 2014‑15 was an abated assessment year because scrutiny proceedings were pending when search occurred (para 17).
  • For abated years, the AO’s jurisdiction under Section 153A merges with the regular assessment, allowing additions even without incriminating material (para 17–18).

The High Court responded briefly (para 47):

  • The AO’s order did not refer to any incriminating material forming the basis of the addition.
  • More importantly, the Court had already found, on merits under Section 68, that the addition was unsustainable.
  • Therefore, even if Abhisar Buildwell is correctly applied, it does not assist the Revenue in salvaging an addition which fails on substantive legal and factual grounds.

The Court thus avoided giving any new expansive ruling on Section 153A or modifying the Supreme Court’s ratio in Abhisar Buildwell; it simply held that, in this appeal, Abhisar was not determinative.

5. Complex Concepts Simplified

5.1 Section 68 and the “Triple Test”

When an amount is credited in the assessee’s books (e.g., as an unsecured loan), Section 68 allows the AO to treat it as income if the assessee cannot satisfactorily explain it. Courts require the assessee to pass a three‑fold test:

  1. Identity of the Creditor – Who is this person or entity?
    • E.g., name, address, PAN, incorporation details, confirmations.
  2. Creditworthiness – Could the creditor afford to advance this money?
    • E.g., its bank balances, financial statements, income levels.
  3. Genuineness of the Transaction – Did the transaction actually occur as claimed?
    • E.g., actual bank transfers, existence of loan agreements, repayment and interest, absence of circular or artificial routing (unless proved).

If the assessee produces reasonable evidence on these three points, the initial onus under Section 68 is said to be discharged, and the burden shifts to the Revenue to show why the explanation should still be rejected.

5.2 “Source of Source”

“Source of source” refers to the origin of the creditor’s own funds. For example:

  • Section 68 requires the assessee to explain: “How did you receive this ₹10 crore loan?”
  • Answer: “From Shashi Foods, via bank transfer; here are their financials and confirmations.”
  • “Source of source” would ask: “But where did Shashi Foods get its ₹10 crore from? Show that its own purchases/suppliers/creditors are genuine.”

Before the Finance Act 2022, courts like in Dwarkadhish Investment and Rohini Builders had repeatedly held that:

  • The assessee is not obliged to prove the creditor’s source of funds beyond a certain point.
  • That deeper enquiry belongs in the creditor’s own assessment.

Finance Act 2022 later inserted an explanation into Section 68 (in certain contexts, especially share capital and loans in specified situations) that now does require explaining the “source of source”. This judgment clarifies that such a requirement is prospective and does not apply to AY 2014‑15.

5.3 Search Assessments and “Abated” Years

Under Section 153A, when a search under Section 132 is conducted:

  • The AO must assess or reassess income for six prior years (and in some cases more).
  • For any assessment year where a regular assessment/reassessment is pending when the search begins, those proceedings are said to abate and are replaced by a fresh assessment under Section 153A.

After the Supreme Court’s decision in Abhisar Buildwell:

  • For unabated years, additions under Section 153A must be based on incriminating material found during search.
  • For abated years, the AO can frame assessment afresh, but still must comply with the substantive provisions (like Section 68) and cannot make arbitrary additions.

In this case, AY 2014‑15 was an abated year because a CASS‑selected scrutiny was pending when search was initiated. Yet, the High Court decided the case mainly on merits under Section 68, noting that the AO did not, in fact, rely on any specific incriminating material.

5.4 “Accommodation Entries” and “Bogus Bills”

  • Accommodation entry: A paper transaction that creates the appearance of legitimate income, loan, investment, etc., without real underlying economic activity—for example, one entity lending funds that are actually the assessee’s own unaccounted money routed back through layers.
  • Bogus bills: Fake invoices issued to inflate purchases or claim false expenses, often used to generate “paper” increase in cost of goods sold or to launder money.

In tax litigation, the Revenue often argues that loans or share capital are actually accommodation entries. However, unless the AO can tie the alleged accommodation entry mechanism to the specific sum credited in the assessee’s books with tangible evidence, mere suspicion drawn from the creditor’s general background is insufficient.

6. Impact and Practical Implications

6.1 Reinforcement of Limited Section 68 Burden for Pre‑2022 Years

The principal doctrinal impact is the Court’s categorical affirmation that, for assessment years prior to the Finance Act 2022 amendment:

  • Once an assessee has:
    • proved the creditor’s identity;
    • shown that the creditor had apparent financial capacity (funds in the bank account); and
    • demonstrated that the loan was routed and repaid through banks at commercial rates of interest,
  • the Revenue cannot demand proof of the source of the creditor’s funds in the assessee’s assessment.

This will be highly relevant for pending litigation involving:

  • Unsecured loans received in pre‑2022 years; and
  • Cases where AOs rely heavily on alleged irregularities in the lender’s business or creditors (e.g., its own suppliers, trade payables) to discredit loans, without directly disproving the loan itself.

6.2 Guidance for Taxpayers and Advisors

Taxpayers and practitioners can draw several practical lessons:

  • Documentation is crucial:
    • Maintain loan agreements (where possible), bank statements, confirmations, and correspondence with lenders.
    • Ensure that interest is paid at commercially plausible rates and through traceable banking channels.
  • Timely and consistent confirmations:
    • Ensure that lenders respond to departmental notices (e.g., under Section 133(6)) and confirm the transactions consistently.
    • Such responses, as in Shashi Foods’ case, carry significant evidentiary value.
  • Segregation of responsibilities:
    • Issues relating to a creditor’s own purchases, suppliers, or tax compliance should be contested in that creditor’s proceedings, not conceded as a basis for Section 68 additions in the borrower’s hands.

6.3 Constraints on Revenue’s Approach in Similar Cases

For the Revenue, the decision signals that:

  • Generic suspicion based on a creditor’s alleged involvement in bogus transactions is not enough.
  • Field enquiries showing that some creditors of the creditor are not found at addresses, particularly years later, are insufficient to brand the borrower’s loan as bogus, especially where:
    • The creditor exists and responds;
    • The loan is properly documented and repaid.
  • If the Revenue believes a creditor is a bogus entity or is engaged in accommodation entries:
    • It must build a case in the creditor’s own assessment,
    • or bring direct material connecting the specific loan amount to unaccounted funds in the assessee’s hands.

6.4 Search Assessments after Abhisar Buildwell

While the judgment does not lay down new law on Section 153A, it indirectly highlights:

  • Even in abated years, where the AO’s jurisdiction is wide, additions must still withstand scrutiny under the substantive law (here, Section 68).
  • References to Abhisar Buildwell by the Revenue will not salvage an addition that is unsustainable on merits.

7. Conclusion

The Delhi High Court’s decision in PCIT‑4 Delhi v. KRBL Infrastructure Ltd is a robust reaffirmation of the settled principle that, for pre‑Finance Act 2022 assessment years, an assessee is not required to prove the “source of the source” under Section 68, once the immediate source—here, the corporate lender—has been satisfactorily established.

The judgment underscores several important points:

  • The triple test of identity, creditworthiness and genuineness remains the bedrock of Section 68 analysis.
  • Banking‑channel transactions and timely repayment with interest significantly bolster the genuineness of a loan.
  • Investigations into a creditor’s own suppliers, creditors and purchases are, in general, matters for that creditor’s assessment and cannot, without more, justify additions in the borrower’s hands.
  • The Finance Act 2022 amendment enhancing the obligation to explain the source of source is treated as prospective, not retroactive.
  • Concurrent factual findings of the CIT(A) and ITAT regarding genuineness of a transaction will not be disturbed under Section 260A unless they are perverse, which was not the case here.

In the broader legal landscape, this decision will be frequently cited in disputes over unsecured loans and share application money in pre‑2022 years, particularly in search‑related assessments, as it draws a clear and principled line between legitimate Section 68 enquiries and over‑reach into “source of source” territory.

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