S R CONSTRUCTIONS,BANGALORE vs. DCIT, CENTRAL CIRCLE-2(2), BENGALURU

4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

3.2 Grounds raised in 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in sustaining the disallowance made u/s. 40A[3] to the extent of Rs. 1,86,85,221/- out of the 637/Bang/2025 769/Bang/2025 Page 3 of 60 original disallowance of Rs. 2,72,00,000/- under the facts and in the circumstances of the appellant’s case.

3. The learned CIT[A] is not justified in partially sustaining addition to the extent of Rs. 3,90,56,482/- from out of the original addition of Rs. 16,78,53,449/- made as the alleged bogus expenditure paid to sub-contractors under the facts and in the circumstances of the appellant’s case. 3.1 The learned CIT[A] failed to appreciate that the addition sustained on an erroneous impression of the facts and that the addition made on the basis of suspicion and surmise, assumptions and presumptions and hence, the same ought to have been deleted in full.

4. Without prejudice to the above, the disallowances sustained by the learned CIT[A] is excessive and liable to be reduced substantially.

1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in sustaining the disallowance made u/s. 40A[3] to the extent of Rs. 1,86,85,221/- out of the original disallowance of Rs. 2,72,00,000/- under the facts and in the circumstances of the appellant’s case.

3. The learned CIT[A] is not justified in partially sustaining addition to the extent of Rs. 10,54,16,443/- from out of the original addition of Rs. 17,06,53,449/- made as the alleged bogus expenditure paid to sub-contractors under the facts and in the circumstances of the appellant’s case. 3.1 The learned CIT[A] failed to appreciate that the addition sustained on an erroneous impression of the facts and that the addition made on the basis of suspicion and surmise, assumptions and presumptions and hence, the same ought to have been deleted in full.

4. Without prejudice to the above, the learned CIT[A] ought to have deleted the addition out of the alleged bogus sub-contract payments , 637/Bang/2025 769/Bang/2025 Page 4 of 60 of Rs. 5,90,17,292/- instead of Rs. 5,75,71,834/- deleted by him consistent with the deletion of the addition made towards sub- contractors for whom no signed cheque books were not found at the time of search.

5. Without prejudice to the above, the disallowances sustained by the learned CIT[A] is excessive and liable to be reduced substantially.

6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

3.4 Grounds raised in are as under:-

1. Whether on the facts and circumstances of the case and in law, the Id. CIT(A) has erred in not considering the statement recorded under section 132(4) on oath as the same has evidentiary value and is permitted to be used in evidence.

2. Whether on the facts and circumstances of the case and law, the Id. CIT(A) has erred in deleting addition on account of bogus expenditure without considering the fact that the key employees of the assessee firm have admitted that there was no proper documentation, and hills were made afterwards.

3. Whether on the facts and circumstances of the case and law, the Id. CIT(A) has erred in deleting the additions made on account of bogus expenditure as it is a settled position of law that the admission made by the assessee in his statement recorded under oath is an important piece of evidence and refrained from making any further enquiries into the matter as held by Hon'ble Supreme Court in the case of Awadh Kishore DassVsRamGopal AIR 1979 SC 861, Hon'ble Delhi High Court in the caseRs. 14526319 of PCIT Vs Avinash Kumar Setia(2017) (Delhi), Hon'ble Chhattisgarh High Court in the case of ACTT Vs Hukum Chand Jain(2010), Kantilal C. Shah Vs ACIT(20I1) 133ITD 57 (Ahmedabad), PCIT Vs Shri Roshan Lal Sancheti in D.B.ETA No. 47/2018 vide its judgement dated 30.10.2018, the Hon'ble Rajasthan High Court and Hon'ble High Court of Kerala in the case of Commissioner of Income Tax Vs 0 Abdul Razack in(2012) 20 taxmann.com 48(Ker). , 637/Bang/2025 769/Bang/2025 Page 5 of 60 3.5 Grounds raised in are as under:-

1. Whether on the facts and circumstances of the case and in law, the Id. CIT(A) has erred in not considering the statement recorded under section 132(4) on oath as the same has evidentiary value and is permitted to be used in evidence.

2. Whether on the facts and circumstances of the case and law, the Id. CIT(A) has erred in deleting addition on account of bogus expenditure without considering the fact that the key employees of the assessee firm have admitted that there was no proper documentation, and bills were made afterwards.

3. Whether on the facts and circumstances of the case and law, the Id. CIT(A) has erred in deleting addition of cash expenditure of Rs. 50,61,988/- by considering that these are covered under Rule 6DD of the IT Rule without substantiating with documentary evidences.

4. Whether on the facts and circumstances of the case and law, the Id. CIT(A) has erred in deleting the additions made on account of bogus expenditure as it is a settled position of law that the admission made by the assessee in his statement recorded under oath is an important piece of evidence and refrained from making any further enquiries into the matter as held by Hon'ble Supreme Court in the case of Awadh Kishore Dassvs Ram Gopal AIR 1979 SC 861, Hon'ble Delhi High Court in the case of PCITvsAvinash Kumar Setia [2017] (Delhi), Hon'ble Chattisgarh High Court in the case of ACIT vs Hukum Chand Jain [2010], Kantilal C. Shah vs ACIT [2011] 133 ITD 57 (Ahmedabad), PCIT v Shri Roshan Lal Sancheti in D.B. vide its judgement dated 30.10.2018, the Hon'ble Rajasthan High Court and Hon'ble High Court of Kerala in the case of Commissioner of Income Tax v Abdul Razack in [2012] 20 taxmann.com 48 (Ker.)

, 637/Bang/2025 769/Bang/2025 Page 6 of 60 5. Briefly stated the facts of the case are that search and seizure action under section 132 of the Act was conducted in the case of assessee SR Constructions (hereinafter referred as SRC) at # 7/272, Ground Floor, Kakateeya Residency, Anantapur, Andhra Pradesh – 515 001 as well in Bangalore Office premises No.1/58-4, 2nd Floor, Croma Building, Sycon Polaries, 8th Main, RMV Extension, Sadashiva Nagar, Bangalore – 560 080, in connection with search proceedings in the case of SRC group. The case was centralized. Thereafter, notice under section 153A of the Act was issued on 03.09.2018 to file return of income within 30 days from the date of receipt of notice which was duly served on the assessee on 05.09.2018. Assessee filed return of income under section 139(1) of the Act on 30.08.2015 and 08.08.2016 for the AY 2015-16& 2016-17 respectively. In response to notice under section 153A of the Act the assessee filed return of income declaring income as under:

Assessment Section Date of Amount Excess Amount Year filing ITR declared in 153A return 2015-16 139(1) 30.08.2015 9,63,69,550/- 2016-17 139(1) 08.08.2016 11,77,58,180/- 2015-16 153A 04.10.2018 15,21,46,130/- 5,57,76,580/- 2016-17 153A 04.10.2018 18,55,63,600/- 6,78,05,420/-

14. Based on the above statements under section 132(4) of the Act of various persons (partners, employees, sub- contractors and bank cashier third party), the above amounts were treated as undisclosed income in the hands of SRCand a show cause notice was issued to the assessee. Assessee filed detailed written submissions, replied to every objection raised by the AO and after considering entire submissions of the assessee, the AO made addition of Rs.8,35,45,883/- which is difference amount of income declared during the statement recorded under section 132(4) of the Act and additional income offered by the assessee in the return filed under section 153A of the Act of Rs.5,57,76,580/- for the Financial Year 2015-16 and for Assessment Year 2016-17 disallowed by the AO of Rs.6,78,05,420/-. After considering the additional income declared by the assessee under section 153A of the Act completed assessment on 30.12.2018 for both the Assessment Years.

, 637/Bang/2025 769/Bang/2025 Page 12 of 60 “FACTUAL BACKGROUND:

1.

3. During the search, no unexplained or unrecorded cash, bullion, or other valuable article or movable or immovable assets or documents were found either at Bangalore or Anantapur.

4. During the search in Anantapur, one green bag containing certain cheque books of some of the sub-contractors was found. The Appellant engages sub-contractors for carrying out some of the works for which regular payments are made through banking channels after deducting TDS. Based on the chequebooks found in the premises of the Appellant at Anantapur, the visiting search team started suspecting that the payments to sub-contractors were not genuine. Thereafter, the entire case came to be built by the search team on this surmise.

5. It was explained by the partners in the very first instance that these cheque books were kept at Anantapur office for the convenience of the sub-contractors since works were being executed by these sub- contractors in remote areas with no banking access. Sub-contractors engaged labour and required cash for payments of wages and expenditure on site facilities, and therefore the staff of the Appellant in Anantapur used to help these sub-contractors by withdrawing cash and making disbursements as directed or desired by the respective sub- contractors.

6. The search team surmised that the transactions with the sub- contractors were not genuine. They obtained a bank cashier’s statement confirming withdrawals from the bank account of the sub-contractors by the staff of the Appellant at Anantapur, a fact which was never denied. This does not constitute incriminating evidence to justify any adverse inference especially when there is no material found to show that the cash withdrawn from the banks flowed back to the Appellant firm. Partner of the Appellant firm, Sri D. Venkatesh, based at Anantapur, explained the reasons for the presence of the cheque books and cash , 637/Bang/2025 769/Bang/2025 Page 13 of 60 withdrawals made contemporaneously in his statement dated 24/11/2016. (pages 61-74 of the paper book Volume 1).

7. However, search team obtained statement from sub-contractor G. Rama Rao u/s 132(4) dt. 23/11/2016. G Rama Rao’s answers were clear until Q.19, but from Q.20 onwards, under pressure and references to penal provisions, the tenor changed. (pages 88-92 of the paper book Volume 1) 8. The search team has taken statement from another sub- contractor D Avinash Chowdary (pages 83-87 of the paper book Volume 1). A common theme that runs through the statements of both these sub- contractors is that they have never denied the fact of carrying out the sub-contracts and receipt of the money. However, D. Avinash Chowdary made certain statements that contradicted the existing evidence at the instance of the search team but clarified later through an affidavit, confirming partnership in Dharma Constructions and existence of work orders/RA bills (many of these documents formed part of the seized material). (Affidavit of D. Avinash Chowdary is in pages 252-257 of paper book Volume 2) 9. Showing these confused statements of the sub-contractors, the search team recorded the statement of partner D. Venkatesulu u/s 132(4). In the statement, he agreed to disallow all payments made to 11 sub-contractors for FY 14-15 & FY 15-16.

10. Thereafter, the search team examined both the Partners M. Rajagopal and A. Surendra Babu at Bangalore on 25/11/2016. Statement is placed at pages 75-82 of the paper book Volume 1. While examining the Partners at Bangalore, the Department desired that additional income be offered by estimating the total income at 8% of the turnover. When the disallowance offered by D. Venkatesh did not tally with the pre-determined 8% of turnover, partners at Bangalore were confronted, and a larger disclosure was obtained on 25/11/2016, covering 16 additional sub-contractors (even without cheque books being found), cash payments, diary entries, and extending the period to FY 16-17 as well.

11. The very manner in which statements are taken shows that there was a pre-set target at quantum of income which is not based on any evidence or material irregularities found and documented at the time of search.

12. It has all through been submitted by the Appellant that the offer of income at the time of search is not admission of any wrongdoing but only to buy peace, and since the offer of income is in the wee hours of the third day of the search, it cannot be considered as out of free will or voluntary.

, 637/Bang/2025 769/Bang/2025 Page 14 of 60 13. In all statements of the Partners, they never admitted that the sub-contractors were bogus; they consistently sought time to verify records before answering. The prolonged search was only to extract a pre-decided disclosure, not based on facts or materials. 14. In all, the total additions that were taken in the statement u/s 132 is as below which were across FY 2014-15, FY 2015-16, FY 2016- 17:

RETURN FILED AFTER SEARCH: 15. Despite the fact that the Appellant believed all sub-contractor payments were genuine, the Partners of the Appellant were conscious of the fact that they had admitted to offer income at 8% of turnover to cover for any errors or omission or commission. They also desired to purchase peace and avoid any protracted litigation. Hence, while filing the return of income u/s 153A for AY 15-16 and AY 16-17, certain additional income came to be disclosed. The following is the original income declared, and the additional income declared for AY 15-16 and AY 16- 17 (returns are placed in pages 134-195 of the paper book Volume 1: Income as per Returns filed AY 15-16 AY 16-17 Returned u/s 139(1) 9,63,69,550 11,77,58,180 Returned u/s 153A 15,21,46,130 18,55,63,600 Additional income offered u/s 153A 5,57,76,580 6,78,05,420 16. The above income was declared to honour the commitment to the search team, by estimating income at 8% of adjusted turnover (after excluding fixed-margin back-to-back contracts where margin is much lower). The declared income does not represent real income or assets; it was offered only to honour the declaration and cover any deficiencies in proof. Calculation of adjusted turnover is in the paper book Pages 1403 to 1405 of Paper book Volume 7. ASSESSMENT PROCEEDINGS: 17. In course of the assessment proceedings, the Appellant’s stand was that all the sub-contractors are genuine; disclosure was only to buy peace, quantum was forced at 8% of turnover as there was no incriminating material.

, 637/Bang/2025 769/Bang/2025 Page 15 of 60 18. To establish the genuineness of sub-contractor payments the Appellant has filed substantial documentary evidence by way of work orders, RA bills, tax returns, audit reports where applicable, and affidavits from all sub-contractors affirming that works carried out were genuine, and not just confirmation letters. Many of these documents were also found during the search and formed part of the seized materials. These are submitted as paper books Volumes 2–7.

19. It is pertinent to mention that after these affidavits were filed by the sub-contractors, the LAO did not choose to examine these sub- contractors on their affidavits. Thus, there is no material gathered by the LAO to contradict the averments made on oath in the affidavit and hence having regard to the judgment of Hon’ble Supreme Court in the case of Messrs Mehta Parikh & Co vs The Commissioner of Income-Tax (1956 AIR 554), the evidence in the affidavit cannot be discarded.

20. Apart from the above, the following facts were also stated to bring out the genuineness of the contentions: a) No undisclosed money, bullion, jewellery, valuables, assets, or entries were found; even the diary entry arose from mistaken advice post-demonetization. The additional income was offered solely to pay taxes. b) Only 2 contractors were examined. No cheque book of G. Rama Rao was found, and though a statement was recorded from G. Rama Rao, no addition was made for payments made to G. Rama Rao though the same was used to obtain a statement from the Partner. c) Out of 27 sub-contractors whose payments were disallowed, only one sub-contractor was examined. The other 26 were not examined, despite issuing summons to many of them at the time of search (see page 120-133 of paper book Volume 1 where summons issued u/s 131(1A) by the investigation wing is placed). On 20/02/2017, despite full attendance by the summoned sub-contractors, the Department abandoned the process. Sub-contractors later deposed affidavits before a notary, as no opportunity was given to state facts before the department. (Affidavits are in pages 252-328 to of the paper book Volume 2). d) Similarly, 5 sub-contractors were summoned on 13/12/2018, and these sub-contractors attended the summons on the appointed date, but that process was also not completed by the Department. (Summons are in pages 1594-1604 in paper book Volume 7). e) During the assessment proceedings the LAO tried to examine some of the vendors of the Appellant (not related to sub-contract payments) without the knowledge of the Appellant (such as M/s Valmiki Constructions, C. Ranganath, B. Pradeep Reddy, and P. ChowdaReddy). When it was found that there is no discrepancy, the department ignored the same and did not mention any such verification.

, 637/Bang/2025 769/Bang/2025 Page 16 of 60 f) In light of the above, every time the department attempted to investigate, it became increasingly clear that the evidence is in favourof the Appellant’s version, and the surmises of the department are without any basis. This shows that the department failed to substantiate its allegation that they were bogus sub-contractors. CONTENTIONS: 21. It is the Appellant’s case that the statements made u/s 132(4) were not based on any incriminating material or evidence found during the search barring the green bag containing cheque books found at Anantapur. Even that have been explained by the Appellant, and nothing incriminating results therefrom. On the contrary, the voluminous evidence filed by the Appellant in the course of assessment brings out the genuineness of the sub-contractors and clarifies the factual position.

22. The Appellant has never denied that the employees of the Appellant are assisting the sub-contractors to carry out their obligations. However, this was explained along with the context in which this support was given to the sub-contractors which was not accepted by the Department on suspicion and surmise.

23. No material has been gathered by the Department even after search to show that payments made to the sub-contractors were bogus. No material has been adduced to show that the cash withdrawals from the bank account of the sub-contractors had flown back to the Appellant firm.

25. Even clerical errors, non-cash payments and transactions such as material recoveries etc., are ignored which shows the mechanical and summary nature of proceedings and non-application of mind.

27. Summary and break-up of contractors whose cheque books were found, not found, are shown in Page 2149 and Page 2177 of the paper book Volume 8.

31. Even for the sake of argument, while vehemently denying, it is considered that the amounts withdrawn from the bank account of the sub-contractors with the assistance of the Appellant’s employees was not expenditure, a substantially similar quantum has been offered as additional income while filing return u/s 153A by estimating income at 8% of the adjusted turnover. So, there cannot be any further additions made.

32. CIT(A), while disposing the first appeal, partially accepted the contention of the Appellant to the extent of payments made to sub- contractors in whose case cheque books were not found at the time of search. CIT(A) has confirmed the addition, principally relying on the declaration u/s 132(4) which he states is corroborated by the cheque books found. CIT(A) while accepting that the statement of the Partner Sri. A. Surendra Babu (page 75-82 of paper book Volume 1) is not backed by evidence, has only granted relief in respect of contractors whose cheque book was not found.

33. Both LAO and CIT(A) have disregarded the explanation of the Appellant as well as the voluminous evidence showing the genuineness of sub-contractor payments, and clarificatory affidavits, which does not stand impeached. The LAO did not consider the reply letters dated 20/12/2018, 21/12/2018, and 24/12/2018, and only considered the letter filed on 07/12/2018 (Letter dt. 30/11/2018). The LAO did not even consider the clerical mistakes while completing the assessment.

34. The LAO did not reject the books of account, and the additions are made solely on the basis of statements recorded u/s 132 without corroborative evidence.

, 637/Bang/2025 769/Bang/2025 Page 18 of 60 35. It is pertinent to note that the LAO accepted the calculation at 8% on adjusted turnover for the AY 2017-18 and completed the assessment by accepting the return filed u/s 139(5). However, the same calculation of 8% was not accepted for AY 2015-16 and AY 2016-17. The original and revised ITRs filed for AY 2017-18 and the Assessment Order are enclosed as Annexure 1 to this Synopsis. Thus, the manner in which the Appellant has computed and offered income post search has been accepted by the Revenue and therefore it is not open to partially reject the same and make disallowance of any expenditure claimed especially when income has been offered on estimated basis as explained in paragraph 15 supra.

36. No new evidence was filed before the CIT(A). The CIT(A), while granting reliefs for clerical mistakes, sub-contractors where cheque books were not found, and payments to government, has sustained most of the additions made by the LAO.

37. There is no real basis for the additions at all except by reference to statement u/s 132(4) which itself is not based on any material. In this regard, Appellant has relied on several judgments which are listed out at Page 1732 of the Paper Book Volume 8.

39. For AY 2016-17, in respect of the contractors for whom cheque books were not found, the CIT(A) has allowed only Rs 5.75 crore, but the actual figure of payment made to these sub-contractors is Rs 5.90 crores which is clear from the summary at Page 2149 of the paper book Volume 8.

Financial Year 2014-15 - Rs.13.93 Crores Financial Year2015-16 - Rs. 20.84 Crores Financial Year2016-17 - Rs. 4.97 Crores Financial Year2015-16 - Rs. 2.72 Crores 19.1 Further, it was submitted that in this process, the original trigger for giving rise of suspicion, namely, the finding of cheque books at Anantapur office was considered. Therefore, names of the subcontractors whose cheque books were not found at Anantapur and names of some sub-contractors who are attached to the Bangalore office where no cheque books at all were found, were also taken into account to arrive at the quantum of declaration. Thus this declaration is not with reference to any money, bullion, jewellery or any amount found in the books of accounts or documentary evidence. Assessee was not fully agreeing with the search team to offer 8% on the turnover as estimated income for declaration purposes. The assessee has stated in the various statements that were recorded during the course of search that various aspects are required to be verified from voluminous documents and it requires time for the same. However due to the procedural exigencies of an income tax raid the visiting team has made some fast back of the envelope calculations to arrive at the figure of disclosure for these years. In thestressful and constraining circumstances at the time of search, the assessee did not have an idea about the quantum offigures and could not analyze the details properly.

, 637/Bang/2025 769/Bang/2025 Page 22 of 60 19.2 After considering back to back contracts of works allotted to sub contractors on fixed margins, net profit @ 8% was arrived on the adjusted annual turnover of Rs.1,54,02,62,488/- which is Rs.5,57,76,584/- which has been offered for taxation in the return filed under section 153A of the Act for the Assessment Year 2015-16 and similar calculation was made for the AY 2016-17.

19.3 Thus, for AY 2015-16, the only addition was with reference to sub- contractor expenses. As submitted hereinabove, the AO has solely rested his caseonforcibly extracted confessions u/s 132(4) but did not make any effort toconsider the detailed answers and voluminous submissions made by theassesse. Simple extraction of assessee's letter of submissions in the Assessment Order does not amount to considering the submissions therein. He has not discussed as to why the assessee's submissions were wrong; and also why the AO has not considered the assessee's submission on analysis of seized material and what are his observations on the facts and affidavits brought to his kind notice. Thus, it was stated once again that submissions made and the evidences produced to show that the sub-contractors are all genuine; that they have themselves carried out the works entrusted to them, the contemporaneous evidences, the corroborative evidences in the form of seized material, the analysis and summaries of the data which was found at the time of search. There are no after thoughts there are no additional evidences and no new submissions. Further, it was submitted that the assessee's offer of additional income is with reasonable and consistent basis after detailed calculation.

19.4 As the visiting team observed that the assessee is having turnover of around Rs.250 Crores and executing several contracts, the figure of Rs.4.36 crores was not sufficient or commensurate with the size of the firm, the net profits offered are less than 8%, the search was continued and nothing , 637/Bang/2025 769/Bang/2025 Page 23 of 60 suspicious was found. However, one bag containing a few cheque books of sub-contractors was found at the Ananthapur office. So, using this finding it is sought to be established that these sub-contractors may be bogus and since cash withdrawals are made by the assessee's employees, the expenditure is considered as not allowable. Putting aside the merits of the matters, the quantum sought to the arrived to make the disclosure is 8% of the total turnover for 2 years namely FY 2014-15 & FY 2015-16.

19.5 The following table shows the turnovers achieved and the net profit returned for the above 2 years.

So, the 8% profit on the combined turnover of 2 years of approx. Rs.499.50 Crores is Rs.39.96 Crores. After deducting the returned income of Rs.20.60 Crores for these 2 years, they wanted disclosure for Rs.19.36 Crores approximately. After deducting Rs.4.36 Crores already agreed, they arrived at a disclosure of about Rs.15 Crores which is taken from the partner D.Venkatesulu on 24.11.2016 (second day of search) at question no.12. The figures of Rs.5,90,22,934/- and Rs.9,07,73,475/- respectively for both the years which totaled uptoRs.14.97 Crores was arrived accordingly. Thus the disclosures taken u/s 132(4) are based on the estimated Percentages of the assessee's turnover and not on the basis of any pin pointed evidence.

19.6 In the assessee’s case, substantial chunk of work entrusted to sub- contractors is the labour component. As explained in the various submissions , 637/Bang/2025 769/Bang/2025 Page 24 of 60 the main reason for entrusting work to sub-contractors is the difficulty of managing labourer. Unless a responsible stake holding person closely supervises the labour or workmen, there will be a number of issues arising like slackness in work, absenteeism, switching loyalties etc., When works containing labour components are awarded, the rates of the constituent workmen like mates, females, masons, mazdoors, Skilled, unskilled semi- skilled, experience etc., will be considered and the prevailing rates for the required personnel will be decided and accordingly the rates will be awarded for the respective works.

19.7 As regards the cash and non cash components of the withdrawals of Shri D.Avinash Chowdary for the FY 2014-15 it is found from the income tax returns of the person, that he was undertaking the contracts from other firms also. His total turnover is Rs.105.51 Lakhs out of which work executed for SRC is about Rs.82 lakhs. Based on the bank statements provided and submitted the total debits of his bank account summed uptoRs.136.84 Lakhs out of which Rs.96.84 Lakhs is Cash and Rs.40.01 lakhs are non cash payments. As per his income and expenditure particulars about Rs.42.66 Lakhs are labour payments and other payments which normally require cash are Gravel, Sand, Stone/Metal are Rs.37 Lacs.

19.8 As regards the cash and non cash components of the withdrawals of Shri D. Avinash Chowdary for the FY 2014-15 it is found from the income tax returns of the person, that he was undertaking the contracts from other firms also. His total turnover is Rs.195.47 Lakhs out of which work executed for SRC is about Rs.155 66 lakhs. Based on the bank statements provided and submitted the total debits of his bank account summed uptoRs.122.51 Lakhs out of which Rs.81.78 Lakhs is Cash and Rs.40.73 lakhs are non cash payments. As per his income and expenditure particulars about Rs.107.41 , 637/Bang/2025 769/Bang/2025 Page 25 of 60 Lakhs are labour payments and other payments which normally require cash are Gravel, Sand, Stone/Metal arc Rs.60.67 Lacs.

19.9 Thus It cannot be said that entire contract receipts have been spent only in cashor as they have not executed any works as they have far too many transactions in their books which they have submitted to income tax and sales tax authorities regularly. Thus the sub contractors cannot be either termed as bogus or expenditure incurred by them is ingenuine.

19.10 Thus the various works awarded to the sub contractors are all based on the contracts awarded to the assessee from its principals who are, in turn, based on estimates arrived at in line with the SSR or SOR rates. The same are also suitability applied by the assessee in its awarding to the works to the sub contractors. As these examples are given from the seized materials there is .nothing that can be considered as after thought or some made up explanation. The Profiles and the transactions of the sub contractors also are independent and cannot be considered as acting only for the assessee. Thus the offer made in the spirit of estimation of profit considering any short coming or ground realities due to the inherent nature of the business and especially on insistence of the visiting search team may be considered as sufficient requiring no further addition.

20.1 The presence of signed cheque books of the sub-contractors along with the statement of sub-contractors and the statements recorded from bank employees and also the employees of the assessee very clearly states that assessee is in the process of sub-contract inflation of expenses. The assessee is not maintaining documentary proof which was evidenced during search and post- search proceedings. Assessee did not provide details of sub-contractors and there were various statements recorded from the employees which are enclosed to this assessment order wherein, the quality surveyor Ms.

, 637/Bang/2025 769/Bang/2025 Page 27 of 60 ViajyaaPriya and Ms. Sindhu and Sri. D. Sridhar Sr. General Manager and Sri. Gummala Somashekar, Mechanical side supervisor have confirmed that the there were no proper documentation and bills were made afterwards. The returns of income of the sub-contractors are filed by one chartered accountant and most of the sub-contractors accounts are not audited.Further, this is the clear case of retraction and it cannot be acceptedbecause of the ratios held in various case laws relied by the authorities. Hence once it is shown that the statement was voluntary then, the assessee cannot retract later, as held by the judgment of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra v. Union of India AIR 1997-SC 2560. Further there is no material on record to suggest the statement was given under a mistaken belief either of facts or law. The statement under section 132(4) has greater evidentiary value than statement given under other provisions of the statute. He also relied on the judgments in the case of P.R. Metrani v. Commissioner of Income-tax (2006) 287 ITR 209 (SC), Awadh Kishore Dass vs. Ram Gopal AIR 1979 SC 861, B. Kishore Kumar vs. Deputy Commissioner of Income-tax, Central Circle-IV (1), Chennai the Hon'ble High Court of Madras in [2014] 52 taxmann.com 449 (Madras). The cash withdrawn by the employees of SRC on behalf of sub contractors from the Ananthpur Office, genuineness of sub contractors could not be established.

20.2 During the course of search partners accepted that contractors are bogus and offered income during the course of search proceedings. This is nothing but a method to block the investigation and buy time from the Department. The admission is not defined in Income Tax Act. So, as per general clauses Act and Indian Evidence Act sections 16 to 21, admission is defined and it clearly lays a norm that once there is an admission on part of the assessee any investigating authority or courts need not go into the nitty- gritties and details. This is exactly the case in this assessee. He has agreed , 637/Bang/2025 769/Bang/2025 Page 28 of 60 before the investigation wing and now before the AO he is disagreeing in the fag end of the assessment proceedings. The statement of the partners and staff were confronted to other partners also and all the partners agreed to disclose the income. This shows that assessee was maintaining the cheque books of Sub-contractors in his office and got the signature of them and withdrew cash which is used for personal or for making any inadmissible expenses.

21.1 He further submitted that the assessee has around 450 subcontractors on its panel. Based on the resource availability and their past performance in execution of similar nature of works the subcontractors are enrolled on to the panel. During the course of search and seizure after intensive search that tookplace, there are no unexplained assets or cashor any such symbols of hoarding/any valuable assets found. There are no suspicious papers either. On the contrary, various evidences were submitted in course of the assessment to dispel any lurking suspicion about the genuineness of the sub-contractors. He referred to the copies of the affidavitsworn by all the sub-contractors, copies , 637/Bang/2025 769/Bang/2025 Page 29 of 60 of their income tax returnsand other papers thatcould be gathered relating to theirindividual state of affairs and where their accounts were subjected totax audit, copies of the tax audit reports. Similarly, if they weresubjected to any indirect tax compliances, such proofs were alsosubmitted as per the detailed narrations given in Annexure D.While documentary evidence and explicit confirmations are submitted to prove the genuineness of the sub contractors, thedeclaration taken by the department at the time of search lacking consistence cannot be relied upon.

21.2 He submitted that during the course of assessment proceedings, the assesse filed Affidavits from all 27 sub-contractors after which they have not been examined by the AO and therefore, the contents of their Affidavits were correct and the AO was satisfied from the contents of the Affidavits. During the first appellate proceedings, the same documents were also produced before ld. CIT(A) and he also did not ask anything about the contents of the Affidavits. This clearly proves that both the Revenue Authorities have accepted the Affidavits filed by the sub-contractors. Therefore, the acceptance by the sub-contractors regarding receipt of full payments from the assesse and genuineness of the works carried out by them cannot be denied. The acceptance was made the partners of the assesse because of the pressure of search operations, which cannot be relied upon. The books of accounts have been accepted and not rejected. Therefore, the additions made by the AO on the basis of the statements are not sustainable. He also submitted that the case laws relied upon by the ld. DR are not applicable to the facts of the assesse’s case.

Shri G. Ramaraoundersection131 of the Act, dated 23.11.2016 Q 7 Please state from whom you are taking contract work and what type of contract Work you are doing. Ans. I am taking contract work of earthworks only. I have taken contract work from S R. Constructions only. I only do the work pertaining to SR Constructions and I do not do any other work on my own or sub contract to any other persons. Q 09 Please give details of the contract regarding Gollapally reservoir like what was the contract amount, whether any agreement has been entered between you and S R Constructions and the mode of payment made by S R Constructions. Ans. There is no lumpsum contract amount. The bills are made as per the work and is presented to the S R Constructions every fortnight. The site engineer checks the bill and is submitted to the office of S R Construction. Then the bill is cleared. The payment is by cheque only. No agreement has been made between me and S R Constructions. I have received approximately an amount of Rs.70-75 lakhs.

, 637/Bang/2025 769/Bang/2025 Page 31 of 60 Q 10 Please state whether you are maintaining books of accounts. Ans. No. I am not maintaining any books of account as my income is below the limit for maintaining books of account. Q 13 Please state whether payments made to the labours with respect of work carried on by you will be made by you or any others. Ans. I only make payments to my labourers working with me in respect of work done by me, I also confirm that no one else will be making the payments to my labourers make payments to laourers once in a week on every Sunday.

Q 14 Please state whether you have issued any bearer cheque to anybody? Ans. I keep the signed cheque book at the office of S R Constructions at Ananthpur. The cheque leaves are signed by me and the staff of S R Construction present cheques on my behalf. The money is used to make payment to the labourers at sites. Q 15 Please state the signed cheques which are being kept in the office of M/s S R Constructions are being crossed. Ans. I would like to state that I only sign the cheque and hand over to Sri. Chakrapani, attender who is working in M/s. S R Constructions. I don't cross cheque. All the cheque will be self- cheque without date signed on back of the cheque also. At a time I will sign around 10-15cheques which will be kept with M/s. SR constructions. Q 16 Please state the purpose of keeping self-drawn cheques being kept with M/s. SR Constructions. Ans. Since I will not be in the city draw the cheque the same will be kept with Mis. SR Constructions. The same will be drawn on my instructions, which. I will be informing Sri. Venkatesh, Managing Partner regarding the amount to be withdrawn. Q 18 Please confirm whether the whole amount drawn from your account from the blank cheque kept with M/s. SR Constructions will be handed over to you.

Ans. I confirm that whole amount drawn from the bank will be handed over to me without any deductions made. Q 20 I am again drawing your attention towards the following provisions of the IndianPenal Code, Sec 79 - Refusing to answer question. Sec 181- giving / making false statement on oath Sec 180- refusing to sign the statement, Besides, your attention is also drawn to the following provisions of the Income Tax Act, 1961 Sec 275A Refusing to provide any password. Sec 277A Enabling others to evade tax. Any contravention of the above mentioned provisions shall attract penal action against you. In light of these provisions please state why the bearer cheques were presented by the employees of S R Construction and not by you. Do you have any evidence in support of getting the money so encashed by the staff of S R Construction. Ans. As I was not there in the bank timing that is why I gave the bearer cheque to the S R Construction. After clearing the cheque, the S R Constructions will make the payment as I deserve and the rest amount is kept by S R Construction only. Thepayment is made by Shri A .Chakrapani. They will give me payment of Rs.50 or 60 thousand. I do not have any evidence for the receipt of cash. Q 21. It is seen from the bank account of yours that in a single day cash withdrawal of around Rs.7 lakhs is done within a single day. Whereas in the answer to Q.No. 20 you stated that you get only Rs.50- 60 thousand. Please comment. Ans. Sir, here I would like to state the truth that I am receiving Rs.50- 60 thousand only and the balance is kept by them. I am a small time labour contractor and I do this for my day to day living. Wherever they tell me to sign, I sign it and that is the reason why my cheque books are with them. My sites are located at Gollapally Reservoir site. I supply around 20-25 labourers. For male labourers the payment is in the range of Rs.250 per day and for female labourer it is Rs.200 per day. I get in in equal , 637/Bang/2025 769/Bang/2025 Page 33 of 60 numbers both male and female labourers. I do not prepare any bills or vouchers. These things arc prepared by S R Construction engineer at the site. Whatever they tell me to sign. I sign it in good faith. Hence I receive only part payment from S R Constructions.

Shri Devineni Venkatesulu u/s 132(4) dated 24.11.2016

Q 06 Kindly give specific details in case of sub-contract awarded to friend or relatives wherein how the sub contracting bills are made and how the payments are made and how the accounting is made. Ans. Sir, not only friends and relatives but most of these sub contractor are in unorganized sector. As stated above most of our sub contracts are given for labour work. Usually they are the persons coming from different part of the state and also neighboring states who come with a group of labourers. As these people do not have an any resources to furnish the bills and maintain the accounts, we at our office help them to make the bills and submit the same to us. The payments are all made by way of RTGS or cheques by deducting the necessary amount to the sub-contractors. Bank accounts are also opened in our known bank itself i.e Andhra Bank, New Town Branch. Ananthpur. This is done to reduce the manpower and time wasted for bank work if the same bank accounts are opened in different. Also we have special facility of OD in which there is immediate transfer of amount from S R Construction bank account to the sub-contractor. Q. 7 During the course of search, it was noticed that in a green bag several signed and unsigned cheque books were found near the bathroom attached to your cabin which is also used by other partners. Kindly describe the content in it. Ans. This green bag was kept near the bathroom by the house keeping staff who had come for cleaning without knowing the contents kept in the bag. As stated in my earlier replies some of these cheque books belong to uneducated and illiterate and unorganized subcontractors who are dependent on us for their day to day activities including getting cash from the banks and giving it to them. Q 08 In continuation to the Q.No.07, a detailed description has been made regarding the cheque books which is as per the chart below. Kindly go through the same and explain the contents in detail.

ITA Nos.636, 637/Bang/2025 769/Bang/2025 Page 34 of 60 637/Bang/2025 769/Bang/2025 Page 35 of 60 637/Bang/2025 769/Bang/2025 Page 36 of 60

Ans. Sir as stated in my earlier replies. These cheque books belong to the sub-contractors who are friends, relatives and outsiders. Due to the business urgencies and other reasons stated in my earlier replies, the signed cheque books are kept in this office only to facilitate the smooth flow of business which is usually time-bound. These sub contractors supply majority of our labour force with whom our construction activities are done. Sir, you should understand in our field that government allocates different kinds of work in most interior parts where banks and post offices do not exist. Also most of the labourers are migratory for whom cash payments have to be made by the sub- contractors for their daily wages for their day to day living. If one week , 637/Bang/2025 769/Bang/2025 Page 37 of 60 payment is delayed these labourers shift their loyalties to other contractor as labourers are in very scarce and are in very much demand. Their demands have to be fulfilled in time. If you see most of our sub- contracts, the sub contractors are operating in far flung remote places where material and other resources are not available. Hence these sub- contractors need cash payments for whom we facilitate their cash payments. These cash payments are facilitated from our office.

Q 09 Kindly furnish the agreements or contracts signed between all the sub-contractors who are mentioned in the list at Q. No. 08. Ans. Sir, these contracts are maintained in our Bangalore office and the same will be submitted in due course.

Q 12 On going through the sub-contractor list which has been mentioned at Q.No. 08, it is noticed that several sub contractors are either very close relatives or very associates or persons working in your organization. The list of the same is mentioned in the table below and also their labour contracts made during the F.Y. 2014-15 and 2015-16 have also been tabulated. In this regard why the total expenditure of Rs.5,90,22,394/- for F.Y. 2014-15 and Rs.9,07,731475/- for F.Y. 2015- 16 should not be treated as bogus expenditure in the guise of sub- contracting. Sl. No. Name of the 14-15 FY 15-16 FY Subcontractor 1. A. Lakshmi Naidu 4,432,911 5,237,437 2. A.Sreeramulu 3,850,760 9,272,621 3. A. Yerrisamy 4,916,250 8,936,047 4. B. Chandra Sekhar 4,486,736 9,425,895 5. D. Surya Narayana 9,065,925 6,612,583 6. K. Sree Rami Reddy 5,515,830 7,317,497 7. M. Venkateswara Naidu 7,207,180 5.204,610 8. A.Chakrapani 4.371,189 9.078,587 9. D.DharmaTeja 5,179,696 6.627,341 10. D.Avinashchowdary 8,184,117 15,566,291 11. Y.Mahaboobperan 1,812,340 7,494,566 Total 59,022,934 90,773,475 , 637/Bang/2025 769/Bang/2025 Page 38 of 60 Ans. Sir, I will be declaring the same for the relevant F.Y. in the hands of M/s S R Constructions as income. Sir, I would like to request you to get confirmation of the same from the other two partners of S R Constructions i.e Shri A Surendrababu and Shri Rajagopal M. Q 16 1 am showing you the brown folder A/SRC/ATP/03, A/SRC/ATP/04, A/SRC/A1T/05, A/SRC/ATP/06, A/SRC/ATP/07 and A/SRC/ATP/08 containing loose sheets found and seized during the course of search u/s 132 of the Income Tax Act at 7/272, Court Road, Kakteeya Residency, Ananthpur — 515001 on 23rd November 2016. Kindly go through the contents and explain the same.

Ans. Sir, 1 have gone through the contents and I confirm that the same has been found and seized from this premise. These seized materials pertain to cheque books signed and unsigned of various sub-contractors. The same has been explained at answer to Q.No.08 and 09.

Shri Rajagopal, statement recorded u/s 13132(4) dated 25.11.2016

8. l am showing the statement of Shri. Devineni Venkatesulu recorded during the course of search u/s 132(2) at M/s S.R. Constructions office premises located at 7-272, Court road, Anantapur on 24.11.2016. Kindly go through the same and also your attention is invited for the question No.12 wherein your partner Mr. Venkatesulu had declared an amount of Rs.5,90,22,934/- and Rs.9,07,73,475/- for the F.Y.2014-15 and F.Y.2015-16 respectively as the same are to be disallowed as Bogus expenditure in guise of sub-contracting and has agreed to pay the tax for which your consent is required.

Ans. Sir, we have gone through this statement of Mr. Venkateswaralu and we abide by his statement. We would pay the taxes for disallowed expenditure on sub-contracting amounting to Rs. 5,90,22,934/- and Rs.9,07,73,475/- for the F.Y.2014-15 and F.Y.2015-16 respectively. Sir, we would like to state here that the said declaration is given purely on the basis that we are not in a position to furnish the required records as called by you. Further we would like to state that sub-contracting work is not completely bogus. But there are some instances we are not in a position to explain certain expenditure which have to be incurred for smooth running of business.

, 637/Bang/2025 769/Bang/2025 Page 39 of 60 Q9. Does your concern SR Constructions at Bangalore also follow the same modus operandi with respect to sub-contracting of works to your close associates, friends, relatives and employees as illustrated in the statement of Shri.Devineni Venkatesulu recorded during the course of search u/s 132(2) at M/s S.R. Constructions office premises located at # 7272, Court road, Anantapur on 24.11.2016. Ans: Sir, as stated in our earlier reply and also the detailed explanation given by our partner Mr. Venkateswaralu in the said statement holds good. Here we would like to clarify there is no intention of evading the taxes nor doing any illegal works by creating disallowable bogus expenditure. The intention was to run the business smoothly which has been clearly illustrated by Mr. Venkateswaralu in his statement. Q.10. You have been given an opportunity to give the complete list of bogus expenditure incurred in the guise of sub-contracting from financial year 2010-11 to till date. This opportunity is given u/s 132(4). Ans. Sir, we started this firm in a very small way and we. have come up to this level by seer hard work and consistently improving upon our quality of work. There was a sudden jump in our trade In financial year 2014-15 where in new governments came to the bower at both State and Centre. Hence there was a complete change in the approach of-the government contracting business. From F.Y. 2014-15 there has been some expenditures which cannot be explained. Further I would also like to state that in our business majority of the labourers are sent by the sub- contractors with whom our construction activity is done. The kind of work we do is very labour oriented and also these works are in the interior part of the state where banks and post offices do not exist. Hence the subcontractors have to carry sufficient amount of cash to do the day to day payments to these labourers. A detailed answer has already been given by our partner Mr. Venkateswaralu in his statement for withdrawing huge amount of cash by maintaining the cheque books of our office staff. Below is the list of labour sub-contractors for F.Y. 2014-15 and 2015- 16 which can be disallowed and I would abide to pay the tax accordingly arising from such disallowances.

We voluntarily declare an amount of Rs.8,02,99,533 and Rs.11,76,85,393 as undisclosed income for F.Y. 2014-15 and 2015-16 respectively to buy peace with the department. Q11 From your response to question no 10, it is seen that from F.Y. 2014-15 there has been a change in your business module. in this regard you have declared undisclosed income for F.Y. 2014-15 and 2015-16 only. Kindly explain why the same sub-contractors as mentioned by yourself in response to question no 10 and also the sub-contractors mentioned by your partner Mr. Venkateswaralu in his statement should not be treated as bogus expenditure in the guise of sub-contracting. Ans. Sir, I stated in our earlier responses not all sub-contracts for the same persons are bogus and I am voluntarily disallowing the below said expenditures to buy peace as per the chart below and pay the taxes accordingly.

27. Y MahaboobPeeran 11,48,815 Total 4,97,63,178 We voluntarily declare an amount of Rs.4,97,63,178/- as undisclosed income for F.Y. 2016-17 respectively to buy peace with the department. Q12. I am showing you the page numbers from 439 to 436 marked in Box folder A/RBSR-01/02 which was found and seized during the course of the search, wherein several cash payments amounting to Rs. 2.72 crores for F.Y 2015-16 has been found. Kindly go through the same and why the same should not be disallowed as per the provisions of IT Act and the same will be brought to tax Ans. Sir, most of these payments were made in remote places as stated in my earlier replies where banks and post offices are not available in these remote , 637/Bang/2025 769/Bang/2025 Page 42 of 60 places. But to buy peace we declare an amount of Rs. 2.72 Crs in FY 2015-16 and pay tax accordingly. Q.

24. In the search, the statement of sub-contractors and other staff of the SRCand other persons were also recorded. One of the sub-contractors is Avinash Choudhry. From his statement recorded u/s.132(4) of the Act, it is seen that he has not denied carrying out the work. Later he has also filed an Affidavit explaining his earlier statement. Nothing adverse is brought on record by the Department. The other sub-contractor whose statement is recorded is one Shri. Rama Rao. However, there is no disallowance of any expenditure incurred for payments made to him. Hence, the statements of these 2 sub-contractors cannot be relied upon for making any addition. The statement of bank cashier was also recorded in which he accepted that the staff of SRC brings cheques of the sub contractors and cash is withdrawn. Cash payment is made to the staff of SRC. Since there is frequent visiting to the bank therefore separate identification is not obtained. However, from this statement alone, it cannot be concluded that the payments made to the sub- contractors are bogus.

, 637/Bang/2025 769/Bang/2025 Page 44 of 60 For the sake of convenience, we are re-producing the Affidavit of one sub- contractor D Suryanarayana, which is placed at Page 289 to 290 of the Paper Book, as under:

26. From the above Affidavit and other Affidavits placed on record from page no.265 to 328 of 27 sub-contractors, we do not find anywhere that they have denied executing works for SRC. They have not stated that any cash withdrawn from their bank accounts by the employees of SRC have been ploughed back to SRC or returned through any other mode. These Affidavits were available at the time of assessment as well as first appellate proceedings and we noted that both the authorities below did not controvert the averments made in the Affidavits. If the ld. CIT(A) had any doubts on the contents of the Affidavits, He could have summoned these sub-contractors as well.

, 637/Bang/2025 769/Bang/2025 Page 46 of 60 Therefore, we apply the ratio of the judgement of the Hon’ble Apex Court in the case of Mehta Parikh and Co. Vs. CIT reported in 30 ITR 181 (SC) to hold that the evidence by way of Affidavit of sub-contractors cannot be doubted if the same has not been controverted by cogent material.

28. It is further noted that during the reconciliation of the undisclosed income there was mistake noted in the declaration made during the course of search and seizure proceedings with regard to the payment made to certain sub-contractors. The amount shown in the statement recorded was excess by Rs.56,78,792/- for AY 2015-16 and Rs. 62,19,713/- for AY 2016-17. On going through the details of the payments as per books of accounts, it was observed that there is excess disclosure which was declared by mistake. While finalizing accounts during the reconciliation it was noticed that balance shown in ledger account was not disputed by the sub contractors where the difference was found in the books of accounts are added and mistakes were found. Therefore it was a genuine mistake which needs to be rectified. The Revenue has also accepted balance shown by the assessee. Therefore this mistake is 637/Bang/2025 769/Bang/2025 Page 48 of 60 genuine mistake and it is accepted. The CIT(A) has rightly deleted the excess declaration made by mistake.

29. We further noted that for the AY 2015-16, the AO has made addition of Rs. 8,35,45,883/- and addition of Rs. 16,78,53,449/- for the AY 2016-17. The ld. CIT(A) has deleted Rs.3,70,58,246/- for AY 2015-16 and Rs. 5,75,71,834/- for AY 2016-17 in respect of sub-contractors whose cheque books were not found from the SRC. On the above deletion by the ld. CIT(A), the view taken is correct since there was no cheque book found but names were included in the list prepared during the course of search. The finding of the ld. CIT(A) that the statement of the partners was not backed by any evidence is correct and the same is not disputed by the Revenue. The AO has also not examined these sub-contractors to elicit any material against the assesse. Hence, we uphold the order of the ld. CIT(A) on this issue.

 ACIT Vs. Moon Beverages Ltd., reported in [2025] 170 taxmann.com 46 (Delhi – Trib)  Murlidhar Sharma Vs. ACIT reported in [2015] 56 taxmann.coom 463 (Jodhpur – Trib.)  DCIT Vs. Sunil Kumar Sharma reported in [2024] 168 taxmann.com 77 (SC)

, 637/Bang/2025 769/Bang/2025 Page 53 of 60  DCIT Vs. Sunil Kumar Sharma reported in [2024] 159 taxmann.com 179 (Karnataka).

, 637/Bang/2025 769/Bang/2025 Page 54 of 60 Therefore it is a clear violation of principles of nature justice by the learned CIT(A).

38. Considering the facts of the case, we find from the Order of the learned CIT(A) that nowhere thelearned CIT(A) has given any notice to the assessee as per section 251(2) of the Act. Since the amount has been taxed in the hands of the partners it is clear from the Order of the AO. Accordingly, we expungethe direction of the ld. CIT(A) on this addition.

During the course of search of Bangalore Office, some documents were found and seized marked as folder A/RBSR-01/02. From Page Nos.439 to 436 of the seized material, it was found that there were payments in cash of more than Rs.20,000/- in a day to single party totaling to Rs.2,72,00,000/-. The same was confronted to Rajgopal Muthineni, partner, and he agreed to offer it in answer to question No.12 of his statement recorded on 25.04.2016 during the course of search and seizure proceeding. The AO has scanned the relevant part of the statement in his Order. Accordingly, Rs.2,72,00,000/- was treated as undisclosed income by the AO and disallowed under section 40A(3) of the Act.