On-money and estimated profit additions fail where evidence is inconclusive and declared income is telescoped against estimation.

An addition for alleged on-money payment for immovable property was deleted where the finding rested on an audio recording, the corresponding addition in the seller's case had already been knocked down after cross-examination and affidavit evidence, and the material did not meet the evidentiary standard under section 65B of the Indian Evidence Act. The estimated business profit rate on turnover was also reduced from 5% to 4% on a fair comparison with past results, and the additional income already declared by the assessee was telescoped against the estimated profit addition, leaving no separate addition outstanding.

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Issues: (i) Whether the addition of Rs. 33,00,000 made towards alleged on-money payment for purchase of immovable property under section 69 of the Income-tax Act, 1961 was sustainable. (ii) Whether the net profit rate on turnover was to be sustained at 5% or reduced, and whether the additional income declared by the assessee could be telescoped against the estimated profit addition.

Issue (i): Whether the addition of Rs. 33,00,000 made towards alleged on-money payment for purchase of immovable property under section 69 of the Income-tax Act, 1961 was sustainable.

Analysis: The addition was based on an audio recording and was also made in the hands of the seller. In the seller's appellate proceedings, the corresponding addition was deleted after cross-examination and consideration of the seller's affidavit, with a finding that there was no conclusive evidence of receipt of on-money and that the inference rested on assumption and presumption. The assessee was not given the recording earlier and the material was also considered in the context of natural justice and the evidentiary requirement under section 65B of the Indian Evidence Act, 1872. As the transaction involved the same parties and the revenue did not dislodge the finding reached in the seller's case, the addition could not be sustained.

Conclusion: The addition of Rs. 33,00,000 was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the net profit rate on turnover was to be sustained at 5% or reduced, and whether the additional income declared by the assessee could be telescoped against the estimated profit addition.

Analysis: The turnover related to trading activity, and the profit rate had to be estimated on a fair and reasonable basis with reference to the assessee's earlier results. The estimated rate of 5% was found excessive and was reduced to 4%. The assessee had already declared additional business income of Rs. 75,00,000, and the appellate finding treated that declaration as covering the estimated profit addition. On that basis, no separate addition survived on account of estimated profit.

Conclusion: The net profit rate was reduced to 4% and the resulting addition was telescoped against the additional income declared by the assessee.

Final Conclusion: The assessee succeeded on both substantive disputes, with deletion of the on-money addition and elimination of the separate estimated profit addition after telescoping of the additional income declared.

Ratio Decidendi: A tax addition based on presumptive or indirect material cannot stand where the corresponding transaction has been disbelieved in the case of the other party on the same evidence, and estimated business income must be fixed by a fair comparison with past results with due allowance for telescoping of declared additional income.

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