ECI ENGINEERING & CONSTRUCTION COMPANY LIMITED ,HYDERABAD vs. DCIT, CENTRAL CIRCLE-2(3), HYDERABAD

PER MANJUNATHA.G, AM:

These are appeals filed by two different assessee’s are directed

against the order of the Commissioner of Income Tax (Appeals)-12,

Hyderabad, dated 03.09.2025, 02.09.2025, and pertains to assessment

years 2018-19, 2019-20 & 2022-23 respectively & dated 23.09.2025 &

04.09.2025 and pertains to assessement years 2019-20, 2022-23 &

2023-24 respectively.

ITA No.1838/Hyd/2025 for AY 2018-19

No.1838/Hyd/2025 for AY 2018-19:

engaged in the business of construction of roads, highways and

electrification work, filed its return of income (RoI) for AY 2018-19

declaring total loss of Rs.65,22,81,719/-. The case was selected for

scrutiny and the assessement has been completed u/s.143(3) r.w.s.144B

of the Income Tax Act, 1961 (in short “the Act“) on 31.05.2021 and

determined total loss at Rs.18,13,46,937/- by making additions towards

ad hoc disallowance of increase in machinery and equipment hire charges

and transporting charges for Rs.2,03,31,898/-, disallowance of

expenditure u/s.40(a)(ia) of the Act for non-deduction of TDS u/s.194C of

the Act for Rs.44,72,50,850/- and addition of Rs.33,52,034/- towards

disallowance of belated payment of employees’ contribution towards PF &

ESI.

appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged ad hoc disallowance of machinery and equipment charges and

transporting charges and submitted that the AO made ad hoc

disallowance of expenditure only on the basis of decrease in Revenue and

increase in expenditure, even though, there is no relationship between

Revenue and expenditure. The assessee had also challenged the additions

made by the AO towards disallowance of expenditure u/s.40(a)(ia) of the

Act and argued that wherever the assessee has not deducted TDS, the

same has been disallowed and added back to the total income and in fact,

the assessee has already disallowed a sum of Rs.18,37,39,617/- being

30% of Rs.61,24,65,390/- and in respect of remaining amount, the

payments made to the contractors/sub-contractors is covered under the

provisions of Sec.10(26) of the Act and the same is not liable for TDS.

Therefore, the AO ought not to have disallowed 30% of Rs.92,88,27,015/-

and made addition of Rs.27,86,48,104/-. Thus, the AO has worked out

total disallowance of Rs.44,72,50,850/-, even though, the assessee has

made out a case that the remaining amount is not liable for TDS, and the

assessee is not required to deduct TDS. The assessee had also challenged

the additions made by the AO towards disallowance of belated payment of

PF & ESI on the ground that the disallowance made by the AO doesn’t

come under the provisions of Sec.36(1)(va) r.w.s.43(b) of the Act.

:: 5 :: 5. The Ld. CIT(A) after considering the relevant submissions of the

assessee and also taking note of reasons given by the AO to make ad hoc

disallowance of expenditure observed that the assessee failed to justify

increase in expenditure in light of decrease in Revenue for the year under

consideration by filing relevant bills & vouchers. Therefore, the AO has

rightly disallowed excess expenditure incurred under the head ‘machinery

& transport charges. The Ld.CIT(A) further confirmed the additions made

by the AO towards disallowance of expenditure u/s.40(a)(ia) of the Act for

non-deduction of TDS on the ground that although, the assessee claims to

have made payment to the people of Nagaland which are exempt from

taxation u/s.10(26) of the Act, but fact remains that the assessee did not

filed any supporting evidence including the name and to whom sub-

contract expenses were given. Thus, rejected the explanation of the

assessee and sustained the additions made by the AO. The Ld.CIT(A)

also sustained the additions made by the AO towards belated payment of

‘employees’ contribution to PF & ESI’ by following the decision of the

Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. v. CIT

[2022] 448 ITR 518 (SC), where it has been clearly held that belated

payments of ‘employees’ contribution towards PF & ESI’ is not allowable

as deduction u/s.36(1)(va) r.w.s.2(24)(x) r.w.s.43(b) of the Act.

:: 6 :: 6. Aggrieved by the order of the Ld. CIT(A), the assessee is, now in

appeal before this Tribunal.

Nos.2 & 3 of the assessee’s appeal is disallowance of expenditure

u/s.40(a)(ia) of the Act.

7.1 The Ld. Counsel for the assessee referring to the financial statement

submitted that the assessee has debited total expenditure of

Rs.154,12,92,405/- in respect of sub-contract expenses, labour charges,

transporting and other expenses and out of which, deducted TDS under

respective provisions of the Act for Rs.86,87,86,361/-. The assessee

further submitted that in respect of balance amount of Rs.67,25,06,045/-,

TDS has not been deducted out of which a sum of Rs.61,24,65,390/- has

been considered by the assessee for the purpose of disallowance and

addition of Rs.18,37,39,617/- has been made in the total income. The

remaining amount on which TDS has not been deducted relates to

payments to parties in the state of Nagaland for which provisions of TDS

was not applied in view of Section 10(26) of the Act and thus, the

assessee has not deducted TDS. The ld. AO and ld. CIT(A) have failed to

appreciate the relevant details while making addition towards

disallowance of expenditure u/s.40(a)(ia) of the Act. Therefore, the :: 7 :: matter may be remitted back to the file of the AO to verify the claim of

the assessee and to decide the issue as per law.

7.2 The Ld. CIT-DR, on the other hand, supporting the order of the

Ld.CIT(A) submitted that the assessee itself has admitted TDS has not

been deducted on various expenditure. Further, although the assessee

claims to have deducted TDS on certain payments, but no details have

been furnished before the AO & the Ld.CIT(A). Further, the claim of the

assessee that certain payments made to individuals and residents of

Nagaland, TDS provisions are not applicable in view of section 10(26), but

have not proved the claim by relevant evidences. Therefore, the AO in the

absence of relevant details has rightly made disallowance of expenditure

u/s.40(a)(ia) of the Act for non-deduction of TDS under relevant

provisions of the Act. The Ld.CIT(A) after considering relevant facts has

rightly sustained the additions made by the AO and thus, the order of the

Ld.CIT(A) should be upheld.

7.3 We have heard both the parties, perused the materials available on

record and had gone through orders of the authorities below. We also

carefully considered the relevant arguments of the Ld. Counsel for the

assessee along with financial statement filed for the assessement year

under consideration. Admittedly, the assessee has debited total

expenditure of Rs.154,12,92,405/- under various heads including sub- :: 8 :: contracts expenditure, labour charges & transporting charges, etc. It is

also not in dispute that the assessee has made suo-moto disallowance of

Rs.1,38,79,421/- for non-deduction of TDS. Further, the assessee itself

has admitted non-deduction of TDS in respect of expenditure under

various heads for Rs.61,24,65,390/- on which agreed for disallowance of

30% of expenditure which worked out to Rs.18,37,39,617/-. To this

extent, there is no dispute between the assessee and the AO. The only

dispute with regard to balance amount of Rs.92,88,27,015/-. It was the

claim of the assessee that certain payments made to residents of

Nagaland in respect of transportation expenditure and hire charges, TDS

provisions are not applicable to residents of Nagaland, because income of

residents of Nagaland is exempted u/s.10(26) of the Act. The assessee

has filed Chart which is available in Page No.72 of the Paper Book filed by

the assessee with details of expenditure under different heads, amount on

which TDS has been deducted, amount on which TDS has been deducted.

Upon perusal of the relevant details, we find that the assessee claims that

certain payments made in respect of sub-contracts expenditure, labour

charges & transporting charges, TDS provisions are not applicable in view

of Section u/s.10(26) of the Act. However, the assessee has not

furnished complete details of name and persons to whom payment has

been made and also details of expenditure on which TDS has been

deducted and remitted to government. In the absence of relevant details, :: 9 :: it is difficult to accept the arguments of the assessee. Since, assessee’s

claim to have deducted TDS, on a major portion of expenditure and also

agreed disallowance of 30% of expenditure in case where TDS has not

been deducted and further, assessee claims that certain expenditure has

been paid to residents of Nagaland and provisions of Sec.10(26) of the

Act is applicable. in our considered view, the matter needs to be set aside

to the file of the AO for further verification. Thus, we set-aside the order

of the Ld.CIT(A) on this issue and restore the issue back to the file of the

AO for further verification. The AO is directed to re-consider the issue in

light of any evidence that may be filed by the assessee to justify its case.

No.6 of the assessee’s appeal is disallowance of belated payment towards

employee’s contribution towards PF & ESI’ u/s.36(1)(va) of the Act for

Rs.33,52,034/-.

8.1 The Ld. Counsel for the assessee, at the time of hearing conceded

the issue and argued that this issue is covered against the assessee by

the decision of the Hon’ble Supreme Court in the case of Checkmate

Services P. Ltd. (supra). The Ld.CIT-DR also agreed that the issue is

covered in favour of the Revenue and the Ld.CIT(A) has sustained the

addition by following the decision of the Hon’ble Supreme Court in the

case of Checkmate Services P. Ltd. (supra)

8.2 Having heard both the sides and considered relevant materials

available on record, we find that the Ld.CIT(A) has sustained the

additions made by the AO towards disallowance of belated payment of

‘employees contribution towards PF & ESI’ for Rs.33,52,034/-

u/s.36(1)(va) r.w.s.2(24)(x) of the Act, by following the decision of the

Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. (supra).

The relevant findings of the Ld.CIT(A) are as under:

6.4.4 This issue has been settled by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. in Civil Appeal No.2833 of 2016 dated 12.10.2022, has categorically held that the payments on account of employee's contributions of PF & ESI are allowable only if those are made within the due dates as prescribed under the respective statutes i.e., PF &ESI Act. Hon'ble Apex Court held that the money of employees' contribution to ESI and PF held by employer as custodian, is deemed income in view of provisions of section 36(1)(va) read with section 2(24)(x) of the Act, if not deposited within due dates prescribed under those Acts. Hon'ble Supreme Court held as under: -

6.4.5 Therefore, in view of the Apex Court decision in the case Checkmate Services Ltd. (supra) discussed above, employees' contribution of ESI & PF is held by the employer as trustee, if it is not paid to the relevant fund within due dates, it has to be treated as income u/s 2(24)(x) of the Act and has to be added u/s 36(1)(va) r.w 2(24)(x) of the Act. All the case laws relied by the appellant are dated prior to the order of the Apex Court in Checkmate Services Ltd (supra) and of no help. Hon'ble Apex Court has settled the issue. It settled legal position that once Supreme Court passes the order, it only interprets the law as it existed from the beginning. Thus, the addition of Rs. 33,52,034/- on account payments of employee's contribution towards Provident Fund and Employees State Insurance which were made after the dates prescribed in the concerned statutes, was as per the law and confirmed. Hence, ground numbers 4 is hereby dismissed.

8.3 In this view of the matter and considering the facts and

circumstances of the case, we are inclined to uphold the findings of the

Ld.CIT(A) and reject the ground taken by the assessee.

:: 12 :: 9. The next issue that came up for our consideration from Grounds of

the assessee’s appeal is adhoc disallowance of transportation and

machinery hire charges for Rs.2,03,31,898/-

9.1 The Ld. Counsel for the assessee submitted that the AO has made

ad hoc disallowance of 10% of expenses incurred under the head

‘machinery & equipment hire charges & transporting charges’ only on the

ground that the expenditure has been increased by 74% to 78% when

compared to last year, whereas the Revenue from operations is decreased

by 18% and the assessee has not offered any explanation for increase in

expenditure. It was the arguments of the Ld. Counsel for the assessee

that the AO made ad hoc disallowance of expenditure without rejection of

books of accounts and without pointing out any defects in the accounts.

Further, the expenditure incurred by the assessee under the head

‘machinery & equipment hire charges & transporting charges’ is fully

supported by vouchers & bills and the question of making ad-hoc

disallowance of expenditure doesn’t arise.

9.2 We have heard both the parties and considered reasons given by

the AO to make 10% ad hoc disallowance of ‘machinery & equipment hire

charges & transporting charges’. Admittedly, the only reasons given by

the AO for making ad hoc disallowance of above two expenditures is

decrease in Revenue by 18% and increase in expenditure by 74-78% respectively. Except this, the AO has not given any valid reason for

rejection of books of accounts and also not made out discrepancies in

books of accounts maintained by the assessee. In the absence of

incorrectness in books of accounts maintained by the assessee merely for

the reason of increase in expenditure, adhoc disallowance of expenditure

can’t be made, because there is no direct relationship between decrease

in Revenue and increase in expenditure. Since, the AO has made adhoc

disallowance of 10% of expenditure under the head ‘machinery &

equipment hire charges & transporting charges’ without pointing out any

defects in the books of accounts, in our considered view, the adhoc

disallowance of expenditure made by the AO for Rs.2,03,31,898/- can’t be

upheld. Thus, the Ld.CIT(A) without appreciating the relevant facts simply

sustained the additions made by the AO. Thus, we set aside the order of

the Ld.CIT(A) and direct the AO to delete the addition made towards

adhoc disallowance of expenditure incurred under the head ‘machinery &

equipment hire charges & transporting charges’

for AY 2018-19 is partly allowed for statistical purposes.

ITA Nos.1839 & 1840/Hyd/2025 for AYs 2019-20 & 2022-23

assessment years. Therefore, for the sake of brevity, grounds of appeal

for AY 2019-20 are reproduced as under:

of the Act, was conducted on 05.01.2022 in the case of Invent Group,

Omkara Group and their related entities. During the course of search,

certain incriminating material related to the assessee was found and

sized. During the course of post search operation in the case of Omkara-

ARC & Invent Assets, it was found that funds received from borrower

group i.e., ECI whose accounts are declared by the bank to be Non-

Performing Assets (NPA) are used for acquiring their own NPA accounts :: 15 :: from the banks. Mr. Ram Lal Nath in a statement recorded during the

course of search action has stated that the funds of the borrower

company has been routed by Mr. Manish Lalwani through its associate

entities of Omkara/Areion Group as well as through entry provider for

acquisition of NPA of the borrower company. As per Annexure-16 of the

statement of Mr. Ram Lal Nath, he has stated that the ledger ‘ECI-Ajay’ is

linked to stressed loan of M/s. ECI Engineering & Construction Co. Ltd.

and taken over by Omkara. In this ledger account, details demonstrates

that cash is received from the assessee groups and routed by Mr. Manish

Lalwani in its group entitles or arranges loan for these NPAs through

dummy entities in the form of accommodation entries, share capital, etc.

On perusal of the ledger of the ‘Personal Tally’ and other seized material,

it is found that there are several ledgers which are associated with

borrower group of Omkara-ARC. There is a nexus between this ledger

and the same has been established during the course of special audit on

the seized material and accordingly, the AO observed that the assessee

company has paid cash and the same has been used by Mr. Manish

Lalwani and re-routed in the form of share capital and loans for acquiring

assets of the assessee company through its sister concern M/s.

INTELLIRO Infratech Pvt. Ltd. Therefore, called upon the assessee to

explain ‘as to why’ addition should not be made towards cash payment as

unexplained expenditure u/s.69C of the Act. In response, the assessee submitted that, it has not made any cash payments as alleged in your

show cause notice. The assessee further submitted that on perusal of

‘ECI-Ajay’ Ledger account provided by Investigation, Mumbai, it only

refers to some of the payments made by the assessee company i.e. M/s.

ECI Engineering & Construction Co. Ltd. & M/s. INTELLIRO Infratech Pvt.

Ltd. Further, some of the entries are reflected in the above statement

either in cash or in cheque received or repaid doesn’t belong to either

M/s. ECI Engineering & Construction Co. Ltd. & M/s. INTELLIRO Infratech

Pvt. Ltd. The assessee further submitted that Omkara-ARC and their

group companies confirmed that they have not received any cash receipts

from M/s .ECI Engineering & Construction Co. Ltd. or its group companies

and also confirmed that books maintained by their group were pertaining

to their internal transaction and nothing to do with M/s. ECI Engineering &

Construction Co. Ltd. or its group concern.

12.1 The AO after considering the relevant submissions of the assessee

and also taking note of evidences found during the course of search,

observed that from the details submitted by the assessee, it is clear that

NPAs of the assessee company are acquired by Omkara-ARC and

payments were made by the assessee to Omkara-ARC. Therefore, the

arguments of the assessee that it has not made any transaction with Mr.

Manish Lalwani controlled entities is not acceptable. Further, as per the ledgers ‘Personal Tally’, it is clear that the aforesaid cash payments

belong to the borrower company i.e. M/s. ECI Engineering & Construction

Co. Ltd., which has been paid to Mr. Manish Lalwani and the entities

controlled by him such as Kalpataru Fincap Ltd., and Compact Capital

Ltd., for acquisition of its own NPA. Further, the assessee sister concern

M/s. INTELLIRO Infratech Pvt. Ltd., received ICDs and cash was

subsequently received back by the assessee company in the same

manner. Therefore, the AO opined that as per the ‘Personal Tally’ cash

entries has been recorded by suppressing two ‘zeros’ and therefore,

added two ‘zeros’ and arrived at total payment of Rs.3 Crs. and made

addition u/s.69C of the Act as unexplained expenditure.

12.2 Aggrieved by the assessement order, the assessee preferred an

appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee

submitted that the AO has made addition towards alleged cash payment

to Omkara Group for acquiring NPA assets of the assessee company

through its sister concern M/s. INTELLIRO Infratech Pvt. Ltd., on the basis

of evidences found during the course of search, in the case of Omkara

Group and statement recorded from few individuals without providing any

information to the assessee including their statement to cross-examine

the evidences and also cross-examine the statements given by the third

parties. The assessee further submitted that the assessee company doesn’t have any transactions with Mr. Manish Lalwani controlled entities

and the assessee is not aware ‘ECI-Ajay’ Ledger account copy. Any

records maintained by third party without the knowledge of the assessee

can’t be considered as the documents of the assessee and on the basis of

said documents found from the premises of the third party additions can’t

be made. Further, the AO has not shared the statements recorded from

Mr. Ram Lal Nath and Mr. Manish Lalwani for the assessee to confront

those people and examine the documents found during the course of

search, and without providing an opportunity of cross-examination makes

the proceedings nullity for violation of principles of natural justice. The

assessee had also submitted that Omkara group confirmed that no cash

transactions were taken place between the assessee company and

Lalwani Group. Therefore, assessee submitted that the additions made

by the AO should be deleted.

12.3 The Ld.CIT(A) after considering the relevant submissions of the

assessee and also taken note of relevant reasons given by the AO to

make addition of Rs.3 Crs. u/s.69C of the Act as unexplained expenditure

observed that, Mr. Ram Lal Nath in his sworn statement recorded during

the course of search, deposed that funds of the borrower company were

being channeled by Mr. Manish Lalwani through web of associated entitles

belonging to Omkara/Areion Group as well as through third party entry :: 19 :: operators for facilitating the purchase of stressed assets in the name of

group entities. Annexure-16 of his statement specifically referred to the

ledger ‘ECI-Ajay’ which has been linked to the stressed loan of assessee

company and taken over by Omkara-ARC. Further, analysis of Personal

ledger reveals that receipt of cash from assessee company and routed

through various entities in the guise of accommodation entries, share

capital loans and ICDS. The seized ledgers contain multiple references to

the borrower’s name confirming that the payments pertain to assessee

company. The ledger ‘ECI-Ajay’ in particular contains specific cash entries

aggregating to Rs.3.20 Crs., out of which Rs.3 Crs. pertains to AY 2019-

to Mr. Manish Lalwani for re-routing the funds to its sister concern for

acquiring stressed assets. Therefore, observed that there is clear evidence

for making cash payment and the same has not been explained by the

assessee. Further, arguments of the assessee that the AO has made

addition on the basis of the third party evidence without providing cross-

examination is also incorrect going by the facts of the case, because

addition is not founded merely on a third party statement but supported

by corroborative material found during the course of search. Therefore,

rejected the explanation of the assessee and sustained the additions

made by the AO towards unexplained cash payment to Mr. Manish

Lalwani in connection with payments made to Omkara-ARC for acquiring stressed assets of the assessee company through sister concern. The

Ld.CIT(A) also upheld the reasons given by the AO to compute tax @60%

by invoking provisions of Sec.115BBE of the Act and held that once

Section 69C is invoked where no explanation has been offered by the

assessee, then provisions of Sec.115BBE of the Act is applicable and the

AO has rightly computed tax as per law. Thus, rejected the explanation

of the assessee and upheld the additions made by the AO including

computation of tax liability.

12.4 Aggrieved by the order of the Ld.CIT(A), the assessee is now in

appeal before this Tribunal.

12.5 The Ld. Counsel for the assessee, Mr.Mohd Afzal, Advocate,

submitted that the Ld.CIT(A) erred in sustaining the additions made by

the AO towards alleged cash payment of Rs.3 Crs. u/s.69C of the Act,

without appreciating the fact that the additions made by the AO is not

based on any evidences found during the course of search, in the case of

the assessee and the AO has also failed to prove the entries contained in

‘Personal Tally’ accounts is recorded after suppressing two ‘zeros’. The

Ld. Counsel for the assessee further submitted that the AO made addition

only on the basis of statement of Mr. Ram Lal Nath and Mr. Manish

Lalwani, however, the AO has not provided the statement of the above

two persons along with materials, nor allowed the assessee to cross- examine the above two persons to ascertain correctness of statement.

Further, the AO had also not brought out the statement recorded from the

above two people in the assessment order to support his finding that they

have admitted recording entries in ‘Personal Tally’ by suppressing two

‘zeros’. Since there is no nexus between ‘Personal Tally’ account and

amounts recorded therein and suppression of two ‘zeros’, the AO ought

not to have added two ‘zeros’ to the amount recorded in the ‘Personal

Tally’ and arrived at total cash payment of Rs.3 Crs. for the year under

consideration. Since the AO has made additions only on the basis of

third-party evidence, coupled with statements of few individuals without

there being any supporting evidence, the additions made by the AO can’t

be upheld. In this regard, he relied upon the decision of the ITAT

Hyderabad Bench in the case of M.R. Estates, Hyderabad in ITA Nos.283

& 284/Hyd/2026 dated 30.04.2026. The assessee also relied upon the

decision the ITAT Hyderabad Bench in the case of Chennamaneni Mithun

Chand, in ITA Nos.979 & 980/Hyd/2026 order dated 15.05.2026.

12.6 The Ld. CIT-DR, on the other hand, supporting the order of the Ld.

CIT(A) submitted that the crux of the issue lies on search in the case of

Omkara group and material seized during the course of search.

Incriminating material seized during the course of search, shows cash

payment by the assessee company to Mr. Manish Lalwani and the same has been re-routed through entities controlled by Mr. Manish Lalwani in

the form of share capital, loans and ICDS for the purpose of acquiring

stressed assets of the assessee company through its sister concern M/s.

INTELLIRO Infratech Pvt. Ltd,. The ‘Personal Tally’ account found during

the course of search, clearly shows cash receipt and the same has been

recorded by suppressing two ‘zeros’ and the same has been admitted by

the employees of Omkara group. The special audit conducted in the case

of Omkara Group also proves nexus between payments made by the

assessee company to Omkara-ARC for acquiring stressed assets and

linking cash entries in ‘ECI-Ajay’ and ‘Personal Tally’ accounts to the

above payment. The assessee has not denied the transaction of

acquisition of assets of the assessee company from Omkara-ARC by its

sister concern M/s. INTELLIRO Infratech Pvt. Ltd. The statement of Ajay

Kaj reckoned during the course of proceedings is also not relevant for the

purpose of this addition, because, in the statement recorded from Ajay

Kaza, there is no reference to these materials. The AO after considering

relevant facts has rightly made addition towards cash payment u/s.69C of

the Act. The Ld.CIT(A) after considering relevant facts has rightly

sustained the additions made by the AO. Therefore, he submitted that

the additions made by the AO should be upheld.

:: 23 :: 12.7 We have heard both the parties, perused the materials available on

record and had gone through orders of the authorities below. We also

carefully gone through the relevant reasons given by the AO in light of

incriminating material found during the course of search, in the case of

Omkara-ARC and other relevant evidence for making addition of Rs.3 Crs.

u/s.69C of the Act as unexplained expenditure. The sole basis for the AO

to make addition is incriminating material in the form of ledger account of

‘ECI-Ajay’ and one ledger account ‘Personal Tally’ and statement of Mr.

Ram Lal Nath & Mr. Manish Lalwani. According to the AO, the ledger ‘ECI-

Ajay’ linked to stressed loan of the assessee company and taken over by

the Omkara Group coupled with ‘Personal Tally’ account clearly shows

cash payment by the assessee company to Mr. Manish Lalwani and the

same has been recorded after suppressing two ‘zeros’. The AO added two

‘zeros’ to the amount recorded in ‘Personal Tally’ and arrived at total cash

of Rs.3.20 Crs. for both the assessment years and has made addition of

Rs.3 Crs. for the assessment year under consideration. Except this, there

is no further evidence with the AO to allege that the assessee has made

cash payment to Mr. Manish Lalwani and the same has been routed

through various companies and money has come back to the assessee

company. Further, the AO made addition solely on the basis of evidence

found from the third-party premises and the statement recorded from few

individuals. However, the evidence found from the third party premises :: 24 :: does not show any cash payment by the assessee company to Mr. Manish

Lalwani as alleged by the AO. The evidence also not shown any light on

recording those entries by suppressing two ‘zeros’ as alleged by the AO.

The AO had taken four entries as per ‘Personal Tally’ account recorded on

different dates in the name of ‘ECI-Ajay’ and presumed that the assessee

has paid cash to Mr. Manish Lalwani and the same has been recorded by

surpassing two ‘zeros’. The AO failed to bring on record the statement of

Mr. Ram Lal Nath & Mr. Manish Lalwani in the assessment order to

ascertain correct facts as to what was stated by them in the statement

against the assessee. The AO had also not brought on record any

evidences to support his findings that ‘Personal Tally’ entries are recorded

by suppressing two ‘zeros’. In the absence of any link between the

entries recorded in tally data to the suppression of two ‘zeros’, it can be

safely concluded that the AO has simply assumed that the assessee has

paid cash of Rs.3 Crs. and the same has been recorded by suppressing

last two ‘zeros’. In our considered view, going by the findings of the AO, it

is undisputedly clear that except relying upon the two evidences found

from the premises of the third party and claims of statement of two

individuals, but the AO has not brought on record any other evidences

including statement of those two individuals to support his allegation that

there are cash payments from the assessee in connection with acquisition

of stressed assets through its sister concern M/s. INTELLIRO Infratech Pvt. Ltd. This fact is further strengthened from the confirmation filed by

Omkara-ARC, where they have denied cash receipts from the assessee

company and further stated that whatever accorded in their books of

accounts is their internal transactions and nothing to do with the assessee

company. This fact is also further strengthened by the fact that the Ajay

Kaza in his statement recorded u/s.132(4) of the Act on 08.12.2021

clearly denied the documents found in the case of search of Omkara-ARC

and also denied any kind of cash payment to Mr. Manish Lalwani. From

the above, it is clear that the additions made by the AO towards alleged

cash payment of Rs.3 Crs. is nothing but a clear case of addition on the

basis of assumptions/presumptions, but not on the basis of any evidences

which suggest cash payment of Rs.3 Crs. by the assessee company.

12.8 We further noted that the AO made additions on the basis of third

party evidence and shifted the burden to the assessee to prove the

negative. It is a well settled principle of law by the decision of various

Courts that for documents found from the premises of third party, the

rebuttable presumption u/s.132(4A) r.w.s.292C is not applicable. This

principle is supported by the decision of Gujarat High Court in the case of

PCIT v. Gaurang Bhai Pramod Chandra Upadhyay (R/Tax Appeal No.98 of

2020 & others dated 25.02.2020). Similar view has been taken by the

Hon’ble Patna High Court in the case of Dharmaraj Prasad Bibhuti v. ITAT, Patna reported in [2019] 109 taxmann.com 388. The sum and substance

of the ratio laid down by various Courts is that rebuttable presumption

contained u/s.132(4A) r.w.s.292C can’t be pressed into service when the

documents relied upon by the AO are not found from the position of the

assessee. In the present case, there is no dispute with regard to the fact

that the AO has relied upon the documents found from the search

proceedings in case of Omkara-ARC for the purpose of addition and

therefore, in our considered view in the absence of corroborative

evidence, the additions made by the AO only on the basis of third party

evidences can’t be upheld.

12.9 Coming back to another aspect of the issue. The AO made addition

on the basis of third party evidence, coupled with statement recorded

from Mr. Ram Lal Nath & Mr. Manish Lalwani and claimed that the above

two parties have admitted in their sworn statement recorded u/s.132(4)

of the Act, during the course of search, that the assessee company has

paid cash and the same has been routed through various companies and

entities controlled by Mr. Manish Lalwani for the purpose of acquisition of

stressed assets of the assessee company through assessee sister concern

M/s. INTELLIRO Infratech Pvt. Ltd. Although, the AO has come to the

above conclusion, but going by the reasons given by the AO in the

assessement order, except two piece of evidences i.e. (i) ledger account :: 27 :: ‘ECI-Ajay’ and another ‘Personal Tally’ account which are no way

connected to the assessee company and cash payments, but there is no

evidence with the AO to support his findings that there are cash payments

from the assessee company to Mr. Manish Lalwani. The AO had also not

brought on record the statement of Mr. Manish Lalwani in the

assessement order. Since the statement of Mr. Manish Lalwani is not part

of the assessement records and the AO has not relied upon the

statement, in our considered view, the additions made by the AO on the

basis of two piece of evidence found from the premise of third party

cannot’ be sustained. Further, assuming for a moment, there is a

statement from Mr. Ram Lal Nath & Mr. Manish Lalwani, but the fact

remains that the statements of above two persons have not been given to

the assessee company for its rebuttable and also the AO denied the

opportunity of cross-examination of the above two persons, even though,

the assessee has made a specific request for cross-examination of the

above two persons. In the absence of providing the statement of the

person and denying the opportunities of cross-examination makes the

assessment invalid for violation of principles of natural justice. This

principle is supported by the decision of the Hon’ble Supreme Court in the case of CCE vs Andaman Timber Industries reported in 281 CTR 241 (SC),

where it has been clearly held that denial of cross-examination of the

persons who gave the statement against the assessee makes the assessement invalid for want of principles of natural justice. Therefore,

on this count also the additions made by the AO can’t be upheld.

12.10 The assessee has relied upon the decision of the ITAT,

Hyderabad Bench in the case of M.R.Estates, Hyderabad in ITA Nos.283

& 284/Hyd/2026, wherein the co-ordinate Bench of this Tribunal under

identical set of facts held as under:

:: 29 :: 12.11 In this view of the matter and considering the facts and

circumstances of the case, we are of the considered view that the

additions made by the AO based on third party evidences and statement

of two persons, without any corroborative evidences can’t be sustained.

Further, the AO has made additions on the basis of statement of third

parties without providing an opportunity of cross-examination to the

assessee contrary to the principles of natural justice. Further, the AO had

also not proved suppression of two ‘zeros’ while arriving at total cash

payment of Rs.3 Crs. by adding two ‘zeros’ to the four entries recorded in

the ‘Personal Tally’ claimed to have been found from the search

proceedings of Omkara-ARC and related entities. Therefore, in our

considered view, for all these reasons, the additions made by the AO

towards cash payment of Rs.3 Crs. u/s.69C of the Act, cannot be

sustained. Thus, we direct the AO to delete the addition of Rs.3 Crs. Made

u/s.69C of the Act.

is allowed.

ITA No.1840/Hyd/2025

Nos.3 & 4 of the assessee’s appeal is addition of Rs.20 lakhs u/s.69C of

the Act towards alleged cash payment to Mr. Manish Lalwani for the :: 30 :: purpose of acquiring stressed assets of the assessee company through its

sister concern M/s. INTELLIRO Infratech Pvt. Ltd. The AO made addition

on the basis of evidence found from the third-party premises in the

course of search proceedings of Omkara-ARC and related entities and

coupled with statement recorded from Mr. Ram Lal Nath and Mr. Manish

Lalwani and claimed that the assessee had paid cash payment of Rs.

20,00,000/- and the same has been recorded by suppressing two ‘zeros’.

We find that an identical issue has been considered in the assessee’s own

case for AY 2019-20 in ITA No.1839/Hyd/2025. But for figures, the facts

and issues are exactly identical to the issue, which we had considered in

ITA No.1839/Hyd/2025 for AY 2019-20. The reasons given by us, in

preceding paragraphs No. 12 to 12.11 shall mutatis mutandis apply to

this appeal, as well. Therefore, for similar reasons, we delete the

additions made by the AO towards alleged cash payment of Rs.20 lakhs

u/s.69C of the Act.

Nos.5 & 6 of the assessee’s appeal is addition of Rs.2,17,78,532/-

towards alleged cash payment in relation to Security Receipts (SRs).

During the course of assessment proceedings, the AO noted that an excel

file,namely Polus Fund was found in the seized Pendrive which contains

calculation of accounts routed to Areion Scheme-I, Areion Scheme-II and

related expenses thereof. On analysis of the aforesaid excel file along with :: 31 :: ‘Personal Tally’, it is noted that certain transactions reflecting in the said

excel file are also recorded in the ‘Personal Tally’. On further analysis, it

was found that the aforesaid notings in excel sheet are found to record in

the ledger account of Dinesh DB_6 & 4 and also in the ledger account

Pranay Others. The AO has reproduced relevant ledger accounts and

observed that Rs.9.5 Crs. was paid in cash. The AO Further observed

that further analysis of above evidences, it was linked one payment of

Rs.2,17,78,532/- to the assessee NPA account towards sale of 20700 SRs

@ 1052.103 each of ASREC PS13. Therefore, the AO observed that cash

transaction reflected in the ‘Personal Tally’ in the ledger accounts of

Dinesh_6 & 4 and Pranay Others also reflected in the excel-sheet namely

MAS from where funds are transferred to Polus fund. Further, the

assessee admitted that presently Polus fund held 20700 SRs @ 1052.103

each of ASREC amounting to Rs.2,17,78,532/-. Therefore, observed that

amount received in cash from Dinesh and Pranay related to purchase of

SRs of ASREC which is a NPA of the assessee company acquired by

ASREC-ARC. Therefore, the amount of Rs.2,17,78,532/- has been treated

as unexplained expenditure u/s.69C of the Act.

15.1 The Ld. Counsel for the assessee submitted that the AO has made

addition of Rs.2,17,78,532/- solely on the basis of suspicion without any

evidences which is clearly evident from reasons given by the AO in the

assessment order where the AO not even able to link those entries to the :: 32 :: assessee company and also failed to make out a case of cash payments.

Further, 20700 SRs is owned by Polus Fund and if at all any SRs is

purchased and sold which is issued by ARC and the assessee can’t

purchase the SRs. Therefore, the allegation of the AO that the assessee

has made cash payment for purchase of SRs is purely a guess work

without any evidence. Therefore, he submitted that the additions made

by the AO may be deleted.

15.2 The Ld.CIT-DR, on the other hand, submitted that amount has been

quantified as per ledger account. The AO has linked purchase of SRs to

the assessee company transactions and ARC. The AO had also linked

cash payments recorded in excel sheet. The assessee has not explained

the details and thus, the AO has rightly treated 20700 SRs as non-

genuine entry and added unexplained expenditure u/s.69C of the Act.

Therefore, he submitted that the additions made by the AO should be

upheld.

15.3 We have heard both the parties, perused the materials available on

record and had gone through orders of the authorities below. We also

carefully considered reasons given by the AO for making addition of

Rs.2,17,78,532/- u/s.69C of the Act. From the findings of the AO, it is

difficult to ascertain what is the nature of evidence considered by the AO

for the purpose of addition. Further, the evidence considered by the AO is

no way connected to the assessee and its business affairs. Therefore, :: 33 :: from the evidence considered by the AO for the purpose of addition, it is

not ascertainable as to what is the nature of payment and how it is

related to assessee. Therefore, the allegation of the AO that the assessee

has made cash payments of Rs.2,17,78,532/- for the purpose of issue of

SRs and the same has not been explained is incorrect. Further, as

observed by the AO himself, the SRs are owned by Polus fund and issued

by ARC. Therefore, the allegation of the AO that for issuing SRs, the

assessee has paid cash and the same has been taken in the name of

Polus Fund is a clear case of assumptions without any evidence. Since,

the AO has not proved the expenditure incurred by the assessee for

Rs.2,17,78,532/- for the purpose of issue of SRs, in our considered view,

application of Section 69C of the Act is incorrect. In our considered viw,

the provisions of Sec.69C is applicable only in a case where the assessee

incurred any expenditure and not recorded in the books of accounts and

the explanation offered by the assessee to explain the source for the said

expenditure is not satisfactory. In the present case, first of all, there is no

evidence with the AO to allege that the assessee has incurred expenditure

of Rs.2,17,78,532/- and secondly, the AO has not made out a case for

application of Section 69C of the Act. Therefore, in our considered view,

the additions made by the AO for Rs.2,17,78,532/- u/s.69C of the Act

can’t be sustained. Thus, we direct the AO to delete the addition of

Rs.2,17,78,532/- made u/s.69C of the Act.

:: 34 :: 16. In the result, appeal filed by the assessee in ITA No.1840/Hyd/2025

is allowed.

ITA No.1834 & 1835/Hyd/2025- M/s. INTELLIRO Infratech Pvt.

Ltd.

two appeals is additions made by the AO towards estimated commission

income of Rs.6 lakhs @ 2% of alleged cash payment of Rs.3 Crs. made by

M/s.ECI Engineering & Construction Co. Ltd., to Mr. Manish Lalwani for

the purpose of acquiring stressed assets of M/s.ECI Engineering &

Construction Co. Ltd., by the assessee company. The AO made addition

of Rs.6 lakhs being 2% commission on Rs.3 Crs. on the ground that the

assessee company facilitated the transaction of cash payment by ECI to

Mr. Manish Lalwani. We find that the issue of alleged cash payment by

ECI Engineering & Construction Co Ltd to Mr. Manish Lalwani has been

considered by us in the case of M/s.ECI Engineering & Construction Co.

Ltd., in ITA No.1839/Hyd/2025 & ITA No.1840/Hyd/2025 for AYs 2019-20

& 2022-23 and after considering relevant facts, we held that the AO has

failed to prove cash payment of Rs.3 Crs, & Rs.20 lakhs respectively for

AY 2019-20 & 2022-23 by ECI to Mr. Manish Lalwani and thus, the

additions made by the AO towards alleged cash payment as unexplained

expenditure u/s.69C of the Act has been deleted for both assessment

years. Since, the additions made by the AO towards alleged cash payment :: 35 :: has been deleted by the Tribunal in the case of ECI Engineering &

Construction Co Ltd, in our considered view, the additions made by the

AO towards estimated commission income of 2% on alleged cash

payment can’t be sustained. Therefore, we direct the AO to delete the

additions made towards estimated commission income of Rs.6 lakhs &

Rs.40,000/- respectively for AYs 2019-20 & 2022-23.

are allowed.

ITA No.1836/Hyd/2025

appeal filed by the assessee is additions made by the AO towards

disallowance of purchases u/s.40(a)(ia) of the Act for non-deduction of

TDS u/s.194Q of the Act. The Ld. Counsel for the assessee submitted

that the AO has made addition of Rs.7,36,43,035/- being 30% of total

purchase of Rs.24,54,86,782/- being purchases exceeding Rs.50 lakhs on

which TDS u/s.194Q of the Act has not been deducted. It was the

arguments of the Ld. Counsel for the assessee that although, the

assessee has not deducted TDS on purchases from the parties in excess

of Rs.50 lakhs as required u/s.194Q of the Act, but fact remains that the

recipient of the payments towards purchases have unaccounted amount

received from the assessee company and paid relevant taxes applicable

on the said payment and also furnished relevant Form 26A as required :: 36 :: under Rule 31ACB of the Income Tax Rules, 1962 along with Certificate

from the Chartered Accountant and further, above certificates were not

furnished before the AO. Therefore, the matter may be remitted back to

the file of the AO to verify the additional evidence filed by the assessee

and to decide the issue as per law.

19.1 The Ld.CIT-DR, on the other hand, submitted that, since the

assessee has filed certain additional evidences for the first time before the

Tribunal and the additional evidences were not filed before the AO, the

matter may be remitted back to the file of the AO for verification and to

decide the issue as per law.

19.2 We have heard both the parties, perused the materials available on

record and had gone through orders of the authorities below. There is no

dispute with regard to the fact that the assessee has failed to deduct TDS

on purchases from parties exceeding Rs.50 lakhs required u/s.194Q of the

Act. Therefore, the AO has disallowed 30% purchases u/s.40(a)(ia) of the

Act for non-deduction of TDS u/s.194Q of the Act. It is the only

submission of the Ld. Counsel for the assessee that the assessee has

furnished additional evidences in the form of Form 26A as required under

Rule 31ACB of the IT Rules, 1962 along with Certificate from the

Chartered Accountant, where the Accountant has certified the fact that

the recipients of the purchases have accounted the payment received

from the assessee and also paid relevant taxes. The assessee further claimed that the additional evidences were filed for the first time before

the Tribunal and the same was not filed before the AO. Since the

assessee has filed additional evidences in the form of Form 26A as

required under Rule 31ACB of the IT Rules, in our considered view, going

by the provisions of Sec.201(1) of the Act, once the recipient paid the

taxes on income pertains to amount received by the assessee, then the

assessee company can’t be held to be assessee in default and payment

made by the assessee company can’t be disallowed u/s.40(a)(ia) of the

Act for non-deduction of TDS u/s.194Q of the Act. However, facts

remains that, since the assessee has filed additional evidences for the

first time before the Tribunal, we admit the additional evidences filed by

the assessee in the form of Form 26A along with Annexure and remit the

issue back to the file of the AO as requested by the Ld. Counsel for the

assessee and supported by the Ld. CIT-DR/Sr.AR. The AO is directed to

verify the issue in light of additional evidences filed by the assessee and

decide the issue as per law.

is allowed for statistical purposes.

:: 38 :: 21. In the result, appeals filed by the assessee in ITA

Nos.1838/Hyd/2025 for AY 2018-19 & ITA No.1836/Hyd/2025 for AY

2023-24 are allowed for statistical purposes & appeals filed by the

assessee in ITA Nos.1839/Hyd/2025 for AY 2019-20 & ITA

No.1840/Hyd/2025 for AY 2022-23 & ITA No.1834/Hyd/2025 for AY

2019-20 & ITA No.1835/Hyd/2025 for AY 2022-23 are allowed.

Order pronounced on the 24th day of June, 2026, in Hyderabad.

Sd/- Sd/- (िवजय पाल राव) (मंजूनाथा. जी) (VIJAY PAL RAO) (MANJUNATHA.G) उपा�� /VICE-PRESIDENT लेखा सद�/ACCOUNTANT MEMBER

Hyderabad, dated 24.06.2026. TLN आदेशकी �ितिलिप अ�ेिषत/ Copy of the order forwarded to: िनधा�रती/The 1 : M/s. ECI Engineering & Construction Co. Ltd., Plot No.A12 & 13, ECI House, Panchavati Assessee Township, Manikonda, Rajendra Nagar, Hyderabad-500 089.

M/s. INTELLIRO Infratech Pvt. Ltd., Plot No.70, Anshu Colours, Road No.1, Beside TV5, Jubilee Hills, Hyderabad-500 033. राज�/ The Revenue 2 : The DCIT, Central Circle-2(3), Hyderabad. 3 The Principal Commissioner of Income Tax, Central Circle, Hyderabad. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT Hyderabad. 4 गाड�फ़ाईल / Guard file 5

आदेशानुसार / BY ORDER

Digitally signed by TUMMALACHARLA TUMMALACHARLA LAKSHMI NARAYANA DN: cn=TUMMALACHARLA LAKSHMI LAKSHMI NARAYANA, c=IN, o=INCOME TAX APPELLATE TRIBUNAL, ou=INCOME TAX NARAYANA APPELLATE TRIBUNAL, CHENNAI BENCH Date: 2026.06.24 16:54:11 +05'30'

Sr. Private Secretary ITAT, Hyderabad