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

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, 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 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 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 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 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.”

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 क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,