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

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos.94, 95 & 96/VNS/2023 A.Ys. -2011-12, 12-13 & 2013-14 Krishna Kumar, vs. Asstt. Commissioner of Income- 570, Gandhi Nagar, Pikaura Bux, tax, Central Circle, Ayakar Bhawan, Basti-272001 Civil Lines, Gorakhpur-273001 PAN: ALWPK0692D (Appellant) (Respondent) Assessee by: Sh. Mahendra Kumar, FCA & Sh. R.N. Mishra, Advocate Revenue by: Sh. Koushlendra Tewari, CIT DR Date of hearing: 22.01.2026 Date of pronouncement: 17.04.2026

O R D E R PER NIKHIL CHOUDHARY, A.M.:

These three appeals have been filed by the assessee against the various orders of the ld. CIT(A)-3, Lucknow, all dated 27.06.2023, wherein the ld. CIT(A) has dismissed the appeals of the assessee against orders passed by the Assessing Officer under section 153A r.w.s. 143(3) of the Income Tax Act for the assessment years 2011-12, 2012-13 and 2013-14. The grounds of appeal in the three assessment years are as under:- A.Y. 2011-12 “1. BECAUSE "certain rough noting of expenses" (para 3.2 of the assessment order) cannot be said to be "incriminating material so to enable the assessing officer to initiate proceedings under section 153A of the Income-tax Act, 1961 (hereafter referred to as Act for brevity) therefore the entire proceedings right from initiation to passing of the assessment order deserves to be declared as null and void. 2. BECAUSE of Ground No.1 above entire variation of Rs.23,88,198/- made up as under:

Sl. Particulars Amt. (Rs.) (a) Difference in Turnover alleged to be 7,07,588/- undisclosed income of the appellant. (b) Extra Profit addition by applying 16,80,610/- Adhoc Net Profit Rate of 4.50% vis- à-vis 1.95% disclosed by the appellant. Total addition 23,88,198/- in the assessment order dated 21.12.2015 passed under section 153A r.w.s. 143(3) of the 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. WITHOUT PREJUDICE TO ABOVE 3 BECAUSE the authorities below have erred in law and on facts in making addition towards alleged difference in turnover of Rs.7,07,588/- worked out as under: Sl. Particulars Amt. (Rs.) (a) Turnover appearing in Form 26AS 6,66,07,285 of the appellant. (b) Turnover declared in the audited 6,58,99,697 financial statement of accounts (c) Difference in Turnover (a-b) 7,07,588 as undisclosed income of the assessee. 4. BECAUSE without prejudice to Ground No. above, CITA after having accepted that the books of accounts of the appellant had been subjected to audit under section 44AB of the Act should have applied appellant's disclosed Net Prof Rate of 1.99% on alleged difference in turnover of R.7,8-re had erred in law and on facts in confirming the entire dance in turnover of Rs.7,07,58- as undisclosed income of the appellant. 5. BECAUSE the authorities below have erred in law and on facts in making extra profit addition of Rs.36,50,630/-by applying the Net Profit Rate of 4.50% vis a vis 1.95% disclosed by the appellant in the audited books of accounts. 6. BECAUSE extra profit addition of Rs.16,50,610/- is wholly bad in law and on facts of case as the authorities below have failed to bring on record any comparable case so as to enable them to adopt Net Profit Rate of 4.50% on adhoc basis vis-à-vis the rate of 1.99% disclosed by the appellant. 7. BECAUSE without prejudice to Ground No.3 & 6 above, looking to the history of the appellant extra profit addition of Rs. 16,80,610/- by applying the Net Profit Rate of 4.50% on adhoc basis is much too high and excessive. 8. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice.” 2 A.Y. 2012-13 “1. BECAUSE "certain rough noting of expenses" (para 3.3 of the assessment order) cannot be said to be "incriminating material" so to enable the assessing officer to initiate proceedings under section 153A of the Income-tax Act, 1961 (hereafter referred to as Act for brevity) therefore the entire proceedings right from initiation to passing of the assessment order deserves to be declared as null and void. 2. BECAUSE of Ground No. 1above entire variation of Rs. 5,98,210/- made up as under:-

Sl. Particulars Amt. (Rs.) (a) Alleged undisclosed interest on 92,075 Fixed Deposit Receipt. (b) Extra Profit addition by applying 5,06,135 Adhoc Net Profit Rate of 4.50% viz- a-viz 2.49% disclosed by the appellant. Total addition 5,98,210 in the assessment order dated 24.12.2018 passed under section 153A r.w.s. 143(3) of the 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. WITHOUT PREJUDICE TO ABOVE 3. BECAUSE the authorities below have erred in law and on facts in making addition of Rs.92,075/- towards undisclosed interest income on fixed deposit receipts without considering the fact that the same is appearing at closing balance in the audited financial statement of accounts applicable for the impugned assessment year. 4. BECAUSE the CIT(A) had grossly erred in law and violated the principles of natural justice in dismissing the ground of appeal relating to addition of interest income of Rs.92,075/- as not being pressed by the appellant. 5. BECAUSE the authorities below have erred in law and on facts in making extra profit addition of Rs.5,06,135/- by applying the Net Profit Rate of 4.50% vis-à-vis 2.49% disclosed by the appellant in the audited books of accounts. 6. BECAUSE extra profit addition of Rs.5,06,135/- is wholly bad in law and on facts of case as the authorities below have failed to bring on record any comparable case so as to enable them to adopt Net Profit Rate of 4.50% on adhoc basis vis-à-vis the rate of 2.49% disclosed by the appellant. 7. BECAUSE without prejudice to Ground No.5 & 6 above, looking to the history of the appellant extra profit addition of Rs.5,06,135/- by applying the Net Profit Rate of 4.50% on adhoc basis is much too high and excessive.

8. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice.” A.Y. 2013-14 “1. 1. BECAUSE "certain rough noting of expenses" (puru 3.3 of the assessment order) cannot be said to be "incriminating material so to enable the assessing officer to initiate proceedings under section 153A of the Income-tax Act, 1961 (hereafter referred to as Act for brevity) therefore the entire proceedings right from initiation to passing of the assessment order deserves to be declared as null and void. 2 BECAUSE of Ground No.1 above entire variation of Rs.15,17,980/- made up as under:

Sl. Particulars Amt. (Rs.) (a) Alleged undisclosed interest on 52,496 Fixed Deposit Receipt. (b) Extra Profit addition by applying 5,06,135 Adhoc Net Profit Rate of 4.50% viz- a-viz 2.13% disclosed by the appellant. (c) Agricultural income disclosed by the 4,11,589 appellant in return of income treated as unexplained cash credit Total addition 15,17,980

in the assessment order dated 21.12.2018 passed under section 153A r.w.s. 143(3) of the 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. WITHOUT PREJUDICE TO ABOVE 3. BECAUSE the authorities below have erred in law and on facts in making addition of Rs.52,496/- towards undisclosed interest income on fixed deposit receipts without considering the fact that the same is appearing at closing balance in the audited financial statement of accounts applicable for the impugned assessment year. 4. BECAUSE the CIT(A) had grossly erred in law and violated the principles of natural justice in dismissing the ground of appeal relating to addition of interest income of Rs.52,496-as not being pressed by the appellant. 5. BECAUSE the authorities below have erred in law and on facts in making extra profit addition of Rs.10,53,895/- by applying the Net Profit Rate of 4.50% vis-à-wis 2.13% disclosed by the appellant in the audited books of accounts. 6. BECAUSE extra profit addition of Rs.10,53,895/- is wholly bad in law and on facts of case as the authorities below have failed to bring on record any comparable case so as to enable them to adopt Net Profit Rate of 4.50% on adhoc basis vis-à-vis the rate of 2.13% disclosed by the appellant. 4

7. BECAUSE without prejudice to Ground No.5 & 6 above, looking to the history of the appellant extra profit addition of Rs.10,53,895/- by applying the Net Profit Rate of 4.50% on adhoc basis is much too high and excessive. 8. BECAUSE authorities below have erred in law and on facts in treating the agricultural income of Rs.4,11,589/- as unexplained cash credit under section 68 of the Act without considering the fact that the same is disclosed by the appellant as his exempt income in his return of income filed under section 153A of the Act. 9. BECAUSE the CIT(A) had grossly erred in law and violated the principles of natural justice in dismissing the ground of appeal relating to agricultural income of Rs.4,11,589/-as not being pressed by the appellant. 10. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice.” 2. It is observed that all these appeals are delayed by around 28 days. The assessee has filed a petition in which it has been submitted that the assessee is a permanent resident of Basti and subsequent to search and seizure action, the jurisdiction of the assessee was transferred to the ACIT, Central Circle, Gorakhpur, which was approximately 80 Kilometers from his residence at Basti. After assessment proceedings, the assessee had taken the help of his local counsel Sh. Anand Rao Rathore for filing of the appeals before the ld. CIT(A) and was under the impression that the local counsel Sh. Anand Rao Rathore, was taking care of the appellate proceedings. Subsequently, however, the appeals had been transferred to CIT(A)-3, Lucknow and thereafter were represented with the help of a local counsel for the said city. Sometime in the last week of August, 2023, the local counsel at Lucknow briefed his counsel Sh. Anand Rao Rathore and him, that the appellate proceedings had concluded on 26.06.2023, and orders had been passed on 27.06.2023 wherein the appeals had been dismissed. It was only after this information that the assessee became aware of the dismissal of his appeals. However, it was not clear to the assessee as to where he should file the second appeal and even his local counsel, Sh. Anand Rao Rathore was unaware of the same. The assessee and the local counsel Sh. Anand Rao Rathore were also unaware of the limitation period. Therefore, with the help of his local counsel, they contacted a Chartered Accountant namely Sh. Saurabh Agarwal, C.A. at Prayagraj, who handled income tax appeals at ITAT, Allahabad and then was informed that 5

these appeals had to be filed before ITAT Circuit Bench, Varanasi. Accordingly, after getting the appeals prepared by Sh. Saurabh Agarwal, C.A., the same were filed with ITAT Varanasi with a delay. It was prayed that the delay may kindly be condoned in the circumstances narrated. An affidavit was also filed seeking condonation of the delay. After considering the condonation application and the facts stated therein, the delay is condoned and the appeal is admitted for adjudication. 3. The facts of the case are that a search and seizure operation under section 132(1) were carried out at the various residential and business premises of the assessee on 5.01.2017. Notices under section 153A were issued, in response to which returns were filed declaring a total income of 28,76,103/- for the A.Y. 2011- 12, Rs. 8,89,660/- for the A.Y. 2012-13 and Rs. 22,45,140/- for the A.Y. 2013-14. The ld. AO records that on perusal of the seized material, certain rough noting of expenses were found and the assessee was asked to explain as to how these expenses were accounted for in the books of accounts. He records that the assessee furnished the cash book and ledger but the complete supporting vouchers were not produced for verification. In the assessment year, 2011-12, on scrutiny of 26AS statement, the AO found that the total receipts of the assessee were Rs. 6,66,07,285/- as against the disclosed receipts of Rs. 6,58,99,697/-. He confronted the assessee with the difference of Rs. 7,07,588/- and the assessee accepted the same had been left out erroneously. Therefore, the ld. AO made an addition of Rs. 7,07,588/- to the income of the assessee on this account. The ld. AO recorded the fact that the assessee has shown a turnover of Rs. 6,58,99,697/- against which purchases had been shown at Rs. 5,09,06,244/- with material, trade tax, transportation and hire charges being shown as one entry. Since, the assessee did not produce the books of accounts, he was given further opportunities. While the assessee submitted the breakup of this expenditure before the Assessing Officer, he expressed his inability to produce the bills and vouchers stating that due to distant locations of sites, the old bills and vouchers were not traceable and therefore, he was unable to produce the same. However, it was submitted that in 6

the assessment year 2014-15, the assessment had been done under section 143(3) by adopting 4% net profit and therefore, in this year also a net profit of 4% may be adopted. After considering the reply of the assessee, the ld. AO adopted a net profit of 4.5% holding the books of accounts to be incomplete and unverifiable. Accordingly, he made an addition of Rs. 16,80,610/- in the assessment year 2011- 12. In the assessment year 2012-13, the ld. AO found that while the assessee had declared investment in FDR at Rs. 2,15,000/-, he had not disclosed the interest on FDRs in earlier assessment years. He confronted the assessee with this fact and the assessee offered undisclosed FDR interest of 92,075/- for taxation. The ld. AO further noted that in the assessment year 2012-13 also, the assessee had claimed purchases of Rs. 1,81,14,915/- against turnover of Rs. 2,52,96,276/-. He asked the assessee to give the bifurcation of various expenses and produce bills and vouchers for verification. While the assessee submitted the bifurcation of expenses, he was unable to produce the bills and vouchers on the same grounds as stated in A.Y. 2011-12 and he offered net profit rate of 4% for taxation. The ld. AO after considering the same, adopted net profit @ 4.5% as total receipts and made an addition of Rs. 5,06,135/-. In the A.Y. 2013-14, the ld. AO similarly made an addition of Rs. 52,496/- on account of undisclosed FDR interest offered by the assessee and also made an addition of Rs. 10,53,895/- by adopting net profit @ 4.5% on total receipts of Rs. 4,35,43,442/- on the same facts and logic as applied in the previous assessment years. In this assessment year, the ld. AO also made an addition of Rs. 4,11,589/- on account of agricultural income shown by the assessee in view of the fact that the assessee was not able to produce mandi bills etc., or documentary evidence of agricultural income and only because the agricultural land was in joint name. 4. Aggrieved with the additions made, the assessee went before the ld. CIT(A). It was submitted that the Assessing Officer was not justified in estimating the net profit rate of 4.5% of receipts because the ld. AO had not found any undisclosed receipts. He also submitted that he was maintaining proper books of accounts, bills and vouchers etc., and he had filed his return in accordance with 7

these books. The ld. AO had not also pointed out any defect in the books of accounts maintained by the assessee and therefore, he could not determine the net profit @ 4% of those receipts. In the A.Y. 2011-12, before the ld. CIT(A), the assessee submitted that the entire amount of Rs. 7,07,588/- could not be added back to its income but only the profit element was liable to be added back and for this proposition, he placed reliance on various case laws. However, the ld. CIT(A) held that the assessee had already claimed all the expenditure and therefore, no further benefit could be allowed to it and he accordingly confirmed the addition. In the A.Y. 2012-13 also, the assessee pointed out that no defects had been noted in the books of accounts by the AO and the AO had not even rejected the books under section 145(3). Therefore, the decision to estimate the net profit of 4.5% was not justified. In the A.Y. 2013-14, the assessee took a similar plea with regard to the estimation of the contractual receipts at 4.5% as against 2.13% declared by the assessee in his books. 5. The ld. CIT(A) considered the matter and he rejected the appeals of the assessee on the grounds that the assessee had failed to produce purchase bills, vouchers and other supporting documents before the ld. AO and therefore, the ld. AO was not satisfied with the correctness and completeness of the books of accounts. He was therefore, of the view that the ld. AO was right in refusing to accept his book results and he accordingly dismissed all three appeals of the assessee. 6. The assessee is aggrieved with all these dismissals of his appeals and has accordingly come in appeal before us. Sh. Mahendra Kumar, FCA and Sh. R.N. Mishra, Adv (hereinafter referred to as the ld. ARs) represented the assessee and invited our attention to ground no. 1 and 2 of the assessee’s appeal in all three assessment years, to point out that no incriminating material had been found during the search with reference to these assessment years. Furthermore, in the assessment order, there was no discussion with regard to incriminating material with regard to the additions made and no reference to any incriminating material recovered during the search. The ld. ARs pointed out that the, “certain rough 8

noting of expenses” referred to in the various assessment orders” could not be said to be incriminating material so as to enable the Assessing Officer to make additions to the assessee’s income under section 153A of the Income Tax Act and therefore, the entire proceedings deserved to be declared null and void. It was submitted that the said seized material namely B.K. 1, 2, 3 and 4 specifically pertained to the assessment years 2014-15, 2015-16 and 2016-17. They did not bear any reference to assessment years 2011-12, 2012-13 and 2013-14. In the circumstances, it was submitted that the additions that had been made bereft of incriminating material, could not be sustained in a proceeding under section 153A. The ld. ARs admitted that they have not raised this ground earlier before the ld. CIT(A) but they submitted that since it was a legal issue, it could be raised at any stage and was required to be addressed. With regard to the estimation of income at 4.5%, the ld. ARs submitted that the AO had made the addition by estimating profit @ 4.5% against a declared profit of a much lower rate. Even in the assessment year, 2014- 15, which was a regular assessment under section 143(3), the assessee’s profit had been estimated at 4%. There was no reason for the AO to estimate the expenses at 4.5% because he had not rejected the books of accounts under section 145(3). Accordingly, it was prayed that the addition was not sustainable on merits also. Reliance was placed on the decision of the Hon’ble Delhi High Court in the case of PCIT (Central)-1, vs. Forum Sales Pvt. Ltd. 160 taxman.com 93 Delhi. On the issue of addition of Rs. 7,07,588/-, the ld. ARs submitted that it was only the profit element in the same which could be added back and not the entire addition. With regard to the additions made on account of interest income it was submitted that the difference had arisen on account of the fact that the bank had shown the interest income at the time of maturity while the assessee had shown the interest income at the time of accrual in year two and year three. On the issue of addition of Rs. 4,11,589/- for agricultural income, the ld. AR submitted that the same had already been shown under capital, in the assessee’s balance-sheet. Accordingly, it was prayed that the additions should be deleted as they were not deserving of being sustained.

7. On the other hand, Sh. Koushlendra Tewari, CIT DR (hereinafter referred to as the ld. DR) submitted that the Hon’ble Supreme Court judgment in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd (2023) 149 taxmann.com 399 (SC)/(2023) 293 Taxman 141 (SC)/(2023) 454 ITR 212 (SC) only prohibited reappreciation of issues that had already been decided. It did not prohibit addition on new issues that emerged during the assessment. The assessee was duty bound to show the entire receipts. If he did not show the entire receipts and it emerged from the Form 26AS that he should have taken it into account, then the same was incriminating material and ought to be considered for the purposes of making the addition. The facts were not in dispute that the assessee had not shown the sum of Rs. 7,07,588/- in the income tax returns and therefore, this addition was deserving of being sustained. He submitted that there is no question of allowing any expenditure against his amount because the expenditure had already been claimed. Therefore, the addition was deserving of being sustained in its entirety. The ld. CIT DR also drew our attention to para 3.3 of the order of the AO and pointed out that there was material before him. He pointed that there were certain rough notings of expenditures on the basis of which the assessee had been asked to produce the books of accounts and bills and vouchers and because the assessee could not substantiate the book results by production of bills and vouchers, the ld. AO justified in rejecting the books of accounts. It was submitted that while the section may not have been quoted, the rejection was explicit in the language used by the AO. The ld. CIT(A) further submitted that the assessee had himself offered that the profit be estimated at 4%. Therefore, if after considering the extent of the shortcomings in the books, the ld. AO felt that it ought to be 4.5%, and estimated the net profit of 4.5% therefore, there was no infirmity in the same. 8. We have duly considered the facts and circumstances of the case. It is observed that in none of the three assessment orders, has any reference been made to the incriminating material or what it was and it is fairly clear that the additions that had been made had not been made on the basis of incriminating material recovered during the search. The Hon’ble Supreme Court in the case of 10

PCIT Vs. Abhisar Buildwell (P.) Ltd., 149 taxman.com 399 (SC) has quite clearly laid down, that in unabated and concluded assessments, additions can only be made in a proceedings under section 153A on the basis of incriminating materials recovered during the search and for any other addition that is required to be made, the option of resorting to section 148 is always open to the Department. That being the case, since none of the additions in the three assessment orders are seen to emanate out of incriminating materials recovered during the search but rather on account of information gathered or shortcomings in information produced in response to queries during assessment proceedings, they cannot be the subject matter of additions in assessments under section 153A. They could at best have been used to initiate proceedings against the assessee under section 148. In the circumstances, the additions made in all three assessment years are outside of the scope of an assessment under section 153A and are therefore, deleted. Accordingly, ground nos. 1 and 2 of all assessment years in question are allowed. The remaining grounds, relating to the merits of the addition, having been rendered infructuous on account of the fact that the aforesaid additions have been held to be outside of the scope of assessments under section 153A, are therefore, rendered infructuous. They are, therefore, dismissed as such. Accordingly, all three appeals are partly allowed. 9. In the result, all three appeals in ITA Nos. 94, 95 & 96/LKW/2023 are held to be partly allowed. Order pronounced on 17.04.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17/04/2026 Sh