KRISHNA KUMAR ,BASTI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, GORAKHPUR

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI (Through Virtual Hearing) BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos.113 & 114/VNS/2024 A.Ys. 2014-15 & 2015-16 Krishna Kumar, vs. Asstt. Commissioner of Income Tax, 570, Gandhi Nagar Pikaura Central Circle, Aaykar Bhawan, Civil Bux Basti-272001 Lines, Gorakhpur-273001 PAN: ALWPK0692D (Appellant) (Respondent) Assessee by: Sh. Mahendra Kumar, C.A. & Sh. Raghu Nath Mishra, Advocate Revenue by: Sh. Koushlendra Tewari, CIT DR Date of hearing: 17.02.2026 Date of pronouncement: 14.05.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: These two appeals have been filed by the assessee against the separate orders of the ld. CIT(A), Lucknow passed on 30.04.2024 (for the A.Y. 2015-16) and on 14.05.2024 (for A.Y. 2014-15), wherein the ld. CIT(A) has dismissed the appeals of the assessee that were filed against the separate orders passed by the AO under section 153A r.w.s. 143(3) on 21.12.2018 for both assessment years. As some of the grounds in these two appeals are common, therefore, the appeals are being taken up together for the sake of convenience. The grounds of appeal are as under: - ITA No.113/VNS/2024 “1. Because the assessment order dated 21. 12. 2018 passed under section 153A r.w.s 143(3) of the IT Act is outside the scope of additions / variations that can be made under section 153A of the Act and therefore is entirely bad in law and on facts of the case. 1

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 2. Because the Commissioner of Income Tax Appeal -3, Lucknow has Erred in Law on Facts in confirming the Assessment u/s 143(3)(ii) of the IT act 1961 at income of Rs 66,04,840/- vide order dated 14.5.2024. 3. Because the Commissioner of Income Tax Appeal has Erred in Law of Facts in Confirming the Addition of Rs. 17,96,839/- On Account of Net Profit estimated on additional receipts of Rs. 8,07,39,937/-. 4. Because the Commissioner of Income Tax Appeal has Erred in Law of Facts in Confirming the Addition of Rs 2,78,253/- on account of disallowed expenditure as personal and non-business expenditure u/s 69C of the I.T.Act 1961 on the basis of rough register book found during the course of search operation. 5. Because in view of factual and legal position no addition is called for and addition made by the ITO is erroneous. 6. Because the order against in contrary to Law Facts and principals of Natural Justice. 7. Assessee may amend, Alter or add any Grounds of Appeal before or at the time of appeal. ITA No.114/VNS/2024 “1. Because the assessment order dated 21.12.2018 passed under section 153A r.w.s 143(3) of the IT Act is outside the scope of additions/variations that can be made under section 153A of the Act and therefore is entirely bad in law and on facts of the case. 2. Because the Commissioner of Income Tax Appeal -3, Lucknow has Erred in Law on Facts in confirming the Assessment u/s 143(3)(i) of the IT act 1961 at income of Rs. 1,95,06,940/- vide order dated 30.4.2024. 3. Because the Commissioner of Income Tax Appeal has Erred in Law of Facts in Confirming the Addition of Rs. 11,68,210/- On Account of 20% percent Net Profit estimated on additional receipts of Rs. 58,41,048/- 4. Because the Commissioner of Income Tax Appeal has Erred in Law of Facts in Confirming the Addition of Rs. 3,93,620/-/- on account of sundry creditors treating the bogus entry. 5. Because the Commissioner of Income Tax Appeal has Erred in Law of Facts in Confirming the Addition of Rs 1,48,54,901/- on account of disallowed expenditure as personal and non-business expenditure u/s 69C of the I.T. Act 1961 on the basis of rough register book found during the course of search operation. 6. Because in view of factual and legal position no addition is called for and addition made by the ITO is erroneous. 7. Because the order against in contrary to Law Facts and principals of Natural Justice. 8. Assessee may amend, Alter or add any Grounds of Appeal before or at the time of appeal.”

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 2. The facts of the case are that a search and seizure operation was conducted under section 132 of the Act at the various residential and business premises of Sh. Krishna Kumar on 2.05.2017. Subsequently, notices under section 153A were issued to the assessee for furnishing a return of income. On going through the return furnished for the A.Y. 2014-15, the AO observed that the assessee had declared a total income of Rs. 45,29,750/- as against the earlier return filed under section 139(1), where he had declared a total income of Rs. 16,34,610/- for the assessment year in question. Upon receiving the return, questionnaires were issued to the assessee and it was observed that the additional income declared included certain FDRs, margin money for vehicle and differences in bank balance. The ld. AO also perused certain rough noting of expenses that were found in seized material and asked the AO to explain how these expenses were accounted for in the books of accounts. The ld. AO records that the assessee furnished cash book and ledger but could not furnish the complete supporting vouchers. He noticed that the assessee had claimed expenditure of Rs. 5,38,94,270/- against purchases including trade tax, transportation and hire charges and when asked to provide the bifurcation of the same, he submitted it as under:- i. Stone (Gitti) Rs. 1,61,93,280/- ii. Morang (red sand) Rs. 53,91,430/- iii. Sand (Balu) Rs. 27,66,470/- iv. Cement Rs. 1,07,78,854/- v. M/s Bar (sariya) Rs. 26,90,814/- vi. Bricks (Etta) Rs. 1,60,72,475/-. The assessee was asked to produce the books of accounts and the vouchers to verify this claim, but though the cash book and ledger were 3

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 produced, it was submitted that due to distant location of sites, the old bills and vouchers were not traceable. Furthermore, most of the purchases were from unregistered dealers, therefore, the assessee was unable to produce the complete bills and expenses of vouchers for verification. The assessee submitted that his assessment under section 143(3) for the said assessment year had been completed on net profit of 4% and he offered the same for tax in this year. However, the ld. AO, decided to adopt the net profit of 4.25% of total receipts of Rs. 1,07,39,937/- and added an amount of Rs. 17,96,839/- on this account. 3. On verification of certain incriminating documents seized during the search, the ld. AO observed that some registers inventoried as BK-1 & BK-4 had been seized. In register BK-1 (Folio No. 382, 349, 350, 358, 360) and BK- 4 (Folio No.210, 260) entries of certain expenses totaling to Rs. 4,08,85,379/- had been found. Many of the entries written in the pages narrated payments of a personal nature, payments not related to business and other non-business payments, which were not allowable in the light of provisions under section 37 of the Income Tax Act. The ld. AO noted that payments amounting to Rs. 10,03,100/- pertained to the assessment year 2014-15 and he asked the assessee to show cause as to why the expenses should not be disallowed. In response, the assessee submitted that the entries found in the documents and registers BK-1 & BK-4 related to the construction business of the assessee. It was submitted that the construction work was running at different locations at Cost Centre basis and central purchase/expenses system could not be followed. Hence, an amount was provided for labour expenses and morang (sand), which had been mentioned in these papers in the name of the respective center head on adhoc basis, but finally all the bills and vouchers and expenditure incurred by the Central In-charge had been accounted for in the books and accounts 4

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 of the firm. It was further submitted that most of the suppliers of Morang, Sand, Gitti, Earth filling were unregistered and no invoice was issued against such transactions. It was further submitted that the amount of Rs. 10,00,000/- paid to Mr. Jamal (staff of the assessee) was for payment of labour expenses, which was a part of running the construction business and the same was neither personal in nature nor commission payments. Hence, the payment was liable to be allowed under section 37 of the Act. However, ld. AO was not entirely convinced with the explanation of the assessee. He noted that out of the expenditure of Rs. 10,03,100/-, the self-made vouchers of labour expenses annexed with the submissions totaled Rs. 7,24,847/- only and there were no documents submitted to justify expenses of Rs. 2,78,253/- . He, therefore, added the same back as unexplained expenditure under section 69C and brought the same to tax under section 115BBE. 4. In the assessment year 2015-16, the ld. AO upon issuing of notice under section 153A, observed that the assessee had filed a return showing the same net profit of Rs. 30,80,240/-, as he had shown in the return of income under section 139, but the total contractual receipts as shown in the profit and loss account had increased to Rs. 8,23,00,572/- against the contractual receipts shown in the previous return of Rs. 7,64,59,524/-. Thus, there was a difference of Rs. 58,41,048/- in the contractual receipts which was not reflected in the original return filed under section 139 of the Act. Upon a scrutiny of this return, the ld. AO found that the assessee had increased his expenses on account of purchases, labour charges, interest charges and depreciation. He confronted the assessee with these facts and in response, it was submitted that the details of one particular site namely E.E. Flood Works Division-1, Basti had not been supplied to the auditor due to oversight and the receipts of Rs. 58,41,048/- plus TDS thereon of Rs. 1,32,592/- had skipped to be included in the books of accounts. It was, 5

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 therefore, submitted that the contractual expenses of their site may kindly be allowed and that the net profit from the same would be offered as undisclosed income for taxation. It was also submitted that in the assessment years 2013-14 and 2014-15, the assessee had declared undisclosed vehicles and therefore, additional depreciation had been claimed on additional value of assets. Furthermore, additional interest had been claimed on term loans. The ld. AO noted that the margin money paid for vehicles had been disclosed for taxation and therefore, the excess claim of depreciation and interest charges were reasonable. However, he declined to consider only the net profit on additional receipts, because in his view, the inflated expenses on purchases and labour were totally imaginary and could not be fully justified because salary and other administrative expenses, trade taxes, local taxes etc., had already been claimed in the profit and loss account of the earlier return under section 139 of the Act. Therefore, considering the same, it was logical to fix the profit in respect of the site at 20% of the gross receipts and on this account, the ld. AO made an addition of Rs. 11,68,210/-. The ld. AO also asked the assessee to furnish details of sundry creditors reflected in the balance-sheet and upon the failure of the assessee to furnish a confirmation of one of the sundry creditors, namely M/s Sink Brick Field, he added the back the amount owed to them of Rs. 3,93,620/- as bogus, under section 68 of the Act. As in the assessment year 2014-15, the ld. AO found certain rough noting of expenses on certain seized material and asked the assessee to account for how these were accounted for in the books of accounts. The ld. AO asked to the breakup of Rs. 5,09,37,132/- claimed as expenses on purchases and upon receiving the same from the assessee, asked the asssessee to produce the books of accounts and bills and vouchers for verification. While the assessee produced the cash book and ledger, he could not produce the bills and vouchers stating that due to the distant 6

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 locations of sites, the bills and vouchers were not traceable and therefore, it could not be reduced. At this point, the assessee submitted that in the P&L account, the assessee had disclosed net profit of Rs. 30,80,240/- against the gross contractual receipts of Rs. 7,64,59,524/- within a net profit rate of 4.02% and he was prepared to accept the same net profit rate on the overall turnover disclosed with the present return. The ld. AO accepted this. 5. In this year also, the ld. AO drew reference to incriminating documents marked as BK-1 and BK-4 and observed that many of the entries written therein narrated payments of personal nature or payments not related to business, which were not allowable in the light of provisions of section 37 and for the A.Y. 2015-16, they amounted to Rs. 1,85,86,161/-. He asked the assessee to explain why these should not be disallowed and the assessee filed a submission in the form of a chart in which it was submitted that these related to payments for construction work ongoing at various sites and since the sites located at different places, the amounts had been paid to the respective centre head for making payments of labour expenses and purchase of morang/sand. While these had been mentioned against the name of the centre head, the bills and vouchers and expenditures incurred by the Centre In-charge had been accounted for in the books of accounts and there was no escapement on this account. Furthermore, since most of the suppliers of Morang, Sand, Gitti, Earth filling were unregistered in this nature of business, therefore, no invoice was issued against such transactions. It was further explained that out of the total amount, a sum of Rs. 37,31,260/- was in the nature of re-payment of vehicle loan, margin money for purchase of vehicle and amounts paid to Mr. Jamal, Bhaiyan, Khadim Hussain, who were employees of the assessee for payments relating to the construction business and the same was neither in the nature of personal expenditure nor commission payments. Hence, they were allowable under section 37. The ld. 7

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 AO was not satisfied with the submissions made by the assessee. He held that the assessee was completely silent on the nature of expenses in most cases. He had furnished a list of construction sites and the staff dealing with the site but his explanation was not entirely acceptable because the nature of entries indicated the personal / business nature of expenses in many cases. He noted that out of the total expenditure of Rs. 1,85,86,161/- so recorded, the assessee had only been able to furnish explanations and self-made vouchers relating to Rs. 37,31,260/-. Thus, the remaining expenditure of Rs. 1,48,54,901/- were in the nature of non-business and personal expenses which were not allowable under section 37 of the Act. He, therefore, added the same back to the income of the assessee under section 69C and brought the same to tax under section 115BBE. 6. Aggrieved with these additions, the assessee went before the ld. CIT(A). In the assessment year, 2014-15, the ld. CIT(A)noted that the despite the fact that she had given eight opportunities to the assessee, the assessee had not made compliance with any opportunity. Accordingly, she decided not to give further opportunities to the assessee and decided to dispose the case on the basis of the grounds of appeal and the statement of facts filed alongwith the appeal. The ld. CIT(A) however, merely reproduced the assessment order and held that the burden of proof lay on the assessee to disprove the findings of the ld. AO and since the assessee had not availed many opportunities to explain why the rate of 4.25% of total receipts of Rs. 8,07,39,937/- was incorrect, she confirmed the addition of Rs. 17,96,839/- that had been made by the Assessing Officer, by enhancing the rate of profit to 4.25%. Referring to the disallowance of expenditure on account of the seized material labelled as BK-1 and BK-4, the ld. CIT(A) once again held that the assessee was required to explain as to why these payments of illegal gratification or of personal nature should not be disallowed and added back 8

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 as concealed income and that the submission of the assessee that the entire amount was neither personal in nature nor commission payments, was not acceptable. Furthermore, the ld. AO had allowed the expenditure of Rs. 7,24,847/- that was represented by self-made vouchers of labour expenses and only added back Rs. 2,78,253/- as non-business expenses which he had added as unexplained expenditure under section 69C. The ld. CIT(A) held that during the course of assessment proceedings, the assessee had failed to justify how the expenses claimed were incidental to the business activities and therefore, since the assessee had not discharged his onus, she was of the opinion that the addition made by the ld. AO on account of non-business expenses did not require any interference. Accordingly, the same was confirmed and the appeal of the assessee came to be dismissed. 7. In the A.Y. 2015-16, the assessee filed written submissions in which it was submitted that section 153A dealt with unblocked assessments. It stated that an assessment that had already been completed and was no longer pending could only be reopened if there was incriminating material found during the search. It was submitted that the assessment year 2015-16 was an unabated assessment year and in this assessment year, any addition could only be made if incriminating material was found during the search and in this case, no incriminating material had been found about undisclosed contractual receipts of Rs. 58,91,098/-. This had been disclosed by the assessee of its own accord and the assessee was objecting to the addition of the entire amount as income taking shelter under the decisions rendered by the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla (2015) 61 taxman.com 412 (Delhi) and the Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd (2023) 149 taxmann.com 399 (SC). Accordingly, since no addition could be made on this account in an assessment under section 153A, it was prayed that the book results offered 9

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 by the assessee may kindly be accepted. With regard to the addition of Rs. 3,39,620/- on account of failure to submit the confirmation from the creditor M/s Singh Brick Field, the assessee first filed the confirmation and also submitted that the same could not be a subject matter of addition in an assessment under section 153A on account of the decision rendered in the cases of CIT vs. Kabul Chawla (supra) and PCIT Vs. Abhisar Buildwell (P.) Ltd (supra). With regard to the addition of Rs. 1,48,54,901/- as unexplained expenditure under section 69, the assessee submitted that the observation of the Assessing Officer was unsatisfactory. On the one hand, the AO was saying that the expenditure of Rs. 1,48,54,901/- was business and personal expenses of the assessee which was not allowable under section 37 of the Act but on the other hand, the AO had added the expenditure as unexplained expenditure under section 69C of the Act. During the entire course of assessment, the ld. AO had never asked the assessee regarding the source of the expenditure and not issued any show cause notice with regard to the same. Therefore, the addition of Rs. 1,48,54,901/- under section 69C was unwarranted and against the principles of natural justice. It was further submitted that the expenses of entries found in BK-1 and BK-4 amounting to Rs. 1,85,86,161/- pertaining to assessment year are related to construction business and had been paid to the staff for material purchases and the remaining amount have been incurred for other ancillary expenses of contract business. No query had been raised by the ld. AO from the persons mentioned in the said seized registers and therefore, the ld. AO could not hold the entire expenditures to be non-business personal expenses that were not allowable in the light of provisions of section 37 of the Income Tax Act. It was further submitted that the said expenditure was explained out of the contracts receipts for the year under consideration and therefore, the source of the expenditure could not be treated as unexplained. The assessee 10

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 also placed reliance on the decision of the Hon’ble Supreme Court in the case of CBI vs. V.C. Shukla and Others and in the decision of the ITAT Delhi Bench in the case of DCM Shriram Industries Ltd. vs. DCIT, Circle-7(1), Delhi and Solitare World Pvt. Ltd., New Delhi vs. ACIT, Circle-35, New Delhi which had held that additions could not be made in the hands of the assessee on the basis of loose papers as these were not books of accounts maintained in the ordinary course of business. The ld. CIT(A) considered the written submission filed by the assessee and observed that the decision of the AO to reject the assessee’s prayer to apply a net profit rate of 4.02% on the additional receipts of Rs. 58,41,048/- was justified because the expenses pertaining to the escaped additional receipt of Rs. 58,41,048/- had already been claimed. She accordingly dismissed the challenge to this by the assessee and confirmed the addition of Rs. 11,68,210/- on this account. Similarly, she confirmed the addition of Rs. 3,93,620/- under section 68 of the Income Tax Act on the grounds that the details filed by the assessee were insufficient / incomplete to fulfil the requirements of section 68 of the Act. On the addition of Rs. 1,48,54,901/- on account of expenditures recorded in BK-1 and BK-4, the ld. CIT(A) pointed out that the assessee had been asked to explain why payments of illegal gratification or of personal nature should not be disallowed and added as concealed income. The assessee had not commented on the, ‘nature of expenses’ in most entries. Therefore, the assessee’s claim that the expenditure was neither of a personal nature nor related to commission payment and hence were allowable in the light of the provisions of section 37 of the Act, was not acceptable because many of the entries itself indicated the personal or non-business nature of the expenses. She observed that the assessee had only justified expenses of Rs. 37,31,260/- by way of vouchers and therefore, the rest was liable to be added back under section 69C. The onus was on the assessee to explain these documents, 11

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 however, the assessee had failed to discharge the onus by furnishing credible documentary evidence. She further pointed out that the decisions of the Hon’ble Supreme Court in the case of CBI vs. V.C. Shukla (supra) did not apply to income tax proceedings and in the present case, the seized registers namely BK-1 and BK-4 contained full details of expenses alongwith dates. Therefore, she upheld the additions made by the Assessing Officer and dismissed the appeals. 8. The assessee is aggrieved against the dismissal of his appeals and has accordingly come before us. Sh. Mahendra Kumar, C.A. and Sh. Raghu Nath Mishra, Advocate (hereinafter referred to as the ld. ARs) arguing on behalf of the assessee submitted that it was now settled law, following the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd (supra) that in a search assessment, additions could only be made on the basis of incriminating material recovered during the search. It was submitted that no evidence had been found during the search of the assessee suppressing its expenses or its profit and therefore, the decision of the ld. AO to estimate the net profit of the assessee at 4.25% of the total receipts disclosed by the assessee on account of failure to produce certain bills and vouchers, was not as per the scheme of assessment and envisaged under section 153A of the Act. Accordingly, he prayed that the addition of Rs. 17,96,839/- made on this account may kindly be deleted. With regard to the addition of Rs. 10,03,100/- that was made on account of entries in the registers BK-1 and BK-4, the ld. AR reiterated his submission that a sum of Rs. 10,00,000/- was paid to the Site In-charge, Mr. Jamal, for onward payment of labour charges and the expenditure was not of a personal nature. Furthermore, he had submitted the bills and vouchers that were available and pointed out that most suppliers of Morang, Sand, Gitti, Earth filling were unregistered in this line of business and did not issue invoices. Hence, no 12

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 disallowance was called for on this account. The ld. ARs also pointed out with reference to A.Y. 2015-16, that no material had been recovered during the search to indicate suppression of turnover by the assessee but the assessee observing that he had inadvertently omitted to disclose the receipts of contract awarded by Executive Engineer, Flood Works Division-1, Basti, had himself included those receipts in his return of income. Furthermore, during the course of assessment proceedings, the assessee had offered that the profit margin of this site could be added back but the Assessing Officer had taken the view that since administrative expenses had already been claimed, the profit rate to be adopted should be 20% and the ld. CIT(A) had confirmed it without noting that the average rate of profit of such sites were4.02%. The ld. AR submitted that in view of the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd (supra), no such addition could be made in an assessment under section 153A r.w.s. 143(3) and therefore, this addition deserved to be deleted. A similar plea was taken with regard to the addition of Rs. 3,93,620/- made by treating the sundry creditors as bogus, even though the assessee had furnished confirmation before the ld. CIT(A). On the issue of disallowance of Rs. 1,48,54,901/- on account of entries made in BK-1 and BK-4, it was submitted that when the income of the assessee was being estimated then no further disallowances could be made in this regard. Accordingly, he prayed that the additions may be deleted. 9. On the other hand, Sh. Koushlendra Tewari, ld. CIT DR (hereinafter referred to as the ld. DR) pointed out that in both assessment years 2014-15 and 2015-16, the ld. AO had adopted an estimation because of the failure of the assessee to produce evidences to explain seized material. Refuting the contentions of the assessee’s representatives, who had cited the judgments rendered in Malpani House of Stones vs. Commissioner of Income Tax [2017] 13

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 88 taxman.com 546 (Rajasthan) that when AO had made already made an addition after estimating profit, no separate addition could be made on account of personal expenses/non-business expenses, the ld. CIT DR pointed out that if there were incriminating documents that indicated expenditure was liable to be disallowed, the addition had to be made separately irrespective of the fact that his failure to explain some entries merited a rejection of his books of accounts. Speaking of AOs decision to estimate the profits at 20% of undisclosed receipts in the assessment year 2015-16, the ld. CIT DR pointed out that this was done because the administrative expenses had already been accounted for in total earlier. Finally, the ld. CIT DR pointed out that Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell (P.) Ltd., did not forbid additions to be made on account of items which had not been disclosed earlier and which came to the knowledge of the Assessing Officer and the judgment of the Hon’ble Supreme Court could not be interpreted in that manner. 10. We have duly considered the facts of the case and the arguments advanced by both parties. Following the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd (2023) 149 taxmann.com 399 (SC), it is settled law that in an unabated search assessment, addition can only be made on the basis of incriminating materials recovered during the search and for any other addition, the Department would be required to take recourse to the provisions of section 148. It is observed that the decision of the AO to make an estimated addition on account of his examination of the books of accounts and shortcomings noted in the availability of bills and vouchers for verification is not on account of any incriminating materials recovered during the search which may suggest suppression of profit, but on account of the failure of the assessee to satisfy him of the completeness and correctness of his accounts. 14

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 Such additions are clearly outside scope of assessments under section 153A and therefore, the addition of Rs. 17,96,839/- made on this account in the A.Y. 2014-15 is deleted. Similarly, in the assemsent year 2015-16, we note that there was no material recovered during the search which suggested suppression of turnover by the assessee. Rather following the issue of notice under section 153A, it was the assessee that disclosed additional turnover of Rs. 58,41,048/- and explained the reasons for the failure to disclose this earlier. We note that the assessee even offered additional income on the basis of this additional turnover @ 4.02% but the same was not acceptable to the AO on account of his belief that all administrative expenses had already been claimed earlier. Once again there is no incriminating material to support this belief and secondly it is self-evident that contracts executed involve expenditures and to ignore this fact while making an addition without evidence to suggest that the expenses had already been claimed, cannot be a sound basis for making the addition. Therefore, in view of the fact that the said addition is neither scientific nor within the scope of permissible additions under section 153A, the estimation of profit at 20% of such receipts and addition on this account of Rs. 11,68,210/- is deleted. Similarly, no incriminating material was found during the search to indicate that M/s Singh Brick Field was a bogus creditor and therefore, no addition could be made in the hands of the assessee on this account only because the assessee had failed to furnish a confirmation during the course of assessment. The ld. CIT(A) could not have lost the sight of this fact and confirmed the addition, even after the assessee had submitted the confirmation before her, accordingly, the addition of Rs. 3,93,620/- on this account is also found to be unwarranted and is accordingly deleted. With regard to the addition of Rs. 1,48,54,901/- holding the said amounts to be inadmissible under section 37, we note that the Assessing Officer has made 15

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 the addition under section 69C which appears to be an incorrect understanding of the law because the said expenditures were duly recorded in the books of accounts. However, we also note that the ld. CIT(A) even while confirming the additions has discussed the admissibility of expenses and confirmed the addition on the basis of the failure of the assessee to explain the same. We further note that the ld. AO while making the addition also made it on account of the failure of the assessee to explain the same and held it to be not allowable under section 37. Therefore, we hold that the reference to section 69C is a mistaken application of the section as the intention was clearly to make the disallowance on account of the failure of the assessee to satisfactorily explain the entries in the seized material. Therefore, the reference to the section is held to be a rectifiable mistake under section 292B of the Income Tax Act and in our opinion would not vitiate the order on that count alone. Ongoing through the chart submitted by the assessee, it does appear from first glance that at least some of the payments reflected therein relate to payments to politicians and Government Servants, which would not be allowable expenditures under section 37 of the Act. However, there are several names contained in the said chart which are shown to be receiving amounts on account of labour charge, site expenses etc. There are also expenses made in the name of Zila Panchayat, which have not been explained by the assessee. Thus, the ld. AO and the ld. CIT(A) appear to be partially right when they say that the entries found in the documents marked as BK-1 and BK-4 related to expenses that were legally not permissible and were in the nature of personal expenses or non-business expenses because the nature of the expenses that have been recorded on account of these public functionaries had not been explained by the assessee. However, nothing the fact that the disallowance of all expenditures recorded only because vouchers could not be produced would 16

ITA Nos.113 & 114/VNS/2024 Krishna Kumar A.Ys. 2014-15 & 2015-16 lead to abnormal business results which are not regularly witnessed in this line of business, we feel the ld. AO ought to take a more focused look at these expenses. We therefore, we restore this matter back to the file of the ld. AO to enable the assessee to furnish a detailed explanation on the nature of each such expense that has been recorded in the said register and to demonstrate that the same are accounted for in his books of accounts, so as to enable the AO to determine the admissibility of expenditures in terms of section 37 and Explanation 1 to the same. 11. Accordingly, while ITA No.113/VNS/2024 for the A.Y. 2014-15 is held to be allowed and ITA No. 114/VNS/2024 is held to be partly allowed as above. 12. In the result, the appeal in ITA No.113/VNS/2024 for the A.Y. 2014- 15 is allowed and appeal in ITA No. 114/VNS/2024 for the A.Y. 2015-16 is partly allowed. Order pronounced on 14.05.2026 in the Open Court. Sd/- Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14/05/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.