P VENKATESWARA RAO,HYDERABAD vs. ACIT., CENTRAL CIRCLE- 2(2), HYDERABAD

The assessee has, more or less, raised common grounds of appeal for both the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the A.Y. 2015-16 in IT(SS)A No.822/Hyd/22025 are re-produced as under:

The brief facts of the case are that, the assessee is a partnership firm engaged in the business of execution of civil contract works, filed its original return of income for AY 2015-16 on 30.10.2015 declaring total income of Rs. 1,41,15,360/-. A search and seizure operation under Section 132 of the Income Tax Act, was initiated in the case of M/s. Equus Infra Projects Pvt. Ltd., on 06.02.2020 and during the course of search, some incriminating documents were seized. During the course of search, in the case of M/s. Equus Infra Projects Pvt. Ltd., one Excel Sheet named “Funds received from ROB, Nandyala project from 01.04.2013” containing the details of funds received from M/s. PVR Construction Company in relation to project ROB, Nandyala were found, which contains a cash payment of Rs. 25,00,000/- on 27.01.2015 towards mobilization advance. Further, cash payment of Rs. 20,00,000/- on 10.02.2015 (Shri M.B. Srinivasula Reddy) was also found. Based on the incriminating material found during the course of search, proceedings under Section 153C of the Act, has been initiated after recording satisfaction that the documents found during the course of search have a bearing on the determination of total income of the assessee and accordingly, notice under Section 153C of the Act, has been issued. In response to notice under Section 153C of the Act, the assessee filed return of income on 10.04.2023, declaring total income of Rs.89,24,520/-.

During the course of assessment proceedings, the A.O. called upon the assessee to explain the cash payments made to M/s. Equus Infra Projects Pvt. Ltd., in connection with the ROB, Nandyala project. In response, the assessee submitted that it has not paid any cash payment in respect of ROB, Nandyala project and it has nothing to do with the documents found in the possession of M/s. Equus Infra Projects Pvt. Ltd. The assessee had also requested the A.O. to provide an opportunity for cross- examination. The A.O., after considering the relevant submissions of the assessee and also taking note of the documents found during the course of search, observed that, as seen from the P. Venkateswara Rao

The Ld. CIT(A), after considering relevant submissions of the assessee and also taking note of the documents found during the course of search, observed that the documents found during the course of search clearly show cash payments in respect of ROB, Nandyala project during the financial year 2014-15 and the A.O. of the searched person has clearly established that the ROB, Nandyala project has been sub-contracted by the assessee to M/s. Equus Infra Projects Pvt. Ltd. Further, the other transactions referred to in the Excel Sheet are matching with the books of accounts of the assessee and therefore, the arguments of the assessee that it has not paid any amount in cash and in the documents found during the course of search, the name of the assessee does not appear and thus, on the basis of the said document, additions cannot be made is devoid of merit and cannot be accepted. The Ld. CIT(A) also rejected the arguments of the assessee in light of violation of principles of natural justice and held that the A.O. has validly initiated Section 153C proceedings on the basis of documents found during the course of search which clearly show that there is undisclosed income of the assessee for the assessment year under consideration. Therefore, the Ld. CIT(A) held that there is no merit in the arguments of the assessee and thus, rejected the explanation of the assessee and sustained the additions made by the A.O.

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

The learned counsel for the assessee, Shri A.V. Raghuram, Advocate, referring to the satisfaction note recorded by the A.O., submitted that, the A.O. has recorded a common satisfaction note for both the assessment years and from the satisfaction note recorded by the A.O., it is not discernible from the said satisfaction note any kind of undisclosed income of the assessee for the year under consideration. The learned counsel for the assessee further submitted that, although the documents found in the possession of the third party do not show any proper identification or even reference to the assessee firm, A.O. on the basis of business connection with the assessee and the subcontractor inferred that the assessee has made cash payments even though there is no corroborative evidence to substantiate the claim of the A.O. The learned counsel for the assessee further submitted that the assessment has been initiated even without carrying out any inquiry by issuing notice under Section 133(6) or summons under Section 131 of the Act, to ascertain the correctness of the documents found in the possession of a third party and even the A.O. failed to give an opportunity to cross- examine the third party to the assessee even though the assessee has specifically asked for cross-examination of the third party. Therefore, he submitted that the additions made by the A.O. on P. Venkateswara Rao

The learned Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of Ld. CIT(A), submitted that the documents found during the course of search in the case of M/s. Equus Infra Projects Pvt. Ltd., clearly show undisclosed income of the assessee for the year under consideration, where the A.O. has corroborated the payments with reference to regular books of accounts maintained by the assessee with reference to ROB, Nandyala works. Although the assessee claims that the documents were found in the possession of a third party and the presumption contained in Section 292C of the Act, is not applicable, but fact remains that once the document is further supported by corroborative evidence, then there is no need to go for further verification, including recording statement of the assessee and providing cross-examination. The A.O., after considering the relevant facts, has rightly made addition towards cash payments under Section 69C of the Act. The Ld. CIT(A), after considering relevant facts, has rightly sustained the addition made by the A.O. Therefore, he submitted that, the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant satisfaction note recorded by the A.O. under Section 153C of the Act, in light of incriminating material found during the course of search in the case of M/s. Equus Infra Projects Pvt. Ltd. Admittedly, during the course of search, an Excel Sheet was found in the possession of M/s. Equus Infra Projects Pvt. Ltd., which contains certain details of amounts received with reference to ROB project, Nandyala. The above document shows two cash payments, one for mobilization advance of Rs. 25,00,000/- in cash and another payment of Rs. 20,00,000/- in cash. The A.O. made additions in respect of the above two payments aggregating to Rs. 45,00,000/- under Section 69C of the Act, as unexplained expenditure on the ground that the cash payment made by the assessee towards ROB, Nandyala project is not recorded in the regular books of accounts of the assessee and the assessee has not offered any explanation. According to the A.O., there is a nexus between cash payments and the project ROB, Nandyala and therefore, observed that the above two payments were outside the books of accounts and since the assessee has not explained the nature and source, the same has been treated as unexplained expenditure and brought to tax under Section 69C of the Income Tax Act, 1961. 11. We have gone through the relevant satisfaction note recorded by the A.O. in light of Excel Sheet found during the course of search, and we found that, the above document does not show the name of the assessee or its business except referring to ROB, Nandyala project and funds received from 01.04.2013 relevant to the financial year 2014-15. The A.O. on the basis of said Excel Sheet has drawn an inference that the assessee company has awarded subcontract work to M/s. Equus Infra Projects Pvt. Ltd., for construction of ROB, Nandyala and towards the above project, the assessee has made various payments including two cash payments aggregating to Rs. 45,00,000/- and the same is not recorded in the books of accounts of the assessee. Admittedly, the document does not show any name of the assessee, nor was it in the hand-writing of the assessee nor found in the possession of the assessee. Further, the above document was found in the possession of a third party. Once the documents are found from a third party, it is for the A.O. to corroborate the said document with further evidences by conducting enquiries and ascertain the nature of transaction with the other party so as to reach the conclusion that the above payment represents the undisclosed income of the assessee. In the present case, the A.O. without carrying out any further enquiries has reached a conclusion that the document found during the course of search is having a bearing on determination of total income of the assessee for the assessment year under consideration, even though the said document does not show any reference to the assessee or its business. Further, the A.O. has made additions which is contrary to the principles of natural justice, which is evident from the fact that although the assessee has sought cross- examination of the third party from whose possession the documents were found, but the A.O. has made additions without providing the opportunity of cross-examination to the assessee in violation of principles of natural justice. Therefore, in our considered view, the addition made by the A.O. is contrary to the principles of natural justice cannot be upheld, as held by the P. Venkateswara Rao

In the present case, undisputedly, there is no corroborative evidences to substantiate the findings of the A.O. in light of the incriminating material found during the course of search in the possession of third party, that the assessee has made cash payments. Further, the assessee has categorically denied having paid any cash in connection with ROB, Nandyala project and in P. Venkateswara Rao

The brief facts of the case are that, the assessee is a partnership firm engaged in the business of execution of civil contract works, filed its original return of income for AY 2020-21 on 14.02.2021 declaring total income of Rs. 89,24,520/-. A search and seizure operation under Section 132 of the Act, was initiated in the case of M/s. Equus Infra Projects Pvt. Ltd., on 06.02.2020. During the course of search in the case of M/s. Equus Infra Projects Pvt. Ltd., a WhatsApp message was downloaded from the mobile phone data of Sri P. Shiva Reddy, Director of M/s. Equus Infra Projects Pvt. Ltd., and was seized as Annexure A-10, which contains certain jottings. During the course of search, while recording statement under Section 132(4) of the Act, dated 06.02.2020, Shri P. Shiva Reddy stated that it was a reply to message from Sri P. Venkateswara Rao and also acknowledged that the above said message was sent by him to Shri P. Venkateswara Rao in connection with a project in Parbhani District, Maharashtra for construction of a Railway Over Bridge. He further explained the WhatsApp message and submitted that, it is only a reply to his message confirming availability of funds for execution of above work, including the availability of funds in bank and cash in hand, however, it does not relate to any transaction of payment either in cash or through bank.

Consequent to the search, proceedings under Section 153C of the Act, have been initiated and during the course of assessment proceedings, the A.O., after considering the relevant submissions of the assessee, observed that the WhatsApp message clearly mentioned that an amount of Rs. 1,00,00,000/- was paid by Sri P. Venkateswara Rao to M/s. Equus Infra Projects Pvt. Ltd., on 07.10.2019. Further, the above seized data was taken from the backup of the mobile data of Sri P. Shiva Reddy, Director of M/s. Equus Infra Projects Pvt. Ltd., as per Annexure A- 10 and the above payment has been made in connection with the Railway Over Bridge work in Maharashtra. Therefore, the A.O. rejected the explanation of the assessee and made an addition of Rs. 1,00,00,000/- under Section 69C of the Act, and taxed under Section 115BBE of the Income Tax Act, 1961. 16. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A) and once again challenged the addition made by the A.O. towards unexplained expenditure on the basis of a WhatsApp message and argued that a standalone WhatsApp message cannot constitute valid evidence without any P. Venkateswara Rao

The Ld. CIT(A), after considering the submissions of the assessee and also taking note of the incriminating material found during the course of search, observed that the WhatsApp communication downloaded from the mobile phone data of Shri P. Shiva Reddy clearly shows certain cash transactions, including a cash payment of Rs. 1,00,00,000/-. The assessee had also failed to provide any documentary evidence disproving the cash transactions. Therefore, the Ld. CIT(A) observed that the evidence found during the course of search clearly shows cash transactions between the assessee and M/s. Equus Infra Projects Pvt. Ltd., and the source of the said document has not been explained by the assessee. Therefore, the Ld. CIT(A) observed that there is no error in the reasons given by the A.O. to make addition under P. Venkateswara Rao

The learned counsel for the assessee submitted that the Ld. CIT(A) erred in sustaining additions made towards unexplained expenditure under Section 69C of the Act, on the basis of WhatsApp message, even though Sri P. Shiva Reddy categorically denied any cash transactions between assessee and M/s. Equus Infra Projects Pvt. Ltd., and the above message is only a reply to the message sent by Sri P. Venkateswara Rao in connection with the work and availability of funds for executing the work. The learned counsel for the assessee further submitted that the additions cannot be made solely on the basis of WhatsApp message without any corroborative evidence, because electronic evidences cannot constitute valid evidence unless it is supported by any corroborative evidence, as held by the Hon'ble Supreme Further, the A.O. had not provided opportunity for cross- examination, even though the assessee had specifically asked for cross-examination of the third party before making addition.

The learned Senior A.R. for the Revenue, on the other hand, supporting the order of Ld. CIT(A), submitted that the WhatsApp message downloaded from mobile phone data of Sri P. Shiva Reddy, Director of M/s. Equus Infra Projects Pvt. Ltd., clearly shows the cash transaction of Rs. 1,00,00,000/- by the assessee in connection with the Railway Over Bridge at Parbhani District, Maharashtra. The assessee could not furnish any explanation with regard to the above payment and has also not explained the source. Therefore, the A.O. has rightly made addition and the Ld. CIT(A), after considering relevant facts, has rightly sustained the addition made by the A.O.

We have heard both parties, perused the material available on record and had gone thorough the orders of the authorities below. Admittedly, the A.O. made addition of Rs. 1,00,00,000/- under Section 69C of the Income-tax Act, on the basis of WhatsApp message downloaded from the mobile phone data of Sri P. Shiva Reddy, Director of M/s. Equus Infra Projects Pvt. Ltd. Except WhatsApp message, no other corroborative evidence is available with the A.O. to support the transactions. It is a well-settled principle of law laid down by the decision of Hon'ble Supreme 1,00,00,000/- in cash to M/s. M/s. Equus Infra Projects Pvt. Ltd., in connection with ROB Project at Parbhani District, Maharashtra. Further, the assessee, right from the beginning denied having paid any cash and in fact, the subcontractor has also filed a confirmation and stated that he has not received any cash as claimed by the A.O. and the message is only a reply to the inquiry from Shri P. Venktateswara Rao in connection with the progress of the work and in this connection, he has stated that he has already spent some amount for the work and was also having sufficient funds to carry out the work. From the evidence considered by the A.O. for the purpose of addition, in our considered view, there is P. Venkateswara Rao

To sum up, both the appeals of the assessee are allowed.

The Principal Commissioner of Income Tax (Central), Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file