The Calcutta High Court held that additions under Section 68 of the Income Tax Act must be grounded in evidence showing the nature and source of credit, and cannot be made mechanically. The assessment must consider material available during the relevant assessment year.
The Calcutta High Court acquitted an assessee from tax liability invoked under Section 68 of the Income Tax Act, 1961, ruling that the addition of unexplained cash credits must be supported by substantive evidence regarding the nature and source of the amount. The Court emphasized that the taxing authority cannot make arbitrary additions merely because the assessee failed to fully substantiate the transaction, particularly when some documentary backing exists.
The applicability of Section 68 depends on the factual matrix and material available on record during the assessment year, and cannot be applied as a deeming fiction without scrutiny of creditworthiness.
The Court examined the assessment order that had relied solely on the non-examination of parties due to pandemic-related restrictions, rejecting the argument that absence of cross-verification justified a blanket addition. It reiterated that Section 68 operates only when the source of credit remains unexplained despite best efforts, and does not permit default additions without analytical engagement.
For tax practitioners, this confirms that revenue departments must conduct a contextual evaluation before invoking Section 68. It also supports reliance on contemporaneous documents where personal verification was objectively unfeasible.
Citations
- Income Tax Act, 1961, Section 68
