ITAT Deletes Cash Deposit Additions; Holds Section 68 Cannot Apply Without Books of Account

The present appeals are related to M/s H & F Games Pvt. Ltd. for B 2013-14 and 2014-15, where reassessment proceedings were initiated based on statements recorded during a survey on entities linked to one Shri D.S. Nandish. During the survey and later during a search, Shri Nandish admitted that various companies associated with him had received cash deposits that originated from his own unaccounted income. The Assessing Officer reopened the assessments under Section 147, treating the cash deposits of Rs. 51.09 lakh for AY 2013-14 and Rs. 1.25 crore for AY 2014-15 as unexplained cash credits under Section 68. Interest claimed on loans was also disallowed on the ground that no evidence, books, or TDS compliance was produced.

Before the CIT(A), the assessee challenged the validity of reopening. The CIT(A) upheld the reassessment, concluding that reasons were duly recorded and approval under Section 151 was valid. The assessee carried the matter to the Tribunal.

Issue Raised: Whether additions under Section 68 for cash deposits can be sustained when the assessee maintained no books of account, and the source of the cash deposits stood admitted by a third party.

ITAT’s Verdict: The Tribunal held that Section 68 requires a sum to be found credited in the books of account of the assessee. Since the AO himself recorded that the assessee did not maintain books, the primary condition for invoking Section 68 failed. Relying on the ITAT Chennai ruling in GSNR Rice Industries and the coordinate bench decision in N9 Sports & Leisure Holdings Pvt. Ltd., the Tribunal held that where no books exist, Section 68 additions cannot survive. It further noted that the cash deposits were admitted by Shri D.S. Nandish as his own unexplained money, meaning the source was already known and could not be treated as unexplained in the assessee’s hands.

The Tribunal also found that the reopening was procedurally supported by reasons and sanction, but this did not cure the fundamental defect regarding Section 68. As a result, the additions for both years, including the disallowance tied to interest expenditure, stood deleted. The assessee’s appeals for AYs 2013-14 and 2014-15 were allowed in full.

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