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.115 & 116/VNS/2024 A.Ys. 2016-17 & 2017-18 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), NFAC, both dated 30.04.2024, passed under section 250 of the Income Tax Act, 1961, wherein the ld. CIT(A) has dismissed the appeals of the assessee filed against orders passed by the AO, under section 153A r.w.s. 143(3) on 21.12.2018, for the assessment years 2016-17 and 2017-18. As the issue involved is common to both appeals, the appeals are taken up together for the sake convenience. The grounds of appeal are as under: - ITA No.115/VNS/2024 “1. Because the assessment order dated 21.12.2018 passed under section 153A r.w.s 143(3) of the I.T 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.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 2. Because the Commissioner of Income Tax Appeal -3, Lucknow has Erred in Law on Facts in confirming the Assessment u/s 153A r.w.s 143(3)(ii) of the I.T act 1961 at income of Rs. 1,78,87,441/- 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 1,78,87,441/- 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. 4. Because in view of factual and legal position no addition is called for and addition made by the ITO is erroneous. 5. Because the order against in contrary to Law Facts and principals of Natural Justice. 6. Assessee may amend, Alter or add any Grounds of Appeal before or at the time of appeal. ITA No.116/VNS/2024 “1. Because the assessment order dated 21.12.2018 passed under section 153A r.w.s 143(3) of the I.T 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 153A r.w.s 143(3)(ii) of the I.T act 1961 at income of Rs. 20,82,677/- 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 20,82,677/- 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. 4. Because in view of factual and legal position no addition is called for and addition made by the ITO is erroneous. 5. Because the order against in contrary to Law Facts and principals of Natural Justice. 6. Assessee may amend, Alter or add any Grounds of Appeal before or at the time of appeal.”

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 filed at the same returned income that had been disclosed by the assessee earlier in returns filed under section 139(1) of the Income Tax Act. 3. The ld. Assessing Officer records that certain documents seized during the search, inventoried as BK-1 & BK-4, were incriminating document, in that in register BK-1 (Folio No. 382, 349, 350, 358, 360) and BK-4 (Folio No.210, 260), there were entries of certain expenses totaling to Rs. 4,08,85,379/-. Most of the entries written in the aforementioned pages related to payments of a personal nature, payments not related to business and other non-business payments, which were not allowable in the light of the provisions under section 37 of the Income Tax Act, 1961. Accordingly, the ld. AO asked the assessee to show cause as to why payments of illegal gratification or expenses of a personal nature should not be disallowed and added back to the income of the assessee. The ld. AO noted the year-wise details of these entries and it is observed that for the F.Y. 2015-16, entries of Rs. 1,92,13,441/- were recorded while for the F.Y. 2016-17, entries amounting to Rs. 20,82,677/- were recorded. Accordingly, the assessee was required to explain these entries. The assessee filed an explanation in a tabular form which was reproduced by the AO in his assessment order. It was submitted that the entries found in the impounded materials / documents, loose papers and registers BK-1 & BK-4, in total amounting to Rs. 4,08,85,379/-, related to the construction business of the assessee for the A.Y. 2014-15, 2015-16, 2016-17 and 2017-18. It was submitted that construction work was happening on different locations on a cost center basis hence certain amounts were provided for labour and sand which were mentioned in the name of the respective center head on adhoc basis. All the bills and vouchers and expenditure incurred by the Centre In-charge had been accounted for in the books of accounts of the firm. Further it had been explained that most suppliers of Morang, Sand, Gitti, Earth filling were 3

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 unregistered and that no invoices were issued against the transactions. It was further submitted that w.e.f. the A.Y. 2016-17, individual contract business had been dis-continued by the assessee and a partnership firm had been constituted namely M/s Krishna Kumar Contract, with PAN No. AAPFK1964J and these expenses related to the contractual business of the firm. It was further submitted that the payments that were made, related to construction business and they were paid to staff for material purchase and labour purchase and the remaining amount was incurred for other ancillary expenses of construction business. It was further submitted that in the A.Y. 2016-17, expenses of Rs. 13,26,000/- directly related to construction business and were paid to the staff of the assessee and in respect of those details of bills and vouchers of material purchase and labour expenses were being provided, hence these could not be held as disallowable. Similarly, it was submitted that Rs. 21,525/- of the expenses pertaining to A.Y. 2017-18 were of this nature and therefore, the same was liable to be allowed. Furthermore, it was pointed out that the entries found in BK-1 & BK-4 amounted to 75% of gross receipts in A.Y. 2016-17 and only 1.01% of gross receipts in A.Y. 2017-18 and because these were ancillary for running the construction business and were not in the nature of personal nature or commission payment, hence it was prayed that the same may be deductible under section 37 of the Act. The ld. AO was not convinced with the explanations offered by the assessee. He noted that in the chart submitted before him, the assessee was silent with regard to the nature of expenses and most of the entries remain explained. He found various entries mentioned in the narration such as Kamal Tent House, Bhaiyaji, Hamara Dawakhana, India TV, in A.Y. 2016-17 and Priya Electrical, Prakash Hotel, Mantriji, Kerosene in the A.Y. 2017-18 which indicated the personal or non-business nature of the expenses. The ld. AO considered the submission of the assessee that he was 4

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 required to advance cash to manage day to day activities at various sites and noted that in the A.Y. 2016-17, the assessee had only furnished an expense ledger and supporting self-made vouchers of Rs. 13,26,000/- while in the assessment year 2017-18, the figure was only Rs.21,525/-. The remaining expenses were non-business, personal expenses for which neither proof nor plausible explanation could be furnished and hence the ld. AO disallowed expenditure to the extent of Rs. 1,78,81,441/- in A.Y. 2016-17 and Rs. 20,82,677/- in the A.Y. 2017-18 and added the same back to the income of the assessee under section 69C. He also brought his income to tax under the provisions of section 115BBE. 4. Aggrieved with these additions, the assessee filed an appeal with the ld. CIT(A). Before the ld. CIT(A), it was submitted that the stand of the AO was contradictory because on the one hand, the ld. AO had held that the expenses were of a business and personal nature, which were not allowable under section 37 of the Act but on the other hand, the same expenditure had been added back under section 69C of the Act. Furthermore, the ld. AO had not furnished any show cause notice before making any addition under section 69C of the Act. Thus, without asking the assessee to explain the source of expenditure, the addition made by the AO in both the assessment years on account of unexplained expenditure under section 69C was against the principles of nature justice and illegal. It was further submitted that during the course of assessment proceedings, it had been submitted before the ld. AO that no contractual business had been done by the assessee in individual capacity during the course of the financial year. All the contractual receipts had been shown in the firm M/s Krishna Kumar Contractor having PAN No. AAPFK1969J, which has also been accepted by the AO and discussed by him in para 3 of the assessment order. Thus, the said expenditures, which related to contract business, did not belong to the assessee and were 5

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 explained out of the contractual receipts of the firm M/s Krishna Kumar Contractor. The source of the expenditure in registers marked as BK-1 & BK- 4 were therefore, explained and the addition made by the AO under section 69C deserve to be deleted. Furthermore, in any case, without any query regarding the source of the above expenditure to the firm M/s Krishna Kumar Contractor, or the persons mentioned in the registers, the AO had failed to corroborate the nexus of entries mentioned in the register with the unexplained expenditure of the assessee. The assessee further placed reliance on the judgment of the Hon’ble Supreme Court in the case of CBI vs. V.C. Shukla, which held that no reliance could be placed loose pages as these were not books of accounts nor kept in the regular course of business. He also placed reliance on the decision of the ITAT Delhi in DCM Shriram Industries Ltd. vs. DCIT, Circle-7(1), Delhi and in the case of Solitare World Pvt. Ltd., New Delhi vs. ACIT, Circle-35, New Delhi wherein a similar view had been held. The ld. CIT(A) considered the written submissions filed by the assessee. He noted that BK-1 & BK-4 were among the seized materials recovered during the search and that many of the entries recorded in the above pages either narrated payments of personal nature or payments not related to business, which were not allowable under the provisions of section 37 of the Act. The assessee had been asked to explain the nature of the entries but had failed to do so. Therefore, his claim that the entire amount was neither personal in nature nor commission payments and hence allowable under section 37, was not acceptable as various entries themselves indicated the personal or non-business nature of the expense. He observed that only expenses worth Rs. 13,26,000/- were vouched in the assessment year 2016-17 and for assessment year 2017-18, the figure was only Rs. 21,525/-. The ld. CIT(A) held that since the documents had been seized from the residence of the assessee, the onus was on the assessee to 6

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 explain the entries found reflected in these documents. However, the assessee had failed to discharge the onus by furnishing credible documentary evidence that could establish that the expenses found reflected in the seized documents were related to the business activities of the assessee and were allowable. Accordingly, he confirmed the additions made by the AO in both assessment years and dismissed the appeals of the assessee. 5. The assessee is aggrieved at the dismissal of his appeals by the ld. CIT(A) and has accordingly come in appeal before us. Sh. Mahendra Kumar, C.A. and Sh. Raghu Nath Mishra, Advocate (hereinafter referred to as the ld. ARs) pointed out that the assessment order dated 21.12.2018 passed under section 153A r.w.s. 143(3) and under section 143(3) r.w.s. 153B respectively, were outside the scope of additions / variations that could be made under section 153A of the Act and therefore, were entirely bad in law and on facts of the case. It was pointed out, that the papers recovered during the search were not incriminating and did not lead themselves towards making any addition. The additions had been made because the assessee was not able to produce certain vouchers and this was beyond the scope of an assessment under section 153A. It was argued that the ld. CIT(A) was incorrect in confirming the addition even otherwise, because it had been explained to the ld. CIT(A) and to the AO that the entire contract business of the assessee had been taken over by the partnership firm M/s Krishna Kumar Contractor, bearing PAN No. AAPFK1964J and even while some departments had deducted TDS against the individual PAN of the assessee, the receipts from the contracts executed had all been considered in the hands of the partnership firm and therefore, since these registers marked as BK-1 & BK-4 pertain to contractual expenses, they did not pertain to the assessee but to the firm and accordingly no disallowance could be made in 7

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 the hands of the assessee on account of these loose papers. It was further argued that in any case, in view of the Hon’ble Supreme Court judgment in the case of CBI vs. V.C. Shukla (supra) and the ITAT judgments in the case of DCM Shriram Industries Ltd. vs. DCIT (supra) and Solitare World Pvt. Ltd., (supra), these loose sheets could not be the basis of making any addition in the hands of the assessee. Furthermore, the ld. AO had erred in making the addition under section 69C, where all the expenses were recorded in the books of the firm and hence the source of the expenditure was explained. Thus, there was no basis for making the addition under section 69C and bringing the amounts to tax under section 115BBE. The ld. ARs submitted that the assessee did not have any income except the income from partnership in four firms and therefore, the disallowances made in his hands were unjustified. Accordingly, it was prayed that the same may be deleted. 6. On the other hand, Sh. Koushlendra Tewari, Ld. CIT DR (hereinafter referred to as the ld. DR) pointed out that there was no mistake in the orders passed by the lower authorities. The documents had been seized from the assessee’s premises and it was the duty of the assessee to explain these expenditures. Since the assessee had not come forward to explain these expenditures with any verifiable evidence, the ld. AO was justified in treating these expenditures as disallowable under section 69C. For the expenditures to be considered in any other hand or for relief to be allowed to the assessee, it was the assessee who had to bring on record the facts that would show that he was not liable to be taxed on those expenditures. In view of the fact that the assessee had failed to do so, the action taken by the ld. AO was justified. 7. We have duly considered the facts and circumstances of the case. We note that in paragraph no. 3 of both assessment orders, the ld. AO has discussed the issue of no income from contract being shown in the returns 8

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 of the assessee, even though on perusal of individual transaction statement, it is gathered that the assessee had received total receipts of Rs. 2,86,45,894/- in the assessment year 201617 and Rs. 4,85,20,310/- in the assessment year 2017-18 as per TDS deducted under section 194C. On that account, the ld. AO had asked the assessee to show cause why the contractual receipts should not be considered in his hands. In response, it had been submitted that from A.Y. 2016-17, contract license was obtained in the firm’s capacity and all contracts were done under the newly created firm M/s Krishna Kumar Contractor (AAPFK1964J). Some departments had taken deducted TDS on individual PAN, so the contractual receipts were reflected in 26AS but since the entire receipts reflected under individual PAN in 26AS statement were disclosed in the firm’s receipts, even the TDS had been claimed against those receipts. The ld. AO records that the assessee furnished site-wise details to justify this claim and after satisfying himself, he recorded that during the relevant assessment year, the assessee was a partner in four firms newly constituted on 1.04.2015 and the entire contractual work was done through these firms. The ld. AO recorded his satisfaction with the claim of the assessee and declined to take any adverse inference on the issue. Thus, when the assessee was not obtaining any income from contract and in his return had only disclosed remuneration, interest and share of profit from four firms namely M/s Krishna Kumar Contractor, M/s Yash Construction, M/s Janhvi Construction and M/s Laari Construction, the question of disallowance of any part of contractual expenses in his hands either on account of failure to produce bills and vouchers or books to substantiate them or on account of the nature of those expenses, simply does not arise. The ld. CIT(A) had failed to consider this aspect and the ld. AO after having accepted the fact that the assessee was not doing any individual contract business, has held the expenditures incurred 9

ITA Nos.115 & 116/VNS/2024 Krishna Kumar A.Ys. 2016-17 & 2017-18 with relation to contractual obligations to be unexplained in the assessee’s hand. As the same is not maintainable in the eyes of law, the addition of Rs. 1,78,87,441/- in the assessment year 2016-17 and of Rs. 20,82,677/- in the assessment year 2017-18 is held to be not maintainable and deleted as such. The ld. ARs have also challenged the addition on the grounds that since there were no incriminating materials, such addition could not be made in a proceeding relating to such assessments, but it is noticed that the AO has made the additions upon a study of the seized material and therefore, this legal ground is not maintainable. Accordingly, ground no. 1 of the assessee’s appeal in both years are dismissed while the remaining grounds are allowed. 8. In the result, both the appeals in ITA Nos. 115 & 116/VNS/2024 are held to be partly allowed. Order pronounced on 14.05.2026 in the Open Court. 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.