Unexplained Cash Credits Taxable Despite Rejected Books: ITAT Upholds ₹6.58 Crore Addition [Read Order]

The Tribunal upheld the addition of Rs. 6.58 crore as unexplained cash credits under Section 68 and ruled that such additions are permissible even when the assessee’s books of accounts are rejected. The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) upheld the addition of Rs. 6,58,43,000 as unexplained cash credits under Section 68 and held that additions for unexplained credits are valid even when the books of accounts are rejected.

Sahyog Construction (assessee), a firm engaged in construction activities, filed its income tax return, declaring a gross profit of 17.95% on a turnover of Rs. 5.18 crore. The AO rejected the books of accounts and applied a gross profit rate of 19%, resulting in an addition of Rs. 5,46,500 to the assessee’s income.

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The AO identified unsecured loans amounting to Rs. 6,58,43,000 taken by the assessee during the year. The AO treated the amount as unexplained cash credits under Section 68, making a further addition to the income of the assessee.

The AO held that the assessee failed to establish the genuineness of these loans. The AO also taxed this amount under Section 115BBE of the Income Tax Act, which applies to income from unexplained sources.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld both the rejection of the books and the additions made by the AO, including the Rs. 6.58 crore under Section 68 of the Income Tax Act.

Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT. The assessee challenged only the addition under Section 68 and not the rejection of the books or the gross profit adjustment.

The assessee’s counsel argued that once the books of accounts were rejected, they could not be relied upon to make additions for unexplained credits under Section 68 of the Income Tax Act, 1961.

The counsel cited decisions of the Punjab & Haryana High Court in CIT vs. Dulla Ram and the Rajasthan High Court in Malpani House of Stones vs. CIT, which held that additions under Section 68 cannot be based on entries in rejected books.

The two-member bench comprising Siddhartha Nautiyal (Judicial Member) and Annapurna Gupta (Accountant Member) relied on the Supreme Court’s decision in Kale Khan Mohammad Hanif, which clarified that additions for unexplained credits from undisclosed sources are permissible even when books are rejected, as they do not constitute double taxation.

The Tribunal also cited subsequent Supreme Court and High Court rulings, including CIT vs. Devi Prasad Vishwanath and Kumar Trading Company vs. CIT, which reiterated that rejected books do not preclude additions under Section 68 of the Income Tax Act.

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The Tribunal observed that the unsecured loans were recorded in the assessee’s books, and the assessee failed to substantiate their genuinen2025 TAXSCAN (ITAT) 1268ess. It held that the AO was justified in treating the Rs. 6.58 crore as unexplained cash credits. The bench upheld the addition made by the AO. The appeal filed by the assessee was dismissed.

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