For a loan or share-investment credit, build evidence that answers three separate questions: who provided the money, whether that person could provide it, and whether the recorded transaction actually happened as described. The right documents depend on the facts; no single bank entry, tax-return acknowledgement or standard checklist proves all three. First identify the tax year: Section 68 of the Income-tax Act, 1961 governs matters under that Act, while section 102 of the Income-tax Act, 2025 is the successor provision for tax years governed by the 2025 Act.
What must the evidence establish?
The familiar Section 68 analysis asks whether the taxpayer has adequately explained the credit by establishing the creditor’s or investor’s identity, creditworthiness and the genuineness of the transaction. These are related but distinct questions. A PAN may help identify a person, but does not by itself show that the person had the funds. A bank transfer may show movement of money, but does not by itself explain its source or prove that the transaction was genuine in the circumstances.
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- Identity: Who legally provided the credited amount?
- Creditworthiness: Did that person have the financial capacity to provide that amount at that time?
- Genuineness: Do the transaction documents, movement of funds, accounting records and surrounding facts support the transaction as recorded?
The Delhi High Court described these three tests in its 19 March 2025 decision in ITA 49/2025. It also cautioned that the relevant documents and proper explanation “may vary from case to case and cannot be put in a straight jacket formula.” The judgment addressed appellate review of concurrent factual findings, so it should not be read as a universal ruling that any particular document set is sufficient.
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Which law applies: Section 68 or section 102?
Do not assume that the provision is determined by the date of a court judgment or by the date you assemble your evidence. Start with the tax year and the statute governing it. Section 68 of the Income-tax Act, 1961 remains relevant to matters governed by that Act. Section 102 of the Income-tax Act, 2025 is titled “Unexplained credits” and is the relevant successor for tax years governed by the 2025 Act.
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| Credit or issue | 1961 Act | 2025 Act |
|---|---|---|
| General unexplained credit | Section 68 applies where a sum is credited in books and the explanation about its nature and source is absent or considered unsatisfactory. | Section 102(1) addresses a sum credited in books where no explanation is offered about its nature and source, or the Assessing Officer considers the explanation unsatisfactory. |
| Loan or borrowing | The Section 68 loan proviso, as amended with effect from 1 April 2023, requires the person in whose name the credit appears to explain its nature and source, subject to the statute’s terms. | Section 102(2) addresses a loan or borrowing and requires the person in whose name the credit appears to explain its nature and source to the Assessing Officer’s satisfaction. |
| Share application money, share capital or premium in a closely held company | The Section 68 share-credit proviso, as amended with effect from 1 April 2023, requires the named person to explain the nature and source, subject to the statute’s terms and exception. | Section 102(3) separately addresses share application money, share capital, share premium and similar credits in a company that is not publicly substantially interested. It requires the resident named in the books to explain nature and source, subject to the statutory terms. |
| Specified venture capital exception | The applicable statutory exception and its conditions must be checked. | The Act provides an exception for specified venture capital funds or companies; check whether its conditions apply. |
The 2025 Act’s provisions should not be treated as interchangeable with Section 68. Likewise, an outcome for an earlier assessment year should not be carried forward mechanically without checking the governing statutory text and any amendments applicable to the year in dispute.
What evidence is useful for each question?
Choose records for what they prove, then reconcile them across the entire transaction. The following are common evidence categories, not a mandatory checklist or a guarantee of acceptance.
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| Question | Potentially relevant records | What to connect or explain |
|---|---|---|
| Who provided the money? | Name and address; PAN or other tax identifier; for an entity, incorporation details, corporate identification number (CIN), company master data and relevant corporate records; confirmation from the creditor or investor. | Show that the person identified in the documents is the person named in the books and linked to the payment. |
| Could they provide this amount? | Financial statements or audited accounts; tax-return material; net-worth or funds records; bank statements around the transaction. | Explain how the provider’s financial position supports the amount and timing. A low declared income alongside a large investment may call for evidence clarifying the provider’s actual resources and the source of the funds. |
| Did the transaction occur as recorded? | Loan agreement or confirmation; subscription or application documents; relevant approvals; bank statements and payment trail; ledger entries; share application and allotment records; share certificates or register entries where relevant. | Match the amount, dates, accounts, parties, purpose and legal characterization across the records. |
| Do the surrounding facts fit? | Records explaining unusual cash deposits, rapid movements of funds, common control or other adverse facts; supporting correspondence or transaction documents where relevant. | Address the specific concern with evidence. The fact that money moved through a bank does not, on its own, resolve concerns about source or genuineness. |
How the evidence differs for a loan and a share investment
For a loan or borrowing
Show the lender’s identity and financial capacity, the lender’s confirmation or loan agreement, the movement of funds and the corresponding accounting entries. Where relevant to the arrangement, include interest and repayment terms and records of payments or repayments. The explanation must fit the loan-credit provision applicable to the tax year, including any requirement imposed on the person in whose name the credit appears.
For share application money, capital or premium
In addition to identifying the investor and explaining the investor’s capacity and source of funds, connect the payment to the company’s issuance records. Relevant material may include the share application, allotment records, share certificates or register entries, corporate approvals, and records showing the investor’s corporate status. The statutory treatment depends on the year, the company’s status and the applicable provision; do not assume that evidence sufficient for a loan automatically answers the questions raised by a share credit.
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A 2025 Delhi High Court share-capital judgment, ITA 529/2023, records evidence considered in that appeal including investor addresses, CIN and incorporation details, PAN, authorised and paid-up capital, directors, ROC certificates and filings, investor net worth, confirmations, bank statements, income-tax return acknowledgements with audited accounts, company master data, share certificates and share application forms. The appellate record also described the Assessing Officer as not having doubted those documents or pursued inquiries with the relevant tax officers, Registrar of Companies or bankers. This is an illustration of evidence in one appeal, not a required package or automatic safe harbour.
How to assemble a coherent explanation
- Fix the applicable year and provision. Identify the tax year and governing statute before relying on a precedent or describing the burden. Check the statutory language and amendments applicable to that year.
- Map each document to an evidentiary question. Separate identity records, capacity records and transaction records. State what each item establishes rather than assuming one document proves everything.
- Reconcile the transaction end to end. Compare the amount, date, source account, recipient account, accounting entry, purpose and legal characterization. Resolve differences or gaps with specific records and explanations.
- Address adverse facts directly. If the record shows unusual deposits, quick transfers, common control or another concern, explain that fact with evidence tied to the particular transaction.
- Track material relied on by the authority. If the assessment relies on third-party statements or investigation material, note whether it was disclosed and whether there was a fair opportunity to respond. In ITA 529/2023, the case record treated un-confronted statements and lack of cross-examination as relevant; that case-specific treatment should not be converted into an absolute procedural rule.
What the documents do not guarantee
A confirmation, bank transfer, PAN, company filing or tax-return acknowledgement can support one part of the explanation without resolving the others. The authority evaluates the explanation and surrounding evidence in context. There is no universal source-of-source rule to apply without checking the governing statute and controlling precedent, and there is no document set that guarantees a particular result.
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