Question And Answer
Subject: addition in 153C assessment
Querist: Ruchi Bhansali
Answered by:
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Date: January 2, 2022
Query asked by Ruchi Bhansali

Assessee is an Individual engaged in the retail business and disclosing his income u/SEc. 44AD of the Income tax. Assessee has made the booking of flat with builder. On the basis of some noting on the loose paper found during the course of search with the builder and on the basis of his statement U/Sec. 132(4) about acceptance of On Money from flat holders, Notice U/Sec. 153C was served.

Assessee filed returns for 6 A.Y. and asked for the copies of seized papers, statement of builder and opportunity of cross examination. However the opportunity of cross examination the builder does not turn up and A.O. provided the declaration given by builder stating that what ever he has said in the statement U/Sec. 132(4) and accepted by him is truth.

The Assessing officer made the addition on the basis of noting on the seized paper on account of On Money and also made addition on the ground that assessee has not explained the nature of business, type of products traded and copies of sales bills etc. in support of its income U/Sec. 44AD and therefore the claim of turnover cannot be characterized as business receipts to qualify for presumptive tax scheme and made the addition of entire turnover disclosed by assessee as unexplained receipts u/s 69A of the Act and taxed the same u/s 115BBE for the 6 years.

  1. Whether assessing officer can make addition in the assessment completed u/s 153C r.w.s 143(3) without having any incrementing material about his business the income for which is offered u/s 44AD ?
  2. Whether action of assessing officer adding the entire gross receipts u/s 69A on the ground that assessee has not explained the nature of business, type of products traded and copies of sales bills etc. in support of its income U/Sec. 44AD.
  3. Whether addition made on the basis of noting and the statement of builder about acceptance of on money is justified?
  4. Whether denial of opportunity to cross examine the builder on the ground of his declaration about whatever stated by him in the statement u/s 132(4) is true, is justified and legally correct ?
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Answer given by

1.The Assessing Officer cannot make addition in the assessment without having any incriminating documents . There are number of judgements . Refer. Jami Nirmala (Smt.) v .PCIT (2021)437 ITR 573 (Orissa) (HC),PCIT v. Jaypee Financial Services Ltd ( 2021 ) 282 Taxman 475 ( Delhi )(HC), Sri Sai Cashews v. CCIT(2021) 438 ITR 407/ 205 DTR 293/ 322 CTR 426 (Orissa) (HC)

2. Entire receipt cannot be added , assuming the books of account are rejected only net profit can be added . In Kachwala Gems v. Jt. CIT (2006) 206 CTR 585/(2007) 288 ITR 10/158 Taxman 71/196 Taxation 738/AIR 2007 SC 487 (SC) court held that even though there is always a certain degree of guess work in a best judgment assessment, the authority should try to make an honest and fair estimate of the income and should not act totally arbitrarily.

3. The Assessing Officer cannot make addition merely on the basis of noting and the statement made by the builder . In PCIT v. Anand Kumar Jain (2021) 432 ITR 384/ 201 CTR 200 / 320 CTR 656 (Delhi) (HC) the Court held that statement of third person u/s 132(4) does not constitute incriminating documents . In Common Cause (A Registered Society) v. UOI (2017) 394 ITR 220 / 245 Taxman 214 (SC)/ (2018) 9 SCC 382 the Court held that entries in loose papers/ sheets are irrelevant and inadmissible as evidence .

4. The Assessee should ask for copies of statements and also an opportunity of cross examination . Without furnishing the copy of statements recorded and giving an opportunity of cross examination , addition cannot be made . Refer Kishan Chand Chellaram v.CIT (1980) 125 ITR 713 (SC) and Andaman Timber Industries v. CCE (2015)281 CTR 214/ 127 DTR 241 (SC), Vetrivel Minerals v .ACIT (2021)437 ITR 178/ 282 Taxman 321 (Mad) ( HC)

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