Books of accounts not rejected means no Section 68 addition for unexplained cash credit allowed

The ITAT Nagpur ruled in favor of the assessee regarding unexplained cash credit under Section 68. The tribunal held that when books of accounts are not rejected, no addition can be made under Section 68. Seventeen agriculturist lenders confirmed under Section 131 that they advanced cash for sand purchase from their agricultural income, with advances later repaid through banking transactions or adjusted against sand sales. The tribunal rejected the argument that agriculturists lacked standing to advance money for sand purchase, noting farmers often diversify income sources. Since advances were subsequently booked as income, no Section 68 addition was permissible.

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Issues Involved:
1. Deletion of addition of Rs. 2,05,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act.
2. Credibility of the creditors' financial status and their ability to advance substantial sums.
3. Rejection of books of account under Section 145(3) and its implications on additions under Section 68.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The department challenged the deletion of Rs. 2,05,00,000/- as unexplained cash credit under Section 68, arguing that the creditors had meager agricultural income and insufficient bank balances. The CIT (Appeals) found that the appellant had received the sum as advances for sand from 17 parties, all of whom were agriculturists with substantial agricultural income. These transactions were reflected in the appellant's books and cash book. The CIT (Appeals) concluded that the appellant had satisfactorily explained the transactions, and thus, the addition under Section 68 was not justified.

2. Credibility of Creditors:
The department contended that the creditors, being agriculturists, lacked the financial capability to advance such substantial sums. However, the CIT (Appeals) noted that the creditors had confirmed giving the money for sand purchases and provided necessary documents during the assessment proceedings. The appellant also provided evidence of VAT payments and the purchase of sand from Shri Rajesh Hiwase. The Tribunal upheld the CIT (Appeals)'s findings, emphasizing that the creditors' testimonies and the documents provided were credible and sufficient to explain the cash credits.

3. Rejection of Books of Account and Section 68 Additions:
The appellant argued that once the books of account were rejected under Section 145(3), no separate addition could be made under Section 68. The Tribunal supported this view, citing precedents where courts held that after rejecting the books of account, no further additions could be made based on the same books. The Tribunal referred to several judgments, including those from the High Courts of Rajasthan and Punjab & Haryana, which supported the principle that once books are rejected, they cannot be relied upon for making additions under Section 68.

Conclusion:
The Tribunal confirmed the CIT (Appeals)'s decision to delete the addition of Rs. 2,05,00,000/- under Section 68, agreeing that the appellant had provided a satisfactory explanation for the cash credits. The Tribunal also upheld the principle that once books of account are rejected under Section 145(3), no further additions can be made based on those books. The appeal by the department was thus rejected, and the order of the CIT (Appeals) was affirmed.

Order Pronounced:
The appeal of the department was rejected, and the order was pronounced in the open Court on 16/07/2024.

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