ACIT, CENTRAL CIRCLE - 2(2), HYDERABAD vs. AMR INDIA LIMITED, HYDERABAD

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4. Whether on the facts and circumstances of the case and in law, the Id. CIT(A) erred in wrongly relying on the remand report finding of addition not having nexus with seized material without adjudicating the fact whether the assessment for A.Y 2017-18 is abated assessment or unabated assessment?

The following grounds of Cross objections are without prejudice to one another:-

4 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

2. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in not adjudicating the issue of disallowance of depreciation of Rs.3,56,69,245/- claimed in respect of machinery acquired from M/s Pradeep Kumar Babulal & Co, despite furnishing by the appellant of complete particulars of the transactions along with all necessary documents relating thereto and thereby discharging the onus before the Assessing Officer.

3. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in not following the principle of consistency in appreciating and considering the fact that the claim of depreciation after the acquisition of the machinery has been allowed consistently in the preceding years since A.Y. 2013-14.

5 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

4. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in not adjudicating the issue regarding the Assessing Officer not providing the copy of statement(s) of third party or other relevant material relied upon and not affording an opportunity to cross examine the person(s), who gave such statement that formed the basis of additions/disallowances.

5. The cross objector craves leave to add to, alter, amend and for delete all or any of the foregoing grounds of appeal.

6. The cross objector prays this Hon'ble Income Tax Appellate Tribunal, Hyderabad to direct the Ld. Assessing Officer to delete the disallowance of Rs.3,56,69,245/- made by the Assessing Officer.

ITA.No.534/Hyd/2024 – A.Ys. 2017-2018 – Revenue Appeal :

6 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 admitting total income of (-) Rs.4,99,72,655/ and the same was processed u/sec.143(1) of the Income Tax Act, 1961 [in short “the Act”]. A Search and Seizure operation u/sec.132 of the Act was conducted in the case of assessee i.e., M/s. AMR India Limited & Others on 02.05.2018. As such, the case of the assessee was covered u/sec.132 of the Act. Consequent to search, a notice u/sec.153A of the Act dated 24.01.2019 was issued to the assessee. In response to the said notice, the assessee filed it’s return of income on 27.02.2019 admitting total income of (-) Rs.4,99,72,655/-.

4.1. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noted that as per the information received from the Assistant Commissioner of Income Tax, Central Circle-1(3), Ahmedabad that, a search and seizure operation u/sec.132 of the Act was conducted at various business and residential premises of Sri Kevalchand Jain of Mumbai. During the search and seizure operation, Sri Kewalchand Jain has admitted that he has no business relation of goods or services except to provide accommodation entries in the 7 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 form of bogus bills and getting commission income for the same. In a statement, Sri Kevalchand Jain has stated that whenever turnover is required by the assessee viz., M/s. AMR India Ltd., he used to provide turnover to M/s.AMR India Ltd. It is also stated that the amounts received by M/s.AMR India Ltd for sale of old machinery were subsequently transferred to an entity managed and operated by Sri Kewalchand Jain like M/s. Pradeepkumar Babulal & Co. etc.. Accordingly, during the course of assessment proceedings, the assessee was requested to provide the details of amounts paid to M/s. Pradeep Kumar Babulal & Co. along with purpose of the said payments. In response thereto, the assessee submitted that during the financial year 2012-2013 relevant to the assessment year 2013-2014, the assessee purchased used machinery viz. loaders, concrete mixers, excavators etc. from M/s. Pradeep Kumar Babulal & Co. for a total consideration of Rs.51.34 crores and accordingly claimed depreciation thereon to the tune of Rs.2,70,29,532/- for the assessment year 2013- 2014. Further, the assessee has also submitted the details

8 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 of machinery purchased from M/s. Pradeep Kumar Babulal & Co. along with all the copies of invoices. The Assessing Officer after considering the relevant submissions of the assessee observed that as the genuineness of the concern M/s. Pradeep Kumar Babulal & Co. and the transactions with it are not proved beyond doubt, the depreciation on the machinery, claimed to have been purchased from M/s. Pradeep Kumar Babulal & Co. identified as shell company providing bills for the machinery without actual delivery of the same, has been disallowed. Accordingly, the depreciation claimed on the said machinery to the tune of Rs.3,56,69,245/- has been disallowed and added back to the total income of the assessee.

5. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged the additions made by the Assessing Officer towards disallowance of depreciation on machinery and argued that when no incriminating material was found during the course of search proceedings, material found in the case of 9 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 Shri Kewalchand Jain which cannot be used in the hands of the assessee u/sec.153A of the Act. The assessee further submitted that the assessment for the impugned assessment year 2017-2018 is unabated/concluded as on the date of search because, the search in the case of the assessee was conducted on 02.05.2018 and by that time, the time limit for issuance of notice u/sec.143(2) of the Act has been expired. Therefore, once the assessment is unabated, no addition can be made without any reference to incriminating material found as a result of search. Since the material relied upon by the Assessing Officer is not found in the course of search proceedings of the assessee, but, found in the course of search in the case of Shri Kewalchand Jain, additions made by the Assessing Officer on the basis of said incriminating material cannot be sustained. In this regard, he relied on the decision of Hon’ble Supreme Court in the case of PCIT vs., Abhisar Buildwell P. Ltd., [2023] 454 ITR 212 (SC).

10 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 5.1. The learned CIT(A) after considering the relevant submissions of the assessee and also taking note of various reasons given by the Assessing Officer to make addition towards disallowance of depreciation and also by following decision of Hon’ble Supreme Court in the case of PCIT vs., Abhisar Buildwell P. Ltd. (supra), held that the assessment year 2017-2018 is unabated/concluded as on the date of search and, therefore, once the assessment is unabated, in absence of any incriminating material found as a result of search, no addition can be made in the assessment framed u/sec.153A/153C of the Act. Since the Assessing Officer used the material other than that seized during the course of search action in the case of assessee, as per para-14(iv) of the decision of Hon’ble Supreme Court in the case of PCIT vs., Abhisar Buildwell P. Ltd. (supra) the addition made by the Assessing Officer cannot be sustained. Thus, directed the Assessing Officer to delete the addition made toward disallowance of depreciation. The relevant findings of the learned CIT(A) are as under :

11 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

“6.3. I have considered the assessment order, submissions of the appellant, remand report submitted by the Assessing Officer and the decision of Hon'ble Supreme Court in case of PCIT Vs. Abhisar Buildwell P. Ltd. (Civil Appeal No.6580 of 2021). The Hon'ble Supreme Court in the case of Pr. CIT (Central-3) Vs. Abhisar Buildwell Pvt. Ltd. (Civil Appeal No.6580 of 2021) held that in respect of completed/unabated assessments, no addition can be made by the Assessing Officer in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. The relevant portion of the said decision is reproduced as under :

“14. In view of the above and for the reasons stated above, it is concluded as under : i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or 12 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.

13 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs." 6.3.1. Applying the judgment of Hon'ble Supreme Court in the case of Pr. CIT (Central-3) Vs. Abhisar Buildwell Pvt. Ltd. (Civil Appeal No.6580 of 2021) to the facts of the case of the appellant, the Assessing Officer in the remand report dated 1.1.03.2024 has relied on Para 14(iv) of the judgment of Hon'ble Supreme Court in the case of PCIT (Central-3) Vs. Abhisar Buildwell Pvt. Ltd. (Civil Appeal No.6580 of 2021) which implies that the assessment proceedings in case of the appellant for the AY 2017-18 is completed/unabated. Further, in the remand report, the Assessing Officer has observed that the addition of Rs.3,56,69,245/- was made based on the information received from ACIT, Central Circle- 1(3), Ahmedabad that M/s. Pradeep Kumar Babulal & Co. was engaged into providing accommodation entries to the appellant. In this regard the following observations are made :

(i) A plain reading of Para 14(iv) of above decision of Hon'ble Supreme Court clears all doubts regarding making of any addition u/s 153A of the Act. It is seen that the incriminating material relied for making additions must be unearthed during the 14 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 course of search action conducted in case of the assessee and then only, any addition çan be made in the proceedings u/s 153A of the Act. Incriminating material not unearthed in case of assessee cannot be the basis for making any addition in case of that assessee in the proceedings u/s 153A of the Act.

(ii) It is seen that proceedings u/s 153A of the Act can be initiated in a case only when a search warrant is executed in name of that assessee. Hence, there is a natural co-relation between the issuance of warrant & initiation of proceedings u/s 153A of the Act and any addition in the proceedings u/s 153A of the Act can be made only when:

(a) a valid warrant is executed in case of the assessee which leads to search action and some material is seized during the course of search action,

(b). while drawing the Panchanama in consequence to valid warrant, there has to be seizure of documents, money, bullion etc. and these documents, money, bullions etc. belong to the assessee, and 15 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

(c). during assessment proceedings u/s 153A, assessee offers no explanation or explanation offered by the assessee is not found satisfactory to the Assessing Officer.

In case, seized material found during the course of search action does not belong to the assessee, the consequent proceedings u/s 153A of the Act are not valid and that seized material can be used for initiation of proceedings u/s 153C of the Act. Similarly, if there is no seizure of documents, money, bullion etc. during the search, no addition can be made in case of the assessee who is subjected to the search warrant.

(iii). Any information received by the Assessing Officer of searched person, while completing assessment u/s 153A of the Act, can be used to determine assessee's total income, only when there is some incriminating material seized during the search action in assessee's own case. In case, no material is seized during assessee's own search, other incriminating material received from any other source, howsoever good, cannot be used against the assessce as clearly mentioned in Para 14(iv) of the above Supreme Court decision in respect of completed/ unabated assessment.

16 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

6.3.2. Applying the above observations to the facts of the present case, from the "Note not to the assessee" reproduced in the remand report dated 11.03.2024, it is clear that nothing incriminating was found during the search action conducted in case of the appellant for the current AY 2017-18 and the addition of Rs.3,56,69,245/ was made based on information received from ACIT, Central Circle-1(3), Ahmedabad. The aforesaid information received from ACIT, Central Circle-1(3), Ahmedabad can be considered as incriminating material for assessment proceedings u/s 153C in case of the appellant as this information was unearthed during search action conducted in some other party namely Sri Kewalchand Jain and not for the current assessment proceedings u/s. 153A of the Act in case of the appellant. In the current search proceedings, where warrant was executed in name of the appellant, there was no incriminating material found as already mentioned in the remand report given by the AO.

6.3.3. In view of the above, it is held that the information received from the ACIT, Central Circle-1(3), Ahmedabad in case of search action conducted on Sri Kewalchand Jain (person other than the appellant) cannot be considered as incriminating material unearthed during the search action conducted in case of the appellant, rather the information received is hereby

17 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 considered as the material other than that seized during the course of search action in case of the appellant as per Para 14(iv) of above decision of Hon'ble Supreme Court. Accordingly, this information cannot be used for making the said addition of Rs.3,56,69,245/- during the course of assessment proceedings u/s 153A of the Act in case of the appellant.

6.3.4. Therefore, as this assessment for the AY 2017-18 is unabated, respectfully following the above judgment of Hon'ble Supreme Court in the case of PCIT(Central-3) Vs. Abhisar Buildwell Pvt. Ltd. (Civil Appeal No.6580 of 2021) at Para 14(iv), the addition of Rs.3,56,69,245/- which was not based on any incriminating material found during the course of search in case of the appellant is hereby deleted. Since, the case of the appellant is squarely covered by the above judgment of the Hon'ble Apex Court, it is not being decided on merits. Accordingly, the additional ground no.6 raised by the appellant in submissions during appeal proceedings is hereby allowed.

Further, as case of the appellant for the AY 6.3.5. 2017-18 is covered under para 14(iv) of the decision of Hon'ble Supreme Court as mentioned above, Assessing Officer is free to take any action in pursuance to the 18 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 observation of the Hon'ble Supreme Court cited in para 14(iv) and also as per Instruction No.1 of 2023 of the CBDT.”

19 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 Therefore, the assessment is abated as per the first proviso to sec.153A of the Act and once the assessment is abated, then the Assessing Officer shall have power to assess or re- assess the total income including the undisclosed income, if any, found as a result of search and this principle is supported by the decision of Hon’ble Supreme Court in the case of PCIT vs., Abhisar Buildwell P. Ltd. (supra). The learned CIT(A) without appreciating the relevant facts, simply deleted the additions made by the Assessing Officer. Therefore, he submitted that the order of the learned CIT(A) should be set-aside and the additions made by the Assessing Officer should be upheld.

20 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 of other person. In the present case, going by the assessment order passed by the Assessing Officer, the Assessing Officer has used the incriminating material found in the case of Shri Kewalchand Jain coupled with his statement recorded during the course of search, against the assessee, and, therefore, the learned CIT(A) after considering all the relevant facts, has rightly deleted the additions made by the Assessing Officer by following the decision of Hon’ble Supreme Court in the case of PCIT vs., Abhisar Buildwell P. Ltd. (supra). Therefore, she submitted that the order of the learned CIT(A) should be upheld and the appeals filed by the Revenue should be dismissed.

22 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 taking into consideration of other material in respect of completed assessment/un-abated assessment. Meaning thereby, in respect of completed-unabated assessment, no addition can be made by the Assessing Officer, in absence of any incriminating material found during the course of search u/sec.132 or requisition u/sec.132A of the Act. However, in the assessment is abated as on the date of search, the Assessing Officer shall assess or re-assess the total income taking into consideration the incriminating material and any other material including books of accounts. In the present case, going by the date of search in the case of assessee i.e., on 02.05.2018, the assessment for the assessment year 2017-2018 is abated. Therefore, in our considered view, the Assessing Officer can assess the total income on the basis of any other material, but, not only on the basis of the incriminating material found as a result of search. The learned CIT(A) without considering the relevant facts and further on wrong assumption of facts that the assessment year is unabated as on the date of search, by following the decision of Hon’ble Supreme Court in the case

23 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 of PCIT vs., Abhisar Buildwell P. Ltd. (supra) has deleted the additions made by the Assessing Officer. Thus, we set aside the order passed by the learned CIT(A) and allow the appeal filed by the Revenue.

ITA.No.535/Hyd./2024 – A.Y. 2018-2019 – [Revenue Appeal] :

24 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 it’s return of income on 27.02.2019 admitting total income of (-)Rs.8,07,98,035/- under normal provisions and Rs.4,82,10,057/- as per the provisions of sec.115JB of the

25 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 letter dated 29.04.2021 submitted that the assessee was executing a civil contract work at Khammam District for excavation work of Pranahita-Chevella lift irrigation scheme package-50, which in turn, was sub-contracted to various sub-contractors. The assessee has sub-contracted part of work to Rayon Infrastructure Pvt. Ltd., and Sunil Hitech Engineers Ltd., and entered into work agreements with these two parties. The assessee further contended that Rayon Infrastructure Pvt. Ltd., and Sunil Hitech Engineers Ltd., has submitted their bills after completion of work, for which, the assessee has made payment through proper banking channel, after deducting applicable TDS as per law. The assessee further submitted that the allegation of the Assessing Officer that the sub-contractor in question did not exist in the address given is devoid of merit, because there is no details as to when the said enquiry was conducted and in absence of any details, the assessee is not in a position to comment upon the observation of the Assessing Officer. Therefore, he submitted that sub-contract payment made to the above two parties is genuine and is 26 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 supported by necessary evidences including bills submitted by the parties.

30 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 Buildwell P. Ltd. (supra). The learned CIT(A) without appreciating the relevant facts, simply deleted the additions made by the Assessing Officer. Therefore, she submitted that the order of the learned CIT(A) should be set-aside and the additions made by the Assessing Officer should be upheld.

31 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 Officer, has rightly deleted the additions made by the Assessing Officer by following the decision of Hon’ble Supreme Court in the case of PCIT vs., Abhisar Buildwell P. Ltd. (supra). Therefore, she submitted that the order of the learned CIT(A) should be upheld and the appeal filed by the Revenue should be dismissed.

33 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 be made by the Assessing Officer, in absence of any incriminating material found during the course of search u/sec.132 or requisition u/sec.132A of the Act. However, in case the assessment is abated as on the date of search, the Assessing Officer shall assess or re-assess the total income taking into consideration the incriminating material and any other material. In the present case, going by the date of search in the case of assessee i.e., on 02.05.2018, the assessment for the assessment year 2018-2019 is abated. Therefore, in our considered view, the Assessing Officer can assess the total income on the basis of any other material, but, not only on the basis of the incriminating material found as a result of search. The learned CIT(A) without considering the relevant facts and further on wrong assessment of facts that the assessment year is unabated as on the date of search and by following the decision of Hon’ble Supreme Court in the case of PCIT vs., Abhisar Buildwell P. Ltd. (supra) has deleted the additions made by the Assessing Officer. Thus, we set aside the order passed

34 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 by the learned CIT(A) and allow the appeal filed by the Revenue.

C.O.No.4/Hyd./2025 – A.Y. 2017-2018 – [Assessee] :

35 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 has taken steps to file the present cross objections. Further, our Counsel due to some medical exigencies in the family could not look into the pending adjudication of appeals before the Tribunal consequent to filing of Department’s appeals and in the process, there was 205 days delay in filing the cross objections before the Tribunal. However, the said delay is neither wilful nor for want of any undue benefit, but, beyond the control of the assessee. Therefore, in the interest of justice, the delay of 205 days in filing the above two cross objections may be condoned.

36 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

37 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 Counsel for the Assessee, referring to the grounds of cross- objections filed by the assessee, submitted that, the Assessing Officer is erred in making additions towards disallowance of depreciation of old machinery purchased from M/s Pradeep Kumar Babulal & Co. without appreciating the fact that the assessee has filed relevant information including bills submitted by the supplier and consequent payment made through cheque and proper banking channel. Learned Counsel for the Assessee referring to various evidences including purchase order, tax invoice and payment details submitted that the assessee has filed all evidences to prove purchase of machinery from M/s Pradeep Kumar Babulal & Co. Although, the assessee has filed various evidences, but, the Assessing Officer has made additions towards depreciation only on the basis of search conducted in the case of Shri Kewalchand Jain, Mumbai and statement recorded from him during the course of search without providing the statement recorded from Shri Kewalchand Jain to the assessee for his comments and rebuttal and thereby, the Assessing Officer

38 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 violated the principles of natural justice and in absence of any details as to the contents of statement recorded from Shri Kewalchand Jain, the additions made by the Assessing Officer on the basis of third party statement without providing such statement to the assessee, the additions cannot be sustained. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II [2015] 62 taxmann.com 3 (SC) and Kishanchand Chellaram vs. CIT 125 ITR 713 (SC). Therefore, she submitted that additions made by the Assessing Officer towards disallowance of depreciation should be deleted.

41 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 of various arguments of Learned Counsel for the Assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that, the Assessing Officer except stating that Shri Kewalchand Jain in his statement recorded u/sec.132(4) of the Act has admitted providing accommodation entries of bogus bills to the assessee company, but, has not brought on record any material to suggest that purchase of old machinery from M/s Pradeep Kumar Babulal & Co. is bogus in nature which are not supported by necessary bills and vouchers. On the other hand, assessee has furnished all the evidences including relevant work order, tax invoice and delivery challans of goods purchased from M/s Pradeep Kumar Babulal & Co. and also filed relevant bank statement to prove payment through proper banking channel. Once the assessee has filed all relevant evidences in support of purchase of old machinery from a person or entity, then, it is for the Assessing Officer to disprove the claim of the assessee company by taking on record contrary material to disprove the claim of the assessee-company. However, in the 42 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 present case, the Assessing Officer except the statement of Shri Kewalchand Jain, nothing has been brought on record to disprove the claim of the assessee. It is well settled principle of law by the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II [2015] 62 taxmann.com 3 (SC) that any additions made on the basis of third party statement without providing the statement to the other person for his comment or rebuttal, is contrary to principles of natural justice and additions made on the basis of third party statement cannot be sustained. This principle is further supported by the decision of Hon’ble Supreme Court in the case of Kishanchand Chellaram vs. CIT 125 ITR 713 (SC) where similar view has been taken by the Hon’ble Supreme Court. The sum and substance of the ratio laid down by the Hon’ble Supreme Court in the above two cases is that the Assessing Officer cannot make additions only on the basis of third party statement unless corroborative evidences are brought on record to substantiate the contents of statement recorded from third party. Further,

43 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 once the third party statement is relied upon by the Assessing Officer, he is duty bound to provide the statement to the assessee for his comments and cross-examination. In the present case, the Assessing Officer without providing the statement recorded from Shri Kewalchand Jain to the assessee for his comments and cross-examination, made the additions. Therefore, we are of the considered view, that additions made by the Assessing Officer on the basis of statement of third party cannot be sustained. Thus, we direct the Assessing Officer to delete the additions made towards disallowance of depreciation on plant and machinery.

C.O.No.5/Hyd./2025 – A.Y. 2018-2019 [Assessee] :

44 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 Hitech Engineers Ltd., on the ground that both sub- contracts were not existed in the address given in the bill submitted by the assessee when enquires conducted during assessment proceedings. Except this observation, the Assessing Officer has not countered the contract work of the assessee in light of various evidences including work order issued to the sub-contractors, agreement with the above two sub-contractors and bills submitted by the sub-contractors. In fact, the assessee has filed all evidences including agreement of sub-contracts relating to the work, work orders, bills submitted by sub-contractors and also payment made to sub-contractors by cheque through proper banking channel after deducting applicable TDS as per law. Once the assessee has filed relevant details, in our considered view, the Assessing Officer cannot make additions only on the basis of statement recorded from few employees of assessee by stating that the employee who signed work order is not aware of sub-contractors and payment made to them. In our considered view, in an organisation when many employees are dealing with various works, it is not necessary for a 45 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 person who signed the work order is aware of the persons who executed the contract work. Therefore, only on the basis of statement of an employee, no adverse inference can be drawn on sub-contract payments made by the assessee, more particularly, when the assessee has furnished all evidences to substantiate it’s claim. Further, the Assessing Officer has rested his finding only on the basis of enquiry conducted on two sub-contractors and observed that on perusal of commission enquiry, rightly it is noticed that these companies never exist at the premises where they were registered. Further, Shri Subbarami Reddy, Chief Financial Officer of the assessee company also stated that they never knew that these companies do not exist in their registered address, but, the particulars mentioned by the above two companies in the work orders are different to that of their registered address and they gave the contract work on good faith. In our considered view, the Assessing Officer has not brought on record when the enquiry was conducted on the above named two sub-contractors. Further, the Assessing Officer has not given enquiry report to the 46 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025 assessee for his comments and rebuttal. Therefore, in our considered view, once addition is made on the basis of enquiries conducted by the Assessing Officer, in our considered view, the findings of the enquiry should be given to the assessee for his comments and rebuttal. In the present case, the Assessing Officer has made addition only on the basis of enquiry conducted on the sub-contract coupled with statement recorded from the employee of the assessee, but, the fact remains that nowhere in the statement of the employees is there any adverse inference against payment made to these sub-contracts. Therefore, we are of the considered view, that the addition made by the Assessing Officer on the basis of enquiry conducted on two sub-contractors coupled with the statement recorded from employee of the assessee company, cannot be sustained. Thus, we direct the Assessing Officer to delete the additions made towards sub-contract payments made to Rayon Infrastructure Pvt. Ltd., and Sunil Hitech Engineers Ltd.

47 ITA.Nos.534 & 535/Hyd./2024 & C.O.Nos.4 & 5/Hyd./2025

Order pronounced in the open Court on 24.03.2025.