Loose Sheets without Third-Party Confirmation Insufficient for Addition u/s 69C: ITAT Directs Profit Estimation at 7% [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) ruled that Loose sheet without third party confirmation insufficient for addition and held that it is reasonable to estimate a profit percentage of 7% on such amounts rather than confirming the gross addition.

Educo Ventures Pvt. Ltd. (assessee) was subject to a survey operation under Section 133A on November 4, 2019, during which incriminating documents were discovered. Based on an excel sheet and seized documents, the AO noted that the assessee had allegedly made cash payments of ₹1,38,99,000 to M/s Devershi Civil Infrastructure Ltd.

The AO treated this amount as unexplained expenditure under Section 69C of the Income Tax Act. During the proceedings, the assessee denied making any such payments to Devershi Civil Infrastructure and contended that the figures were merely "rough notings" of the accountant.

The assessee argued that Devershi Civil Infrastructure and JMD Construction were related entities and that actual payments for wall construction were made only to JMD Construction, which were already recorded in the books. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

The [CIT(A)] confirmed the addition of ₹1,38,99,000 and noted that unlike the payments to JMD Construction, the payments to Devershi Civil Infrastructure were not recorded in the assessee's books of account.

The assessee failed to furnish any confirmation letter from M/s Devershi Civil Infrastructure Ltd. to support the claim that no such payments were made or received. Aggrieved by this confirmation, the assessee appealed to the ITAT.

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The two-member bench comprising Rajesh Kumar (Accountant Member) and Pradip Kumar Choubey (Judicial Member) observed that the AO had not brought any material on record from the third party (the recipient) to corroborate that these payments were actually made.

The Bench noted that the assessee had consistently denied the transaction and that the addition was based on seized papers without external verification.

It was concluded that under these circumstances, the amount should at best be considered as money generated from unrecorded business receipts, such as scrap sales, and that taxing only a profit component would be fair.

The Bench directed the AO to assess the income on the sum of ₹1,38,99,000 at a rate of 7%. The appeal of the assessee was partly allowed.

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