Addition deleted as it was made on the basis of letter of District Magistrate which not recovered during the search
In a recent judgment, Allahabad ITAT has deleted addition made on the basis of letter of District Magistrate which had not been recovered during the search and therefore, did not constitute incriminating material in terms of the judgment of the Hon’ble Supreme Court.
ABCAUS Case Law Citation:
5086 (2026) (03) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in inter alia confirming addition made by the Assessing Officer (AO) by Assessment order passed under section 153C r.w.s 143(3) of the Income Tax Act 1961 on account of unexplained mining royalty payment based on value adopted by District Magistrate.
During the assessment proceedings, the assessee did not produce any vouchers, bills or challans through which the royalty was paid. Accordingly, the AO asked the assessee to produce any evidences in support of its contentions on the issue. In response, the assessee submitted the amount of royalty paid on different dates and in this regard a copy of the ledger account along with a copy of challan was enclosed.
It was submitted that the value of royalty paid as per the report of the District Magistrate was based on market value / estimation and it had been calculated with respect to the final product i.e. grit, whereas the assessee dealt in boulders and hence the value provided by the District Magistrate could not be treated as the actual sales.
However, the AO held that the excess royalty payment had been made by the assessee by payment from outside the books and in cash and was therefore, liable to be assessed as unexplained income under section 69C of the Income Tax Act, 1961.
The CIT(A) matter travelled to the ld. CIT(A) once again and the ld. CIT(A) held that the assessee had not controverted the said report of the District Magistrate. Therefore, the onus that was on the assessee to prove that royalty payment for the year was not as was mentioned in the report of the District Magistrate had not been discharged by the assessee. Further, the assessee’s books of accounts had been rejected by the AO by invoking the provisions of section 145(3) of the Act. Moreover, the claim of the assessee is that the rates of the District Magistrate, pertained to market value of Grit while the assessee deals in Boulders had not been proved with supporting documents and therefore, it was held that no interference was required in the assessment order.
Before the Tribunal, the assessee . submitted that the Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. had pointed out that in an assessment under section 153A or 153C, no addition could be made without incriminating material recovered during the search. But in this case, the addition had made on account of a letter received from the District Magistrate, Sonebhadra which had no relation to the search and did not form part of the documents recovered during the search.
The Tribunal observed that it was quite clear that the said letter of the District Magistrate had not been recovered during the search and therefore, does not constitute incriminating material in terms of the said judgment. Accordingly, no addition was sustainable in an assessment under section 153A and 153C in view of the said law laid down by the Hon’ble Supreme Court.
Accordingly, the ground of appeal was allowed.
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