The “Source of Source” Relief: Patna High Court’s Landmark Dec 2025 Ruling
For years, the most litigated section in the Income Tax Act has been Section 68 (Unexplained Cash Credits). Assessing Officers (AOs) often demand that a taxpayer not only prove the source of the money received (e.g., a loan from Mr. X) but also prove where Mr. X got the money from (the “Source of Source”).
In a massive relief for taxpayers, the Patna High Court, in a judgment delivered on December 30, 2025, has firmly set aside this practice.
The Ruling Analysis
The High Court held that the primary onus on the assessee is threefold:
- Identity of the Creditor.
- Creditworthiness of the Creditor.
- Genuineness of the Transaction.
Once these three are established (via PAN, Bank Statements, and Confirmations), the burden shifts to the Department. The Court clarified that the law does not require the assessee to prove the “Source of Source”. If the Department doubts the creditor’s source, they must investigate the creditor, not penalize the borrower.
Why This Matters Now (Jan 2026)
With the Income Tax Act, 2025 coming into force in April, many pending appeals under the old Act are being expedited.
- Actionable Advice: If you have an ongoing appeal before the CIT(A) or ITAT regarding Share Capital or Unsecured Loans, we can now file an Additional Ground citing this fresh December 2025 judgment to seek deletion of the demand.
Facing a Section 68 Addition? Don’t let the Department shift the burden of proof unfairly. Contact Kunal Kapoor & Associates in Noida for a review of your appeal draft using this latest case law.
