DCIT., CENTRAL CIRCLE-1(2), HYDERABAD vs. VPR MINING INFRASTRUCTURE PRIVATE LIMITED, NELLORE

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आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD “B” BENCH, HYDERABAD

BEFORE : SHRI VIJAY PAL RAO, VICE PRESIDENT
AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER

आ.अपी.सं /ITA No.939/Hyd./2025
िनधाŊरण वषŊ/Assessment Year 2018-2019

The DCIT, Central
Circle-1(2), Hyderabad.
PIN -500 004. Telangana.
vs.
VPR Mining
Infrastructure Private
Limited, NELLORE.
PIN – 524003
Andhra Pradesh
PAN AACCV6733A
(Appellant)

(Respondent)

िनधाŊįरती Ȫारा/Assessee by: CA MV Prasad
राज̾ व Ȫारा/Revenue by::
Dr. Narendra Kumar Naik, CIT-DR

सुनवाई की तारीख/Date of hearing:
03.09.2025
घोषणा की तारीख/Pronouncement: 15.10.2025

आदेश/ORDER

PER VIJAY PAL RAO, VICE PRESIDENT :

This appeal by the Revenue is directed against the Order dated 19.03.2025 of the learned Commissioner of Income
Tax-(Appeals),
Hyderabad-11,
Hyderabad, relating to the assessment year 2018-2019. 2
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was in possession of certain information that the assessee had made sub-contract payments to a company namely
M/s. Sunil Hitech Engineer Ltd [in short “M/s. SHEL”] is a paper company and was not operating from their registered address as per the GST reports indicating the fake invoices raised by the said company. Accordingly, the Assessing
Officer concluded that the sub-contract payment of Rs.10,53,44,877/- made to M/s SHEL is bogus claim of expenditure and the same was disallowed by adding back to the total income of the assessee.

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made by the Assessing Officer on the basis of the seized material for the year under consideration, but, the Assessing
Officer has made disallowance on account of sub-contract payments.

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entries provided by M/s. SHEL and consequently, the Assessing Officer has disallowed the sub-contract payment claimed as expenses. The Learned DR has submitted that the learned
CIT(A) has quashed the notice issued u/sec.153C without appreciating the fact that the all these entities to whom the assessee claimed to have paid sub- contract expenses for execution of the work, are paper companies without any physical existence or infrastructure or carrying-out any actual execution of work as found during the course of proceedings. Therefore, any further information received by the Assessing Officer regarding bogus claim of sub-contract expenses can be the basis of addition in the proceedings u/sec.153C of the Act. In support of this contention, the Learned CIT-DR has relied upon the Judgment of Hon’ble Supreme Court in the case of K. Krishnamurthy vs., DCIT, Order dated 13.02.2025
in Civil Appeal No.2411 of 2025 and submitted that the Hon’ble Supreme Court has rejected the contention of the assessee that the transaction has not been found in the search at the assessee’s premises, but, was found and 7
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collected from the society. The Hon’ble Supreme Court further observed that “the expression found in the course of search is of wide amplitude and it does not restrict to the document found in assessee’s premises alone during the search. Therefore, even if in the course of search in the case of the assessee leads to the search of any individual or further investigation of the interrogation of the third parties, if a document is found, the recovery of the same would fall within the expression found ‘in the course of search’”. The Learned
CIT-DR has also relied upon Judgment of Hon’ble Delhi
High Court in the case of Indian National Congress vs.,
DCIT, Order dated 22.03.2024 in W.P.(C).No. 4264/2024
& CM Nos.17433/2024 & 17435/2024. Thus, the Learned
CIT-DR has submitted that the learned CIT(A) has committed an error in quashing the notice issued u/sec.153C of the Act. He has relied upon the order of the Assessing Officer.

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has made a mention of seized material pertains to the financial years 2018-2019 and 2019-2020 i.e., for the assessment years 2019-2020 and 2020-2021 and not for the assessment year 2018-2019. He has pointed-out that at page-2 of the assessment order, the Assessing Officer has given the details of the transactions found in the seized material. However, the Assessing Officer has not made any addition in respect of those transactions as found in the seized material, but, the addition in question was made solely on the basis of the information received from the GST
Authorities which is undisputedly not a seized material found during the course of search and seizure carried-out in the case of M/s.Vasistha Constructions Pvt. Ltd., The Learned AR has referred to the seized material and submitted that none of the seized material or transactions recorded in the seized material pertains to the assessment year under consideration and, therefore, the initiation of proceedings u/sec.153C by the Assessing Officer without having any incriminating material found or seized during the course of search is invalid, void and consequently, the order

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passed u/sec.153C of the Act is void abinitio. He has submitted that the satisfaction as required u/sec.153C of the Act should reflect that some undisclosed income in the hands of the assessee emanating from the material belonging to the third party found and seized. Therefore, the material on the basis of which, satisfaction is reached should not be vague, indefinite, distant or remote. In support of this contention, the Learned AR relied upon Judgment of Hon’ble Delhi High Court in the case of CIT-XIII vs., Radhey Shyam Bansal [2011] 337 ITR 217
(Del.) and Judgment of Hon’ble Allahabad High Court in the case of CIT-(C), Kanpur vs., Smt. Nirmala Keshwani
[2016] 380 ITR 566 (Allahabad) and submitted that the Hon’ble High Court has held that “recording of satisfaction is not a mere formality, but, involves application of mind”. He has submitted that none of seized material have any bearing on the determination of the total income of the assessee for the assessment year
2018-2019
and, therefore, the mandatory condition for initiation of proceedings u/sec.153C of the Act are not satisfied. The Learned AR has 10
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further contended that the existence of incriminating material leading to an inference of undisclosed income is a pre-requisite for initiation of proceedings u/sec.153C of the Act. The Assessing Officer failed to establish the nexus between the seized material and undisclosed income of the assessee for the year under consideration. Once the seized material has no bearing on the determination of the total income of the assessee for the year under consideration, then, the satisfaction drawn by the Assessing Officer for initiation of proceedings u/sec.153C of the Act is completely without any basis. A mere mentioning of seized material and Annexures is not sufficient to draw an inference that transactions mentioned in those Annexures have bearing on the determination of the income. Therefore, in the absence of any incriminating material disclosing any undisclosed income for the year under consideration, satisfaction recorded by the Assessing
Officer for initiation of proceedings u/sec.153C is not valid and consequently, the notice issued by the Assessing Officer u/sec.153C is liable to be quashed. He has relied upon the following decisions :

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“3. The following reasons were recorded and a notice u/s 153C of the Act, dated 05.01.2022 was issued and duly served on the assessee :

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of work at Siddipet, Telangana, which is part of Kaleswaram project, during the FY 2018-19. M/x. VCPL has in-tum given the part of above work to the following companies on sub-contract basis :

a) Adurti Enterprises Private Limited- Rs. 7,23,69,657/- b) Shresht Industries Private Limited- Rs. 11,34.48,312/- c) Achith Enterprises Private Limited- Rs. 3,61,94,804/- d) Avago Infracon Private Limited - Rs. 3,54,70,906/-
Total - Rs. 25,75,03,679/-

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Further, it was stated that the sub-contract works were awarded to the above companies on behest of the principal contractor, M/s.
VPR Mining Infrastructure Pvt. Ltd., and except copies of invoices, they do not have supporting documentary evidencing the work executed by above sub-contractors.

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“11. Disallowance of Sub-contract expenses with regard to M/s
Sunil Hitech Engineer Ltd. (AY 2018-19).

short payment of GST of Rs.10.2 Crores on works contract service by the assessee.

"Information is received in this office that information was filed by you in response to summons issued u/s.131(1A) before the DDIT(Inv.), Unit-1(2). As per the details it was noticed that for the F.Y.2018-19 & 2017-18, the following
GST/ITC amounts have been reversed in DRC-03 by you.

Name of the Sub Contractor
Amount of expenditure pertaining to transaction (Rs.)
GST-ITC reversed pertaining to the transaction (Rs.)
Sri Kakatiya Industries (India)
Pvt. Ltd.
14,28,58,163
2,57,14,453
Rayon Infrastructure Pvt. Ltd.
7,27,87,164
1,31,01,690
AY 2019-20
21,56,45,327
Sunil Hitech Engineer Ltd.
10,53,44,877
1,89,62,077
AY 2018-19
10,53,44,877
TOTAL
32,09,90,201
5,77,78,220

The evidences in this regard, have not been produced till date.
Hence, you are required to show cause as to why the sub-contract expenditure amount reversed to the tune of Rs.32,09,90,201/- for AY 2018-19 and AY 2019-20 should not be disallowed and added back to the total income, as the same is bogus expenditure being booked in the name of sub-contractors and reversed subsequently.

In this regard, please explain why the works contracts claimed in the P&L account should not be treated as bogus and 16
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the same should not be brought to tax. Please submit the ledger extracts of the above mentioned works contracts for the A.Y.2015-
16 to 2021-22 and details of short payment.”

incriminating material found during the course of search and seizure action belonging/pertaining to the person other than the searched person disclosed undisclosed income for particular assessment year(s) or the entire block of six assessment years. Therefore, depending upon the fact that the incriminating material found during the course of search and seizure action pertaining to the assessee i.e., a person other than the searched person must disclose an undisclosed income of one or more than one assessment year for initiation of proceedings u/sec.153C of the Act for those assessment years. Unlike the provisions of sec.153A of the Act, the Assessing Officer is not bound to initiate the proceedings u/sec.153C of the Act for all the six years, but, only when the Assessing Officer is satisfied that the material found and seized during the course of search pertains to the person other than the searched person and also disclosed undisclosed income for some of the assessment years or all the six assessment years, the Assessing Officer has to initiate the proceedings u/sec.153C of the Act accordingly.
In the case on hand, it is evident that the seized

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material/incriminating material as referred by the Assessing
Officer in the satisfaction note does not disclose any undisclosed income for the assessment year under consideration and, therefore, in the absence of any incriminating material disclosing any undisclosed income for the year under consideration, there was no basis for initiation of the proceedings u/sec.153C of the Act. The Hon’ble Supreme Court in the case of CIT-III, Pune vs.,
Sinhgad Technical Education Society [2017] 397 ITR
344 (SC) while dealing with an identical issue has held in paras 14 to 19 as under :

“14. We have bestowed our due consideration to the respective submissions of the counsel for the parties.
15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight
Assessment
Years i.e.
Assessment
Year
1999-2000
to Assessment
Year
2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment
Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years 2000-01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely,

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2000-01 to 2003-04 covered by notice under Section 153C of the Act. There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of the judgment.
16. In these appeals, qua the aforesaid four Assessment
Years, the assessment is quashed by the ITAT (which order is upheld by the High Court) on the sole ground that notice under Section 153C of the Act was legally unsustainable. The events recorded above further disclose that the issue pertaining to validity of notice under Section 153C of the Act was raised for the first time before the Tribunal and the Tribunal permitted the assessee to raise this additional ground and while dealing with the same on merits, accepted the contention of the assessee.
17. First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the juri iction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground.
18. The ITAT permitted this additional ground by giving a reason that it was a juri ictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four
Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a juri ictional fact. We find this reasoning to be logical

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and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.
19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred.
However, in view of our aforementioned findings, it is not necessary to enter into this controversy.”

requirement u/sec.153C of the Act is essential for the assessment under that provision as it is a juri ictional fact.
Therefore, the Assessing Officer cannot assume the juri iction to initiate the proceedings u/sec.153C of the Act in the absence of any incriminating material having a link with a particular assessment year and disclosing undisclosed income of the assessee. The decisions relied upon by the learned CIT-DR is entirely in a different context of the matter as it is not a case of initiation of proceedings u/sec.153A of the Act based on the recovery or detection of the documents/incriminating material impounded during the course of search or investigation in continuation of the search. Accordingly, those decisions relied upon by the Learned CIT-DR will not help the case of the Department.
The learned CIT(A) after considering all the relevant facts has quashed the notice issued u/sec.153C of the Act as well as the consequential assessment order for the year under consideration in paras 6 to 6.3.11 of the order as under :

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Order pronounced in the Open Court on 15th October, 2025. [MANJUNATHA G]

[VIJAY PAL RAO]
ACCOUNTANT MEMBER VICE PRESIDENT

Hyderabad, Dated 15th October, 2025
VBP
Copy to :

1
The DCIT, Central Circle-1(2), 7th Floor, Aayakar
Bhavan, Basheerbagh, Hyderabad – 500 004. Telangana.

2
VPR Mining Infrastructure Private Limited, 16-3-805,
Ramamurthy Nagar, NELLORE – 524003 Andhra
Pradesh
3. The CIT(A), Hyderabad-11, Hyderabad.
3
Pr. CIT (Central), Hyderabad
4
DR, ITAT Hyderabad “B’ Bench, Hyderabad
5
Guard File
//By Order//
////