For a loan or share investment credited in a taxpayer’s books, the evidence should show who provided the money, whether that person could provide it, and whether the transaction actually happened as recorded. These are commonly described as identity, creditworthiness and genuineness. The right records depend on the facts; no single document or fixed checklist guarantees that a credit will be accepted.
First identify the tax year. Section 68 of the Income-tax Act, 1961 governs matters under that Act; section 102, titled “Unexplained credits,” is the successor provision in the Income-tax Act, 2025 for tax years governed by the newer Act. Do not apply a rule or precedent from one statutory regime to another without checking which law applies.
What must the evidence establish?
The practical task is to connect the credit in the books to a real person, that person’s ability to fund it, and a transaction consistent with the records. A document can support one part of that explanation without proving the other parts.
- Identity: Who is the lender or investor recorded in the books, and do the records establish that this person legally provided the amount?
- Creditworthiness: Did the provider have access to funds sufficient for the amount and timing of the payment?
- Genuineness: Does the evidence show a real loan or share transaction, with a coherent payment trail and accounting and corporate records that agree?
In its 19 March 2025 decision in ITA 49/2025, the Delhi High Court described identity, creditworthiness and genuineness as the three tests relevant to a Section 68 addition. It also said that the relevant documents and proper explanation “may vary from case to case and cannot be put in a straight jacket formula.” The decision was fact-specific and concerned appellate review of concurrent factual findings; it does not establish that one set of documents will prove every case.
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