We deal with the problem of distributed source coding with decoder side information, when the decoder observes the source through a noisy channel. Existing approaches employ syndrome- or parity-based channel codes. We propose a new approach based on distributed arithmetic coding (DAC). We introduce a DAC with forbidden symbol, which allows to tune the redundancy according to the amount of channel noise. We propose a novel sequential decoder that employs the known side information to decode the corrupted codeword. Experimental results show that the proposed scheme is better than parity-based turbo codes at relatively short block lengths.