2024 (7) TMI 1019 - AT - Income Tax

Unexplained cash credit u/s 68 - non rejection of books of accounts - HELD THAT - As when books of account were rejected, no addition can be made u/s 68 of the IT Act, 1961. As submitted that the lenders are all agriculturists and then there is no locus standi to advance for purchase of sand - It is a common fact that agriculture is a seasonal activity and farmers with marginal land holding find it difficult to sustain. So to augment their income level, there is no bar to try alternative avenues for generation of income. Even big corporates diversify and venture into new business ventures. So the hollow argument is rejected being devoid of any merit. In fact, these persons had unequivocally confirmed in the course of statement recorded u/s 131 that they have advanced for purchase of sand. We find that all the 17 persons have appeared u/s 131 before the I.T.O. Ward-1, Amravati and have clearly confirmed that they have advanced to the appellant for the purchase of sand in cash. They have clearly mentioned that they have sufficient agricultural income from where the advance was given for purchase of sand. Such advances were subsequently repaid by banking transactions or adjusted with sale of sand. The unimpeachable testimony of these persons cannot be lightly brushed aside. The ratio decidendi is squarely applicable to the case in hand that when advances are later booked as income, no addition u/s 68 is possible. Decided in favour of assessee.

Summary

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.