Share Capital and Unsecured Loans Under Section 68: What the Onus Actually Requires

A company raises share capital, or takes an unsecured loan, and the assessing officer adds the whole amount to its income. The argument that follows is usually conducted through two Supreme Court decisions quoted at each other. Both are still live, and in 2026 neither is what decided these appeals.

The two authorities, and why both still appear

CIT v. Lovely Exports (P) Ltd., 216 CTR 195 (SC 2008), is cited for the proposition that where a company receiving share application money from alleged bogus shareholders gives the assessing officer their details, no addition falls under section 68 in the company's hands, and the Department must proceed against those shareholders by reopening their own assessments.

PCIT v. NRA Iron & Steel Pvt. Ltd., (2019) 412 ITR 161 (SC), is cited for the proposition that an assessee receiving cash credits, whether unsecured loans or share application money, bears the primary onus of proving the genuineness of the transaction and the creditworthiness of the immediate creditor.

It is tempting to say the later case swept the earlier one away. The corpus does not support that. Lovely Exports is relied on in 772 judgments on BharatTax.net, the most recent on 8 April 2026; NRA Iron & Steel in 300, the most recent on 9 March 2026. Both are being cited in the same season by the same benches. If you are waiting for one to settle your appeal, it will not.

What actually discharged the onus

Read the 2026 orders and a consistent pattern appears, and it is about the record rather than the authority.

In a Delhi appeal decided on 8 April 2026, the Tribunal upheld deletion of the addition because the assessee had documented the lenders' identity, creditworthiness and the genuineness of the transactions: the loans were received and repaid through banking channels, tax was deducted on the interest, and the assessing officer brought no adverse material to rebut any of it.

In a Mumbai appeal decided on 9 March 2026, the addition failed because the officer had relied solely on an Investigation Wing report without independent enquiry. The transaction had gone through banking channels with confirmations, and the loan had been repaid before the department raised any doubt at all.

A Kolkata bench put the same point at its shortest on 20 February 2026: the assessing officer had brought no material on record to show the transactions were fictitious.

What failed

The mirror image is a record that does not survive inspection. In an Ahmedabad appeal decided on 26 February 2026 the additions were confirmed in full: the cash book was found to be fabricated, the plea that it was the accountant's mistake was treated as an afterthought, and identity, creditworthiness and the source were simply not established.

Note what separates that case from the three above. It is not which Supreme Court decision was cited. It is that one side had contemporaneous records and the other had an explanation constructed after the notice.

The officer's own enquiry is the recurring hinge

Across the successful appeals, the finding that recurs is that the department produced nothing of its own. An Investigation Wing report, standing alone and unaccompanied by any enquiry into the transaction in front of the officer, has not carried these additions in 2026.

That cuts the other way too. Where the appellate record itself was inadequate, the answer has been to send it back rather than to allow the appeal: in a Chennai appeal decided on 17 February 2026 the Tribunal found the first appellate authority had not properly examined the source of the share application money, and restored the matter for fresh adjudication.

One timing point that is easy to miss

How far the enquiry reaches back can depend on the assessment year. In a Mumbai appeal decided on 19 February 2026, the Tribunal recorded that the proviso to section 68 requiring the source of the source to be proved was introduced later and did not apply to the year before it, and held the onus discharged on identity, genuineness and creditworthiness of the lender.

Check which year you are actually defending before accepting that a demand to trace the source behind your creditor's source applies to it.

What to put on the record

• Identity, creditworthiness and genuineness treated as three separate things to be evidenced, not one assertion made three ways.
• Bank statements showing the money moving, on both sides where you can obtain them.
• Where a loan has been repaid, the repayment, and its date relative to the first query from the department.
• Tax deducted on interest, where interest was paid.
• Contemporaneous books. A reconstruction prepared after the notice is the fact pattern that loses.
• The subscribers' or lenders' returns and financials where you can get them, rather than names and PANs alone.

The provisions in play are section 68 and, where the officer moves to unexplained money instead, section 69A; the assessment will be under section 143(3), or section 147 on a reassessment.

For the evidentiary test the department invokes alongside these, see our notes on Sumati Dayal v. CIT and CIT v. Durga Prasad More, and the wider practice note on what decides an unexplained credit appeal.

Citation figures come from an analysis of 292,668 judgments on BharatTax.net.

General information drawn from reported decisions, not advice on a particular matter. Every addition under section 68 turns on its own record.