2026 (2) TMI 349 - AT - Income Tax

Unexplained cash credit under section 68 overturned where no book entry or independent corroboration existed, addition deleted.

Unexplained cash credit was disallowed because the alleged Rs.39,00,000 receipt was not recorded in the assessee's books and no cogent material directly ... Unexplained cash credit u/s 68 - addition has been made solely on the basis of a third-party statement HELD THAT:- In the absence of any credit entry in the books of the assessee, and in the absence of any cogent material directly linking the assessee with receipt of cash loan, we are of the considered view that the addition made u/s 68 of the Act cannot be sustained in law. In the present case, it is an undisputed fact emerging from the record that no amount of Rs. 39,00,000/- has been found credited in the books of account of the assessee during the year under consideration. This foundational requirement for invoking section 68 is conspicuously absent. The addition has been made solely on the basis of a third-party statement. On perusal of the statement of Shri Nilesh Bharani, we find that there is no specific reference or identification of the assessee by name. AO has also not brought on record any independent corroborative material to establish that the assessee had in fact received any cash loan from M/s Evergreen Enterprises. We also noted that there is a discrepancy in the name mentioned in the reasons recorded for reopening, wherein the name appears as “Jigna Ashok Bhatt”, whereas the correct name of the assessee is “Jigna Ashutosh Bhatt”, which further reflects lack of proper linkage of the assessee with the alleged transaction. Addition u/s 68 of the Act and confirmed by the CIT(A) is unsustainable - Decided in favour of assessee. Issues: Whether the addition of Rs. 39,00,000/- made under section 68 of the Income-tax Act, 1961 treating the amount as unexplained cash credit is sustainable in law.Analysis: Section 68 can be invoked only where a sum is found credited in the books of the assessee for the relevant previous year and the assessee fails to offer a satisfactory explanation regarding the nature and source of such credit. The assessment addition was founded solely on a third-party statement recorded under section 132(4), with no specific identification of the assessee in that statement and without production of the Annexure relied upon. The record establishes that no amount of Rs. 39,00,000/- was found credited in the assessee's books for the year under consideration. There is no independent or corroborative material linking the assessee to receipt of the alleged cash loan, and the appellate order factually misrecorded non-filing of the assessee's reply. These deficiencies undermine the jurisdictional and substantive prerequisites for applying section 68.Conclusion: The addition of Rs. 39,00,000/- under section 68 of the Income-tax Act, 1961 is unsustainable and is deleted; decision is in favour of the assessee.