SAHYOG CONSTRUCTION,VADODARA V. THE ACIT, CIRCLE-1(1)(1) PREVIOUSLY CIRCLE-1(3), VADODARA

ITA 104/AHD/2025

AI Insights

The case involves M/s. Sahyog Construction appealing against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, which confirmed the addition of Rs. 6,58,43,000 as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee's books of accounts were rejected due to non-cooperation and failure to furnish necessary details during the assessment proceedings. The Tribunal considered precedents and legal principles, ultimately deciding that the addition was justified despite the rejection of the books of accounts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705784 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2017-2018
• Other Referred Cases: CIT vs. Dulla Ram, Labour Contractor, Kotkapura, Malpani House of Stones vs. CIT, Kale Khan Mohammad Hanif vs. CIT, CIT vs. Devi Prasad Vishwanath, Kumar Trading Company vs. CIT, CIT vs. G. S. Tiwari & Co.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KAMLESH MAKW ANA
• Assessee Lawyers: HEMANT SUTHAR
• Keywords: Unexplained cash credit; Rejection of books of accounts; Income from undisclosed sources
• Section: 68

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE: SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 104/Ahd/2025 (िनधा[रण वष[ / Assessment Year : 2017-18) M/s. Sahyog Construction A-9, State bank of Saurashtra Housing Society, Nizampura, Vadodara - 390002 बनाम/ Vs. Asst. Commissioner of Income Tax Circle 1(1)(1), Vadodara (Previously Asst. Commissioner of Income Tax, Circle 1(3), Vadodara) Öथायी लेखा सं./जीआइआर सं./PAN/GIR No. : ACKFS9276Q (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Hemant Suthar, A.R. Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Kamlesh Makwana, CIT. DR Date of Hearing 22/04/2025 Date of Pronouncement 03/07/2025 (आदेश)/ORDER PER SMT. ANNAPURNA GUPTA, AM: The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “CIT(A)”), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi dated 23.11.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18. ITA No. 104/Ahd/2025 [Sahyog Construction vs. ACIT] A.Y. 2017-18 - 2 – 2. The grounds raised by the assessee are as under: “1. The Ld. CIT(Appeals), National Faceless Appeal Centre (NFAC) has erred in law and in facts in making addition u/s. 68 of the Act, when the hooks of accounts are rejected by him. The action of the ld. CIT (A) in confirming the addition made by the Ld. AO u/s. 68 is illegal, unjustified, arbitrary and against the facts of the case. 2. Without prejudice to the Ground No. 1 above, The Ld. CIT (Appeals), NFAC has erred in law and in facts in confirming the action of the Ld. A.O. in making an addition of Rs. 6,58,43,000/-, being unexplained cash credit u/s. 68 of the Act, without considering the submission of the appellant. The impugned addition of Rs. 6,58,43,000/-being bad in law and in facts is prayed to be deleted. 3. Without prejudice to the Ground No. 2 above, the Ld. CIT(A), NFAC ought to have directed the Ld. A.O. to consider the fact that the appellant has repaid the amounts during the year and thus, the addition made should be directed to be deleted once the payment made is accepted by the Ld. AO. 4. The Ld. CIT (Appeals), NFAC has erred in law and in facts in confirming the action of the Ld. A.O. in taxing the addition made u/s. 68 of Rs. 6,58,43,000/-u/s. 115BBE of the Act particularly when the amounts cannot be held as unexplained. 5. Your appellant craves liberty to add, alter, amend or delete any or all the grounds of appeal stated above.” 3. The solitary issue raised in the above grounds relates to addition made to the income of the assessee u/s.68 of the Act amounting to Rs.6,58,43,000/- being unexplained cash credit. The orders of the authorities below reveal that due to the non- cooperative attitude of the assessee during assessment proceedings and on account of his failure to furnish necessary details called for verifying the gross profit shown by the assessee @ 17.95% on its turnover of Rs.5.18 Crores, the AO proceeded to reject the books of accounts of the assessee and, thereafter, ITA No. 104/Ahd/2025 [Sahyog Construction vs. ACIT] A.Y. 2017-18 - 3 – applied the GP rate of 19% on the total turnover resulting in addition of Rs.5,46,500/- being made to the income of the assessee. The AO also made addition on account of unsecured loans taken by the assessee during the year amounting to Rs.6,58,43,000/- on account of the genuineness of the same not being established before him. 4. The matter was carried before the Ld. CIT(A) who confirmed all the additions made by the AO. 5. The assessee before us is aggrieved by the order of the AO confirming the addition made u/s.68 of the Act alone. The assessee had not challenged the rejection of the books of accounts and application of GP rate of 19% to its turnover before us. The argument made by the Ld. Counsel for the assessee before us was that once books of accounts were rejected, the same cannot be relied upon for making addition on account of unexplained credits in the books of accounts of the assessee u/s.68 of the Act. He, therefore, contended that the impugned addition needed to be deleted on this account only. In support of his contention, he relied on the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Dulla Ram, Labour Contractor, Kotkapura, reported in [2014] 42 taxmann.com 349 (Punjab & Haryana), wherein he pointed out that the Court had categorically held that where books of accounts are rejected in their entirety, Assessing Officer cannot rely upon any entry in those books of account for making an addition to assessee’s taxable income u/s.68 ITA No. 104/Ahd/2025 [Sahyog Construction vs. ACIT] A.Y. 2017-18 - 4 – of the Act. Reference was also made to the decision of the Hon’ble High Court of Rajasthan in the case of Malpani House of Stones vs. CIT, reported in [2017] 395 ITR 385 (Rajasthan) in this regard. 6. Ld. DR, on the other hand, objected to the contention raised by the Ld. Counsel for the assessee before us as above stating that it has been raised for the first time and had not been raised before the Ld. CIT(A). Even otherwise, he stated that the decision relied upon by the Ld. Counsel for the assessee was distinguishable on facts. 7. We have gone through the contention of both the parties. The issue before us relates to addition made on account of unexplained cash credit in the books of the assessee in terms of Section 68 of the Act amounting to Rs.6.58 Crores. This credit pertained to unsecured loans taken by the assessee during the year from various parties which are listed in Para 5 of the assessment order. It is an admitted fact that the books of accounts of the assessee were rejected by the AO and income assessed by estimating GP on the total turnover of the assessee. The contention of the Ld. Counsel for the assessee before us is that once books of accounts were rejected the same cannot be relied upon to make any addition or disallowance to the income of the assessee. In the facts of the present case, the addition u/s.68 of the Act is based on credits found in the books of accounts of the assessee pertaining to unsecured loan taken during the year and ITA No. 104/Ahd/2025 [Sahyog Construction vs. ACIT] A.Y. 2017-18 - 5 – since these books of accounts had been found to be incorrect/incomplete, they cannot, therefore, be relied upon for making any further addition to the income of the assessee. 8. We do not find any merit in the contention of the Ld. Counsel for the assessee. The proposition of law with regard to the issue of whether after estimation of profits of the business of the assessee on rejection of its books of accounts whether any addition on account of unexplained credits can be made, has already been settled by the Hon’ble Apex Court in favour of the Revenue and against the assessee in the case of Kale Khan Mohammad Hanif vs. CIT, 50 ITR 1(SC). Posed with an identical issue on the question before it that where the ITO had assessed the income on percentage basis, whether he was justified in treating credits appearing in the books of the assessee as profits from an undisclosed source, the Hon’ble Court answered in the affirmative holding that there did not lie any other answer in such cases. The Hon’ble Court rejected the argument that it would tantamount to double taxation noting that the income estimated on rejection of books of accounts of the assessee was from disclosed sources while that on account of unexplained credits was held to be from undisclosed sources. The findings of the Hon’ble Apex Court in this regard are as under: “We have now to deal with the last question, question No. 6, which, as framed in the case for the assessment year 1945-46, is set out below: \"Whether having regard to the fact that the Income-tax Officer has assessed the income on a percentage basis, he was justified in ITA No. 104/Ahd/2025 [Sahyog Construction vs. ACIT] A.Y. 2017-18 - 6 – treating the said sums of Rs. 41,300 and Rs. 11,000 as profits from an undisclosed source ?\" In the case for the assessment year 1947-48 the corresponding question was in identical terms except that the figures mentioned in it were Rs. 19.575 and Rs. 20,000. The High Court answered the question in the affirmative, and in our view rightly, for we do not think that any other answer is possible. We are in some difficulty in appreciating the point of this question also. The question would seem to suggest that because the income from a disclosed source has been computed on the basis of an estimate and not on the basis of the return filed in respect of it, an income represented by a credit entry in the books of account of that source cannot be held to be income from another and undisclosed source. We do not see why it cannot be so held. It appears from the judgment of the High Court that the reason given in support of the suggestion was that if that income was held to be income of an undisclosed source, the result would be double taxation of the same income which the Income- tax Act does not contemplate. Apparently, it was said that there would be double taxation because it was assumed that the same income had once been earlier taxed on the basis of an estimate. This reason is obviously fallacious, for if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no double taxation. It is not a case where the income sought to be taxed was held to be undisclosed income of a disclosed source, the income of which source had previously been taxed on the basis of an estimate. If it were so, the question of double taxation might have been legitimately raised. That, however, is clearly not the case here as the question as framed itself shows. We concede that the question as to the source from which a particular income is derived is one which has to be decided on all the facts of the case. Hence the question whether income represented by an entry in the books of a business is income of that business or of another business would have to be decided on the facts which showed the business to which it belonged. But quite clearly the answer to that question would not depend on whether the income from the first mentioned business had been computed on the basis of a return filed or of an estimate of the income made by the taxing authorities. This, however, is what the question as ITA No. 104/Ahd/2025 [Sahyog Construction vs. ACIT] A.Y. 2017-18 - 7 – framed suggests, and that suggestion is in our view wholly without foundation. Therefore, it cannot be said that the taxing authorities were precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appear in the books of a business whose income they had previously computed on a percentage basis. That is why we think that the answer to the question as framed must be in the affirmative. As we have earlier said, the question as to the source from which s particular income is derived has to be decided on all the facts of the case, In the present case, the Income-tax Officer held the income represented by the credit entries to be income from undisclosed sources, that is, neither from the manihari (general merchandise) nor from the bidi business of the assessee which he had disclosed. This view was upheld by the Appellate Commissioner and by the Tribunal excepting as to two of the amounts earlier mentioned. It was open to the assessee to raise the question that the finding that those amounts were income received from undisclosed sources was not based on any evidence or was, for other reasons, perverse. It appears that he did raise some questions of this type before the Tribunal for reference to the High Court but the Tribunal did not think that those questions legitimately arose and did not refer them to the High Court. The assessee accepted the decision of the Tribunal and did not move the High Court to direct a reference in regard to those questions under section 66(2). Those questions, therefore, cannot be raised in this court. We have dealt with the reference made on the basis that the finding that the amounts of the credit entries were income received from undisclosed sources was disputed only on the ground that the income from the business had been computed on the basis of an estimate. In the circumstances of the case we could not have done anything else.” 9. This proposition was reiterated by the Hon’ble Apex Court in the case of CIT vs. Devi Prasad Vishwanath, [1969] 72 ITR 194 (SC). Further, Hon’ble Punjab & Haryana High Court in the case of Kumar Trading Company vs. CIT, [2010] 2 taxmann.com 268 (P&H) reiterated the said proposition rejecting the assessee’s contention that where books of accounts stood rejected and profits estimated the same could not be relied upon for making addition on account of any credit entries recorded therein remaining unexplained. The Hon’ble Court held that there is no inflexible ITA No. 104/Ahd/2025 [Sahyog Construction vs. ACIT] A.Y. 2017-18 - 8 – rule that where the books of accounts are not accepted no part of it can be referred in the order of assessment. Even Hon’ble High Court of Allahabad High Court in the case of CIT vs. G. S. Tiwari & Co., [2014] 41 taxmann.com 17 (Allahabad) reiterated the said proposition referring to the decision of Hon’ble Apex Court in the case of CIT vs. Devi Prasad Vishwanath (supra). 10. In view of the settled proposition of law in this regard, we find no merit in the contention raised by the assessee that no addition on account of unexplained credits in terms of Section 68 of the Act could be made once books of accounts stood rejected u/s.145(3) of the Act. The ground raised by the assessee is, therefore, dismissed. 11. In the result, appeal filed by the assessee is dismissed. This Order pronounced on 03/07/2025 Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 03/07/2025 S. K. SINHA True Copy आदेश कȧ Ĥितिलǒप अĒेǒषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंिधत आयकर आयुƠ / Concerned CIT 4. आयकर आयुƠ(अपील) / The CIT(A)- 5. ǒवभागीय Ĥितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad "