No Incriminating Material, No Tax: ITAT Cuts Down Additions Under Section 153C

The assessee, a partnership engaged in real estate development, was subjected to a search under Section 132 in January 2018. Documents seized showed that unaccounted cash had been received for the “Ananta Savera” and “Ananta Swagatam” projects. Based on decoded entries, the AO reopened assessments under Section 153C for A.Ys 2015–16 to 2017–18 and assessed regular returns under Section 143(3) for A.Y. 2018–19.

The AO added Rs. 30.88 crores over four years by estimating cash receipts beyond the verified seized entries using average extrapolation techniques and reverse cost inflation indexation. However, the majority of these additions were removed by the CIT(A), which limited the taxable amount to embedded profit on verified receipts for the 2015–16 fiscal year. The Revenue filed the appeal before the Tribunal.

Issue Raised: Whether land investment and construction costs could be regarded as unexplained despite assessed on-money receipts, and whether extrapolated additions based on employee statements and partial evidence could be made under Section 153C without year-specific incriminating material.

ITAT Decision: The Tribunal upheld the CIT(A)’s rulings. For A.Y. 2015–16, it confirmed that verified on-money receipts totalled Rs. 6.10 crore. The Tribunal approved the CIT(A)’s decision to tax only embedded profit (20%) on this amount, totaling Rs. 1.22 crore. For A.Ys. 2016–17 to 2018–19, the Tribunal found no year-specific incriminating documents and declared the extrapolated additions invalid under Section 153C, relying on precedents like PCIT v. Saumya Construction Pvt. Ltd. and CIT v. Kabul Chawla.

ITAT further upheld the telescoping of an alleged land investment of Rs. 2.86 crore from taxed on money receipts in the fiscal year 2015-16, stating that the cash flow was matched and the source had already been taxed. The Tribunal agreed with the CIT(A) that vouchers taken from a third party had no connection to the assessee and were inadmissible without supporting documentation when it came to the removal of Rs. 23.30 lakh in cash expenditures for the fiscal year 2018–19.

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