Income Tax Appellate Tribunal - Hyderabad
Bharath Kumar Kondreddy,Hyderabad vs Dcit, Central Circle-1(1), Hyderabad on 30 April, 2026
आयकर अपीलीय न्यायाधिकरण में, है दराबाद 'बी' बेंच, है दराबाद
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad "B" Bench, Hyderabad
श्री विजय पाल राि, माननीय उपाध्यक्ष एिं श्री मंजूनाथ जी, माननीय लेखा सदस्य
SHRI VIJAY PAL RAO, HON'BLE VICE PRESIDENT
AND
SHRI MANJUNATHA G, HON'BLE ACCOUNTANT MEMBER
Sl. Appealed
No. I.T.A.No. Name of Appellant Name of against the
Respondent A.Y. Order of the
CIT(A)-11,
Hyderabad
Dated
1 310/Hyd/2026 Bharat Kumar The DCIT, 2020-21 08.12.2025
Kondareddy Central Circle
PAN : AQQPK1509A 1(1), Hyderabad.
2 311/Hyd/2026 -do- -do- 2021-22 08.12.2025
3 312/Hyd/2026 -do- -do- 2022-23 09.12.2025
4 940/Hyd/2026 The DCIT, Central Bharat Kumar 2021-22 08.12.2025
Circle 1(1), Kondareddy
Hyderabad. PAN : AQQPK1509A
5 941/Hyd/2026 -do- -do- 2022-23 09.12.2025
करदाता का प्रतततितित्व/ : Shri M.V. Prasad, C.A. and
Assessee Mr. K.S. Rajendra Kumar
Represented by (I.R.S. Retd.)
राजस्व का प्रतततितित्व/ : Dr. Narendra Kumar Naik - CIT-DR
Department Represented by & Dr. Sachin Kumar - Sr. A.R.
सुिवाई समाप्त होिे की ततति/ : 22.04.2026
Date of Conclusion of Hearing
घोषणा की तारीख/ : 30.04.2026
Date of Pronouncement
ORDER
PER MANJUNATHA G., A.M :
The captioned appeals filed by the assessee and the Revenue are directed against separate, but identical orders of the learned 2 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 Commissioner of Income Tax (Appeals) - 11, Hyderabad, dated 08.12.2025 and 09.12.2025, pertaining to the assessment years 2020-21 and 2022-23, respectively. Since the facts are identical and common issues are involved in all these appeals, the same were heard together and are being disposed of by this single consolidated order for the sake of convenience and brevity.
2. The assessee and the Revenue have more or less raised common grounds of appeal in all their respective captioned appeals. Therefore, for the sake of brevity, the grounds of appeal filed by the assessee (Bharath Kumar Kondareddy) in ITA No.310/Hyd/2025 for the assessment year 2020-21 and the grounds of appeal filed by the Revenue in ITA No.940/Hyd/2026 for the assessment year 2021-22 are reproduced as under:
"1. The order of the Ld. CIT(Appeals) is erroneous on the facts of the case and contrary to the provisions of law.
2. On the facts and circumstances of the case and in law, the assessment order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 is void ab initio, as the reassessment proceedings initiated by issue of notice u/s 148 without due compliance with the requirements of sections 148 and 148A is without jurisdiction and unsustainable in law.
3. On the facts and circumstances of the case and in law, the assessment order passed u/s 143(3) r.w.s. 147 of the Act is void ab initio, as the prior approval for issue of notice u/s 148 was accorded by the specified authority u/s 151 in a mechanical manner without proper application of mind.
3
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
4. On the facts and circumstances of the case and in law, the assessment order passed u/s 143(3) r.w.s. 147 is unsustainable in law, since the approval under section 148A has been accorded by the Range Head in a mechanical manner without proper application of mind.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) is not justified in sustaining the addition of unexplained money of Rs.12,00,00,000/- under section 69A of the Act towards alleged on- money payment for purchase of commercial space in Jyothi Tech Park from M/s. Vamsiram Builders.
6. The Ld. CIT(A) ought to have held that the addition made by relying solely on the notings in the material found during the search carried out in the case of a third party (Vamsiram Group), which are neither in the handwriting of the appellant nor bear the signature of the appellant and which are not corroborated by any independent evidence, is not sustainable in law.
7. The Ld. CIT(A) ought to have appreciated that no evidence to corroborate the notings in the material found during the search carried out in the case of a third party was found during the simultaneous search carried out at the residential premises of the appellant.
8. The Ld. CIT(A) erred in failing to appreciate that there is no material or evidence on record to show that the notings in the seized material have materialised into transactions giving rise to undisclosed income of the appellant.
9. The Ld. CIT(A) erred in failing to appreciate that the Assessing Officer did not refer to any statement recorded under section 132(4) during the search in the case of the third party regarding the nature and authenticity of the relevant notings in the seized material which are purportedly in the name of the appellant.
10. The Ld. CIT(A) ought to have seen that the addition made by the Assessing Officer is based on presumption, surmises and conjectures, as no enquiries were conducted to substantiate the findings that the notings in the seized material pertain to the appellant and represent on-money payments for purchase of property.
11. The Ld. CIT(A) erred in sustaining the addition made under section 69A despite the absence of reliable and incontrovertible evidence to conclusively establish that the appellant had made on-money payments in cash for acquisition of immovable property by M/s. M.R. Estates, in which the appellant's spouse is a partner and minor son is admitted to the benefits of partnership.
4
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
12. Any other legal or factual grounds that may be urged at the time of hearing of the appeal."
GROUNDS RAISED BY REVENUE in ITA No.940/Hyd/2026 "The Ld. CIT(A) erred in deleting the protective addition of Rs.3,00,00,000/- in the hands of the assessee towards unexplained money u/s 69A before the corresponding substantive addition made in the hands of the M/s. M.R. Estates reached finality"
3. The brief facts of the case are that the assessee, who is an individual, is deriving income from salary and interest income from bank deposits and filed his return of income for the assessment year 2020-21 on 07.01.2021 declaring total income of Rs.11,82,460/-. Subsequently, a search and seizure operation under section 132 of the Income Tax Act, 1961 (for short "the Act") was conducted in the case of M/s. Vamsiram Group and other related parties on 06.12.2022 and as a part of the said search proceedings, warrant under section 132 of the Act, was also executed in the case of the assessee. During the course of search and post-search investigation in the case of M/s. Vamsiram Group, incriminating material in the form of loose sheets, diary and digital data in pen drives was found and seized, which contained details of various cash transactions relating to different persons, including certain entries in the name of the assessee.5
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
4. Based on the information contained in the seized material, the A.O. observed that the entries recorded therein pertain to purchase of commercial space admeasuring 76,032 sq. ft. in a project known as Jyothi Tech Park developed by M/s. Vamsiram Builders. It was further noticed by the A.O. that the entries in the seized material were recorded by suppressing the last two digits and therefore, the actual amounts of transactions were required to be arrived at by adding two zeros to the figures mentioned in the seized documents. The A.O. further noted that, during the course of search proceedings, key employees of M/s. Vamsiram Group had stated in their sworn statements that the group was indulged in unaccounted cash transactions and that the entries in the seized material were recorded by truncating the last two digits. On the basis of such incriminating material and statements, the A.O. worked out the total cash payments alleged to have been made by the assessee towards purchase of the said commercial property.
From the entries recorded in the seized material, the A.O. observed that, the assessee had allegedly made cash payments aggregating to Rs.26,98,00,000/- for purchase of commercial space in Jyothi Tech Park. However, for the year under 6 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 consideration, the A.O. considered the transactions relatable to financial year 2019-20 and concluded that the assessee had made cash payments of Rs.12,00,00,000/- during the relevant previous year. The A.O. further issued notices under section 142(1) of the Act, from time to time calling upon the assessee to explain the source for such cash payments.
5. In response to the notices issued by the A.O., the assessee submitted that he has not made any cash payments to M/s.
Vamsiram Builders and denied having any direct or indirect transactions with the said group. The assessee further submitted that a partnership firm, M/s. M.R. Estates, in which his spouse is a partner and his minor son is admitted to the benefits of partnership, had purchased a commercial property in Jyothi Tech Park through a registered sale deed and all payments towards such purchase were duly recorded in the books of account. The assessee also contended that the documents relied upon by the A.O. were found from the premises of a third party and the same do not belong to the assessee, nor do they bear his signature or handwriting. It was further submitted that, the entries in the loose sheets are dumb documents and in the absence of any 7 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 corroborative evidence, no adverse inference can be drawn against the assessee. The A.O., however, was not convinced with the explanation furnished by the assessee and according to the A.O., the incriminating material found during the course of search clearly established that the assessee had made cash payments towards purchase of commercial property, which were not recorded in the regular books of account. The A.O. further observed that the entries found in the seized material, coupled with the statements recorded from the employees of M/s.
Vamsiram Group, clearly indicate that the transactions were recorded by suppressing the last two digits and therefore, the actual amount of cash payments has to be computed by adding two zeros to the figures recorded in the seized documents.
Accordingly, the A.O. treated the amount of Rs.12,00,00,000/- as unexplained money under section 69A of the Act, and added the same to the total income of the assessee.
6. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee filed detailed written submissions and challenged both the validity of reassessment proceedings as well as the addition made towards 8 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 unexplained money. The assessee submitted that the reassessment proceedings initiated under section 147 of the Act, are bad in law, since the notice issued under section 148 was without proper compliance of the provisions of sections 148 and 148A of the Act, and further contended that the approval granted by the specified authority under section 151 of the Act, was mechanical in nature without proper application of mind. The assessee further submitted that even on merits, the addition made by the A.O. is not sustainable, since the same is solely based on entries found in the loose sheets and other documents seized from the premises of a third party, namely, M/s. Vamsiram Group, which neither belong to the assessee nor bear his signature or handwriting. The assessee further submitted that, there is no corroborative evidence brought on record by the A.O. to establish that the entries in the seized material represent actual cash payments made by the assessee towards purchase of property. It was contended that during the course of search conducted in the case of the assessee, no incriminating material was found to support the allegation of cash payments and therefore, the addition made purely on the basis of third-party documents is not 9 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 sustainable in law. The assessee further contended that the alleged property was purchased by a partnership firm, M/s. M.R. Estates, and not by the assessee in his individual capacity and the payments towards such purchase have been duly recorded in the registered sale deed and books of account of the said firm. The assessee also relied upon various judicial precedents to contend that loose sheets and dumb documents without any corroborative evidence cannot be the basis for making addition.
7. The Ld. CIT(A), after considering the submissions of the assessee and also taking note of the findings recorded by the A.O. in the assessment order, observed that during the course of search in the case of M/s. Vamsiram Group, incriminating material in the form of loose sheets, diary and digital evidence was found, which contains details of cash transactions relating to various persons, including the assessee. The Ld. CIT(A) further observed that the entries recorded in the seized material clearly indicate cash payments made by the assessee towards purchase of commercial space in Jyothi Tech Park and the same were recorded by suppressing the last two digits. The Ld. CIT(A) also took note of the fact that the key employees of M/s. Vamsiram Group, in their 10 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 statements recorded during the course of search, have admitted that the group was indulged in unaccounted cash transactions and the entries were recorded by truncating the last two digits.
The Ld. CIT(A) further observed that, the entries found in the seized material contain specific details such as date, particulars and amounts of transactions and therefore, the same cannot be considered as dumb documents without evidentiary value. The Ld. CIT(A) was of the view that the seized material clearly establishes that the assessee had made cash payments towards purchase of commercial property and merely because the documents were found from the premises of a third party, the evidentiary value of such documents cannot be ignored, especially when the entries contained therein specifically refer to the assessee. The Ld. CIT(A) further observed that, the assessee has failed to satisfactorily explain the entries recorded in the seized material and also failed to discharge the onus cast upon him to rebut the findings of the A.O. The Ld. CIT(A), after considering the facts and circumstances of the case, upheld the action of the A.O. in treating the amount of Rs.12,00,00,000/- as unexplained money under section 69A of the Act, and sustained the addition made in the assessment order.11
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 Thus, the Ld. CIT(A) rejected the contentions of the assessee both on the issue of validity of reassessment proceedings as well as on merits of the addition.
8. Aggrieved by the order of the Ld. CIT(A), the assessee as well as the revenue are now in appeal before us.
9. Ground No. 1 of the assessee's appeal is general in nature and hence, does not require any specific adjudication and accordingly, Ground No. 1 of the assessee's appeal is dismissed.
10. The first issue that came up for our consideration from Ground No. 2 of the assessee's appeal is validity of assessment order passed by the A.O. under section 143(3) r.w.s. 147 of the Income-tax Act, 1961 in light of notice issued under section 148 of the Act.
11. The learned counsel for the assessee, Shri M.V. Prasad, C.A. and Mr. K.S. Rajendra Kumar (I.R.S. Retd.), submitted that, the assessment order passed by the A.O. is invalid and liable to be quashed, because the A.O. has issued notice under section 148 of 12 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 the Act, on the premise that a search and seizure operation under section 132 of the Act, has been conducted in the case of the assessee and as per clause (i) of Explanation 2, there is a deemed information of escapement of income in respect of on-money paid for purchase of the property and the same has been ascertained from the incriminating material found during the course of search in the case of the assessee. However, going by the reasons recorded by the A.O. and the assessment order, it is very clear that in the assessment order in para 3.1, the A.O. observed that there are certain notings in the name of the assessee in the seized material, i.e., loose sheets, diary and Excel sheets, which contain details of cash payments and receipts of various individuals were found, but fact remains that the A.O. has relied upon the information found in the search proceedings of M/s. Vamsiram Builders, but not in the case of the assessee, and therefore, the reasons recorded by the A.O. on the basis of search conducted in the case of the assessee by invoking Explanation 2, clause (i) is incorrect. The learned counsel for the assessee further submitted that, if the A.O. reopened the assessment under section 148 of the Act, on the basis of material found from the premises of third 13 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 party, then clause (iii) of Explanation 2 is applicable, where it states that if the A.O. is satisfied with the prior approval of Principal CIT, that any books of account and documents seized under section 132 or requisitioned under section 132A of the Act, in the case of any other person on or after 01.04.2021, then the A.O. must obtain approval from Principal CIT under clause (iii) of Explanation 2 of section 148 of the Act, for recording reasons.
8. The learned Counsel for the assessee further referring to the reasons recorded by the A.O submitted that, the A.O invoked explanation (2) clause (i) of section 148 of the Act on the presumption that once a search is initiated under section 132 of the Act on or after the 1st day of April, 2021, in the case of the assessee, the A.O shall be deemed to have the information which suggests that the income chargeable to tax has escaped the assessment in the case of the assessee. However, Exp. (2) provides only a limited relaxation and the 1st proviso to section 148 of the Act negated the condition that the A.O with the rider that the information which suggests that the income chargeable to tax has escaped the assessment for the relevant A.Y. Therefore, the correct interpretation can be that notice under section 148 cannot be 14 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 issued automatically to the searched person and the A.O needs to apply his mind and while seeking approval under section 151 of the Act from the specified authority, demonstrate that the information obtained/discovered during the search suggest that income has escaped, assessment under Explanation (2) is for the relevant A.Y for which notice under section 148 of the Act is issued. In the present case, the A.O without demonstrating as to how the seized material found during the course of search suggest income escaped the assessment for the relevant Asst. Years has simply issued notice under section 148 of the Act on the basis of reasons recorded for reopening of the assessment without there being an iota of discussion in the reasons that the documents found during search suggest escapement of income. In the absence of any material to indicate that the income has escaped the assessment for the relevant A.Y, it may not be possible for he A.O to obtain the approval from the specified authority for the relevant A.Y for which the notice u/s 148 intended to be issued.
However, on observation of the reasons recorded, the A.O has not demonstrated the escapement of income as envisaged in 1st proviso to section 148 of the Act, which is evident from the 15 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 reasons recorded by the A.O. Therefore, they submitted that, the notice issued under section 148 on the basis of reasons recorded by the A.O without demonstrating the escapement of income for the relevant A.Y is void ab initio. In this regard, he has relied upon the decision of Hon'ble Bombay High Court in the case of Kartik Suresh Chandra Gandhi vs. Assistant Commissioner of Income Tax (2023) 154 Taxmann.com 193 and the decision of the Hon'ble Delhi High Court in the case of Divya Capital One Pvt. Ltd vs. Assistant Commissioner of Income Tax (TS-5518-HC-
2022(DELHI)-O). The assessee had also relied upon the decision of the Hon'ble Karnataka High Court in the case of Smt. Vasanthi Ramdas Pai vs. Income Tax Officer (TS-5059-HC-2024(Karnataka)-
O). The assessee also relied upon the decision of the Hyderabad Benches in the case of ACE Tyres (P) Ltd vs. Assistant Commissioner of Income Tax in ITA Nos. 1084 to 1088 and 1027/Hyd/20252.
9. The learned CIT-DR. for the Revenue, Dr. Narendra Kumar Naik and the learned Sr. A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, submitted that, there is no merit in the legal ground taken by the assessee challenging the validity of the 16 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 assessment order passed by the A.O., because as per the new scheme of assessment under section 148 of the Act, where there is a search and seizure operation under section 132 of the Act, in the case of the assessee, then the A.O. shall be deemed to have information to suggest that income chargeable to tax has escaped assessment in the case of the assessee. In the present case, a separate warrant of authorization was issued in the name of the assessee under section 132 of the Act, and therefore, the A.O. has rightly invoked clause (i) of Explanation 2 for the purpose of reassessment and thus, the arguments of the learned counsel for the assessee that the material used for the purpose of reassessment is found from the search proceedings in the case of a third party and for this reason the A.O. should have invoked clauses (iii) and (iv) of Explanation 2 is incorrect. The learned CIT-
DR., for the Revenue further submitted that clause (i) of Explanation 2 is akin to section 153A of the Act. Once there is search proceedings, the A.O. is bound to issue notice under section 148 for reopening and assessing the total income of the assessee. Further, clauses (iii) and (iv) of Explanation 2, are akin to section 153C of the Act, and in such cases, the A.O. is required 17 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 to follow the procedure provided under section 151 of the Act, with prior approval of the competent authority. In the present case, since search proceedings were conducted in the case of the assessee and the A.O. has framed assessment on the basis of search proceedings, he has rightly recorded reasons by invoking clause (i) of Explanation 2, and thus, the arguments taken by the learned counsel for the assessee should be rejected.
10. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant provisions of section 148 of the Act and the Explanation provided thereon, along with various case laws referred to by the learned counsel for the assessee. The assessment has been reopened on the basis of search proceedings conducted in the case of the assessee and the A.O. recorded reasons on the ground that, a search is initiated under section 132 of the Act in the case of M/s. Vamsiram Group and the assessee on 06.12.2022 and the A.O. shall be deemed to have information to suggest that income chargeable to tax has escaped assessment in the case of the assessee. The A.O. has recorded reasons for reopening of the assessment and upon 18 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 perusal of the relevant reasons recorded by the A.O., we find that the A.O. refers to search and seizure operation under section 132 of the Act in the case of M/s. Vamsiram Builders and Developers on 06.12.2022 and also search under section 132 of the Act conducted in the case of the assessee on 07.12.2022. Further, the A.O. has formed the basis of escapement of income by invoking clause (i) of Explanation 2 to section 148 of the Act, that the A.O. shall be deemed to have information which suggests that income chargeable to tax has escaped assessment in the case of the assessee for the assessment year under consideration. From the reasons recorded by the A.O., it is very clear that there is a separate and simultaneous search action in the case of M/s. Vamsiram Builders and the assessee. However, for the purpose of recording reasons for reopening of the assessment, the A.O. has referred to the information or incriminating material found in the case of search at the premises of M/s. Vamsiram Builders on 06.12.2022, which is evident from para 3.1 of the assessment order, wherein the A.O. refers to certain seized material like loose sheets, diary and Excel sheets in pen drive which contain details of cash payments made by the assessee group for purchase of 19 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 commercial space from M/s. Vamsiram Builders. Therefore, it is necessary for us to examine the legal ground taken by the assessee challenging the validity of notice issued under section 148 of the Act and the consequent assessment order passed by the A.O. under section 143(3) r.w.s. 147 of the Act in light of the provisions of section 148 of the Act, the reasons recorded by the A.O. and the consequent materials relied upon for formation of belief of escapement of income.
11. It is an admitted fact that, the A.O. has recorded reasons as per information found in the search proceedings at the premises of M/s. Vamsiram Group, where certain transactions are recorded in the name of the assessee towards purchase of commercial space of 76,032 Sq. Ft., at Jyothi Tech Park, a Project launched by M/s. Vamsiram Builders. The A.O. alleged that M/s. M.R. Estates, a partnership firm, has purchased commercial space of 76,032 sq. ft., for which it has paid alleged on-money of Rs.26.98 crores on various dates and the same has been recorded after truncating the last two zeros in the excel sheets found in a pen drive found during the course of search in the case of M/s. Vamsiram Builders. The A.O., based on the above material, invoked clause (i) 20 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 of Explanation 2 and deemed that, there is information which suggests escapement of income in the case of the assessee for the relevant assessment year. The A.O. also took support from the statement recorded from certain employees of M/s. Vamsiram Group, where they have admitted that, the entries contained in Excel sheets have been recorded by truncating the last two zeros and therefore, the A.O. has added two zeros to the entries recorded therein in the name of the assessee and arrived at total payment of Rs.26.98 crores and alleged that the assessee has paid on-money for purchase of commercial space in the name of M/s. M.R. Estates, a partnership firm, in which the assessee is not a partner or having any relationship except his wife as a partner in the above firm. The assessee contended that, the notice issued by the A.O. under section 148 of the Act, on the basis of reasons recorded for reopening dated 28.11.2023 is bad in law, because the A.O. has relied upon the information found in the premises of a third party search and issued notice under section 148 of the Act, only on the basis of search conducted in the case of the assessee, but fact remains that in the case of assessee, no incriminating material which relates to the additions made by the 21 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 A.O. has been found. Therefore, the A.O. ought to have issued notice under section 148 of the Act, in light of clause (iii) of Explanation 2, after due procedure provided under section 151 of the Act. Since the A.O. has not followed due procedure provided under section 151 of the Act, for issuance of notice under section 148 of the Act, the entire assessment proceedings become invalid and void ab initio.
12. There is no dispute with regard to the fact that the additions made by the A.O. towards alleged on-money payment for purchase of commercial space by M/s. M.R. Estates is only on the basis of information found in the premises of M/s. Vamsiram Builders and not based on the information found from the premises of the assessee during the course of search proceedings conducted under section 132 of the Act, which is evident from para 3.1 of the assessment order. Going by the observation of the A.O. in para 3.1 of the assessment order and material considered for the purpose of assessment, in our considered view, invocation of Explanation 2(i) of section 148 of the Act, for the impugned assessment year is completely bad in law, as the notings in the seized material found in the premises of a third party with a presumption that M/s. 22
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 M.R. Estates has purchased commercial space of 76,032 Sq. Ft., for which alleged on-money payment has been paid by the assessee is totally on suspicion and surmises. Further, the allegation that the assessee has paid on-money is against the facts of the case, because the assessee is not a partner in M/s. M.R. Estates and nowhere he is connected to the firm and the only nexus is his wife and minor son are the partners having a share of 30% together. The major shareholding partners are Shri Adala Muni Krishna Reddy with 35% and Mr. G.H. Reddy and associates with 30% of shareholding. From the above, it is very clear that, there is no live link between the property purchased by M/s. M.R. Estates and the alleged on-money paid by the assessee. Mere unilateral entries in the seized material found in the premises of the third party do not bind the assessee for invocation of the provisions of the Act. Further, there is no material found from the premises of the assessee during the course of search proceedings. Therefore, the assumption of the jurisdiction by the A.O. by invoking clause (i) of Explanation 2 on the deemed information of escapement of income is contrary to the provisions of section 148 of the Act and proviso provided thereon, where it is very clear that 23 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 even in a case of search, no notice under section 148 of the Act, shall be issued, unless there is information with the A.O. which suggests that income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the A.O. has obtained prior approval of the specified authority to issue such notice. In other words, even in cases of search under section 132 or requisition under section 132A of the Act, issuance of notice under section 148 of the Act, is not automatic and it is mandatory for the A.O. to have information which suggests escapement of income for the relevant assessment year. Therefore, in our considered view, where the A.O. has considered the information obtained from the search in the case of third-party premises for recording reasons, then the A.O. is bound to invoke provisions of section 148 of the Act, and clause (iii) of Explanation 2, but not clause (i) of Explanation 2, as contended by the A.O.
13. The provisions of section 148 of the Act, deals with the assessment, re-assessment or re-computation under section 147 and subject to the provisions of section 148A of the Act, the A.O serves on the assessee a notice requiring him to furnish within such period as may be specified in the said notice, a return of 24 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 income or income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant Asst. Year. The 1st proviso to section 148 of the Act, provides that, no notice under section 148 shall be issued unless, there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice. Explanation (2) to section 148 deals with a deeming fiction where a search is initiated under section 132 or books of account are requisitioned under section 132A of the Act in the case of the assessee, the A.O shall be deemed to have information which suggests that the income chargeable to tax has escaped the assessment in the case of the assessee where the search is initiated or books of account or other documents are requisitioned in the case of any other person. In the present case, the A.O invoked clause (i) of Exp. (2) for recording reasons and issuance of notice under section 148 of the Act. But, it was the contention of the learned Counsel for the assessee that when the A.O is relied upon the material found 25 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 during the course of search in the case of any other person for framing the assessment, then clause (iii) or (iv) of Exp (2) to section 148 is applicable and accordingly, the A.O is required to record satisfaction before recording the reasons for reopening of the assessment to the fact that the seized document pertains to or relates to the assessee.
14. Admittedly, clause (i) of explanation (2) of section 148 is applicable to a case, where a search is initiated under section 132 of the Act in the case of the assessee. Clause (iii) & (iv) of Exp (2) is applicable to a situation where the A.O is satisfied with prior approval of the Pr. CIT that any money, bullion, jewellery or other valuable article or things, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021 belongs to the assessee or relates to the assessee. Once clause (iii) & (iv) of Exp. (2) is applicable, then for issuing the notice under section 148 of the Act, the A.O shall satisfy with the prior approval of the Pr. CIT that the books of account or other documents found during the course of search under section 132 in case of any other person belongs to the 26 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 assessee or relates to the assessee. Only after recording satisfaction with the prior approval of the Pr. CIT, the A.O can record reasons for issuance of notice and then such satisfaction should be forwarded to the specified authority for obtaining approval under section 151 of the Act. In the present case on hand, the A.O has not recorded any satisfaction, nor had taken any prior approval from the Pr. CIT for recording satisfaction for issuance of notice under section 148 of the Act. Therefore, in our view, notice issued by the A.O under section 148 of the Act, without mandatory procedure provided under section 148 and explanation provided thereon is bad in law and vitiate the entire proceedings.
15. In the present case, admittedly, the A.O. has issued notice under section 148 of the Act, on the ground that there was search action under section 132 of the Act, in the case of the assessee, and the A.O. shall be deemed to have information to suggest that the income chargeable to tax has escaped assessment in the case of the assessee. However, while recording reasons for reopening of the assessment, the A.O. neither considered any material found during the course of search proceedings in the case of the 27 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 assessee, nor any information to suggest escapement of income. Further, the A.O. has relied on the information found from the premises of M/s. Vamsiram Builders during the course of search proceedings under section 132 of the Act, and therefore, in our considered view, issuance of notice under section 148 of the Act, by invoking clause (i) of Explanation 2, is totally incorrect and contrary to the scheme of reassessment.
16. The harmonious interpretation of the deeming fiction created in respect of the person searched under Exp. (2) and the proviso to section 148 may be that notice under section 148 can be issued only when there is material for the relevant A.Y found during the course of search which suggests that income chargeable to tax has escaped assessment. Mere factum of search itself cannot be a reason for issuing notice for re-assessment. In the absence of income has escaped the assessment for the relevant A.Y, it may not be possible for the A.O to obtain prior approval from the specified authority for the relevant A.Y for which notice under section 148 is intended to be issued. Therefore, in our considered view, when the statute provides a particular thing to be done in a 28 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 particular way, the thing has to be done in that way alone and not any other manner which is otherwise not provided under the law. The Hon'ble Supreme Court in the case of Chandra Kishore Jha vs. Mahavir Prasad (1999) 8 SCC 266 in Para 17 laying down the aforesaid principle held that "it is well settled solitary principle that if the statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner". The said principle of law was further reiterated in the case of Cherukuri Mani vs. Chief Secretary, Govt. of Andhra Pradesh (2015) 13 SCC 722. The sum and substance of ratio of the above cited judgements are that if law provides for a thing to be done in a particular manner, then it has to be done in that manner without any deviation. In the present case, the AO invoked clause (i) of Explanation 2 to Section 148, whereas going by the facts of the present case, clause (iii) & (iv) of Explanation 2 of Section 148 is applicable. Therefore, the reasons recorded by the AO for issuing notice u/s 148 of the Act, contrary to Section 148 of the Act is certainly invalid, void ab initio and vitiate the entire assessment proceedings.
29
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
17. The assessee has relied upon various judicial precedents, including the decision of the ITAT, Hyderabad Bench in the case of Excel Rubber Private Limited in ITA Nos. 1566 and 1571/Hyd/2025. We find that, the coordinate Bench of the Tribunal has considered an identical issue of reassessment proceedings in light of search action conducted under section 132 of the Act, and, after considering the relevant provisions of section 148 of the Act, and also the reasons recorded by the A.O. for issuance of notice under section 148 of the Act, held as under:
"10. We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant case laws referred to by the learned Counsel for the assessee and the Ld. CIT-DR present for the Revenue. The learned Counsel for the assessee has made a legal argument in light of provisions of section 148 of the Act and more particularly Explanation (2) and sub clause (iii) & (iv) and argued that, the notice issued by the A.O under section 148 of the Act without fulfilling the conditions provided therein is invalid and consequently, the assessment order passed by the A.O is bad in law and liable to be quashed. Admittedly, there was a search proceeding under section 132 of the Income Tax Act, 1961 in Excel Group of Companies on 04/01/2023 and as part of the search, the assessee company was also searched on 04/01/2023. Consequent to the search, the assessment for the A.Y 2020-21 has been reopened by recording a reason dated 7/2/2024 which is available in page No.12 of the paper book filed by the assessee. Upon perusal of relevant reasons, we find that the A.O has recorded reasons for reopening of the assessment in light of search & seizure operation conducted under section 132 of the Act and consequent quantification of un disclosed income of Rs.6,42,24,650/- for the A.Y 2020-21 and has formed a reasonable belief of escapement of income by virtue of clause (i) of Exp. (2) of section 132 of the I.T. Act and observed that, 30 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 the A.O shall be deemed to have information which suggests that the income chargeable to tax has escaped the assessment in the case of the assessee for the A.Y 2020-21. Therefore, it is necessary for us to adjudicate the legal ground taken by the assessee, challenging the validity of the notice issued under section 148 of the Act and consequent assessment order passed by the A.O in the light of above facts.
11. There is no dispute with regard to the fact that, there was a simultaneous search proceeding on 04/01/2023, in the case of the assessee company and in the case of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager of Exel Rubber Group of companies. The warrants of authorization for conducting the search have been separately issued for the assessee company and Shri Ramesh Kumar Sanaka, Sr. Accounts Manager which is evident from the relevant panchnama drawn on 04/01/2023. Further, the searches were also conducted at different places. The only common thread between these two searches is that Shri Ramesh Kumar Sanaka is Sr. Accounts Manager of Excel Group of Companies and he is a part of search operations conducted in the case of the assessee and other group companies. However, going by the warrant of authorization and consequent Panchanama drawn during the search operation, there is no dispute with regard to the fact that these are separate search proceedings, i.e., one in the case of the assessee company as part of search operations in Excel Group of Companies and another in the case of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager of the assessee group. Further, the materials relied upon by the A.O for making the addition towards the undisclosed income for the year consideration is also on the basis of materials found in the residential premises of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager during the course of the search proceedings in his case which is evident from the relevant statement recorded under section 132(4) of the I.T. Act, and consequent certificate under section 65B of Indian Evidence Act, 1872 drawn during the course of search proceedings. This fact is also further strengthened by the findings of the A.O in the assessment order, where the A.O has clearly stated that the cash receipts recorded in FOCUS 5.5 software were found in the DELL Laptop and copied to the Pen Driver before taking printout during the course of search. Since the A.O has relied upon the seized material found during the course of search in the case of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager, for framing the assessment of the assessee, it is necessary for us to examine the reasons recorded for reopening of the assessment for issuance of notice under section 148 of the Act, in light of provisions of section 148 of the Act. Therefore, for better understanding, we reproduce the provisions of section 148 of the Act, as applicable for the Asst. Year 2020-21 which read as under:31
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 "148. Before making the assessment, reassessment or re-computation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:
94[Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section.] Explanation 1.--For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,--
(i) any information 95[***] in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;
96[(ii)any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or
(iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or 32 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
(iv) any information made available to the Assessing Officer under the scheme notified under section 135A;
or (v) any information which requires action in
consequence of the order of a Tribunal or a Court.] Explanation 2.--For the purposes of this section, where,--
(i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or
(ii) a survey is conducted under section 133A, other than under sub-section (2A) 97[***] of that section, on or after the 1st day of April, 2021, in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee 98[where] the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person. Explanation 3.--For the purposes of this section, specified authority means the specified authority referred to in section 151.]".
33
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
12. The provisions of section 148 of the Act, deals with the assessment, re-assessment or re-computation under section 147 and subject to the provisions of section 148A of the Act, the A.O serves on the assessee a notice requiring him to furnish within such period as may be specified in the said notice, a return of income or income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant Asst. Year. The 1st proviso to section 148 of the Act, provides that, no notice under section 148 shall be issued unless, there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice. Explanation (2) to section 148 deals with a deeming fiction where a search is initiated under section 132 or books of account are requisitioned under section 132A of the Act in the case of the assessee, the A.O shall be deemed to have information which suggests that the income chargeable to tax has escaped the assessment in the case of the assessee where the search is initiated or books of account or other documents are requisitioned in the case of any other person. In the present case, the A.O invoked clause (i) of Exp. (2) for recording reasons and issuance of notice under section 148 of the Act. But, it was the contention of the learned Counsel for the assessee that when the A.O is relied upon the material found during the course of search in the case of any other person for framing the assessment, then clause (iii) or (iv) of Exp (2) to section 148 is applicable and accordingly, the A.O is required to record satisfaction before recording the reasons for reopening of the assessment to the fact that the seized document pertains to or relates to the assessee.
13. Admittedly, clause (i) of explanation (2) of section 148 is applicable to a case, where a search is initiated under section 132 of the Act in the case of the assessee. Clause (iii) & (iv) of Exp (2) is applicable to a situation where the A.O is satisfied with prior approval of the Pr. CIT that any money, bullion, jewellery or other valuable article or things, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1 st day of April, 2021 belongs to the assessee or relates to the assessee. Once clause (iii) & (iv) of Exp. (2) is applicable, then for issuing the notice under section 148 of the Act, the A.O shall satisfy with the prior approval of the Pr. CIT that the books of account or other documents found during the course of search under section 132 in case of any other person belongs to the assessee or relates to the assessee. Only after recording satisfaction with the prior approval 34 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 of the Pr. CIT, the A.O can record reasons for issuance of notice and then such satisfaction should be forwarded to the specified authority for obtaining approval under section 151 of the Act. In the present case on hand, the A.O has not recorded any satisfaction, nor had taken any prior approval from the Pr. CIT for recording satisfaction for issuance of notice under section 148 of the Act. Therefore, in our view, notice issued by the A.O under section 148 of the Act, without mandatory procedure provided under section 148 and explanation provided thereon is bad in law and vitiate the entire proceedings.
14. The A.O has recorded reasons for issuance of notice under section 148 of the Act on 21/11/2023. Upon perusal of the relevant reasons recorded for reopening of the assessment which is available in page 12 of the paper book filed by the assessee, we find that the A.O has considered information received in pursuant to the search & seizure action conducted under section 132 of the Act in the case of Excel Rubber Group of companies and quantification of undisclosed income of Rs.6,42,24,650/- for the A.Y 2020-2021 and formed a reasonable belief of escapement of income by virtue of clause (i) of explanation 2 of section 148 of the Act, on the ground that the A.O shall be deemed to have the information which suggest the income chargeable to tax has escaped the assessment in the case of the assessee for the relevant A.Y. From the reasons recorded by the A.O, it is undisputedly clear that the A.O while arriving at the undisclosed income harped on the material seized from the premises of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager without following the procedures as envisaged in section 148 of the Act which is evident from the reasons recorded for the relevant A.Y. Further, on observations of the reasons recorded, we find that the A.O invoked clause (i) of explanation (2), whereas in the present clause (iii) and
(iv) of explanation (2) of section 148 is applicable because, the A.O has quantified the escaped income on the basis of material found in the residential premises of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager of the assessee company and therefore, the A.O should have arrived at a satisfaction that the said seized material belongs to the assessee which suggested escapement of income for the relevant A.Y. This is because, although there is a deeming provision of information for issuance of notice under section 148 of the Act where search is conducted under section 132 of the Act, but because of 1st proviso of section 148 of the Act, the A.O shall ascertain from the information gathered during the course of search that income chargeable to tax has escaped the assessment in the case of the assessee for the relevant A.Y. Going by the proviso to section 148 of the Act, Explanation 2 provides only a limited relaxation and the 1st proviso to section 148 put a negative 35 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 condition on the A.O with the rider that information which suggests that income chargeable to tax has escaped the assessment for the relevant A.Ys. Therefore, from the above provisions of the Act, it is very clear that no notice under section 148 shall be issued automatically to the searched person and the A.O needs to apply his mind while seeking approval under section 151 from the specified authority and demonstrate that the information discovered/obtained during the search suggest that income has escaped assessment for the relevant A.Y for which notice under section 148 is issued. Further, the satisfaction of the A.O can be demonstrated from the reasons recorded. However, in the present case, going by the reasons recorded, there is no such demonstration by the A.O which is evident from the relevant reasons where the A.O simply relied upon the information submitted by the ADIT (Inv.), quantifying the undisclosed of Rs.6,42,24,650/- for the A.Y 2020-21 which is once again based on the material found in the possession of any other person. Therefore, in the absence of any satisfaction from the A.O, on the basis of information that income escaped the assessment for the relevant A.Y, issuance of notice under section 148 of the Act by considering clause (i) of Exp (2) of section 148 is contrary to the scheme of assessment as provided under section 148 of the Act, in pursuant to the search u/s 132 or requisition u/s 132A of the Act. Therefore, in our considered view, despite the deeming fiction provided under section 148, even in the case of searched person, the A.O may still be required to demonstrate that the income of the relevant A.Y has escaped the assessment before issuing notice under section 148 of the Act.
15. The harmonious interpretation of the deeming fiction created in respect of the person searched under Exp. (2) and the proviso to section 148 may be that notice under section 148 can be issued only when there is material for the relevant A.Y found during the course of search which suggests that income chargeable to tax has escaped assessment. Mere factum of search itself cannot be a reason for issuing notice for re-assessment. In the absence of income has escaped the assessment for the relevant A.Y, it may not be possible for the A.O to obtain prior approval from the specified authority for the relevant A.Y for which notice under section 148 is intended to be issued. Therefore, in our considered view, when the statute provides a particular thing to be done in a particular way, the thing has to be done in that way alone and no any other manner which is otherwise not provided under the law. The Hon'ble Supreme Court in the case of Chandra Kishore Jha vs. Mahavir Prasad (1999) 8 SCC 266 in Para 17 laying down the aforesaid principle held that "it is well settled solitary principle that if the statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner". The 36 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 said principle of law was further reiterated in the case of Cherukuri Mani vs. Chief Secretary, Govt. of Andhra Pradesh (2015) 13 SCC
722. The sum and substance of ratio of the above cited judgements are that if law provides for a thing to be done in a particular manner, then it has to be done in that manner without any deviation. In the present case, the AO invoked clause (i) of Explanation 2 to Section 148, whereas going by the facts of the present case, clause (iii) & (iv) of Explanation 2 of Section 148 is applicable. Therefore, the reasons recorded by the AO for issuing notice u/s 148 of the Act contrary to Section 148 of the Act is certainly invalid, void ab initio and vitiate the entire assessment proceedings.
16. At this stage, it is relevant to refer to the decision of ITAT, Chandigarh Bench in the case of Home Life Buildcon vs. DCIT in ITA No.880/Chd/2024, order dated 17/07/2025, where the Coordinate Bench of the Tribunal in para 21 to 24 held that the AO instead of complying with the jurisdictional pre-conditions laid down under the re-assessment proceedings, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has in fact, gone a step further by bypassing the legal safeguards embedded in Section 147 of the Act, thereby vitiating the assessment proceedings ab initio. The relevant findings of the Tribunal in para Nos. 21 to 24 are as under:
"21. We have gone through the additional ground of appeal as taken before us and also the assessment order, order of the CIT(A), written brief synopsis of the assessee on the issue of additional ground of appeal and also the arguments of the Ld. CIT DR. The facts are not in dispute viz-a-viz the facts that the search was conducted on the assessee on 16.11.2021 and also the fact that separate search was conducted on Sh. Ajay Prabhakar (Deed Writer) and Sh. Ravi Kapoor (Broker in real estate) and distinct and different Panchanama was drawn in their respective names in their cases. In so far as, the first issue regarding the passing of order u/s 143(3) instead, of framing the assessment u/s 147 is concerned, we find that after the search was conducted on 16.11.2021, the case was centralized on 11.03.2022 and the return of Income was filed by the assessee for Asstt. Year 2021- 22 as per the extended time available on 5th of March 2022 and, thus, it is a case where the notice u/s 143(2) was issued after centralization of case and a 37 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 sufficient time had passed from the date of search i.e. 16.11.2021 to the date of issue of notice u/s 143(2), dated 17th of June 2022 and the Assessing Officer was well aware of the information and material including, the material found and seized from the third parties namely Sh. Ajay Prabhakar and Sh. Ravi Kapoor and further to that, we have carefully gone through explanation -2 to section 147 as amended by Finance Act 2021 as 'cited supra', which clearly lays down the mandatory procedure to be followed in search assessment and which apparently has not been followed in the present case.
22. The core question before the Bench is whether, in the facts and circumstances of the case, the assessment ought to have been framed under section 143(3) or under section 147 of the Income-tax Act, 1961. From the plain reading of the statutory provisions and in light of Explanation 2 to section 148, it becomes abundantly clear that the legislature has widened the scope of reassessment, particularly through the Finance Act, 2021, which introduced significant changes to the reassessment regime. These amendments explicitly include instances involving third-party search material and make it incumbent upon the Assessing Officer (AO) to follow the procedure under section 148, including obtaining prior approval from the Principal Commissioner of Income Tax (PCIT).
23. In the present case, the AO proceeded to frame the assessment under section 143(3) despite relying heavily on material found during searches conducted on third parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only, violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has, in fact, gone a step further by bypassing the legal safeguards embedded in section 147, thereby vitiating the assessment proceedings ab initio
24. Furthermore, a plain reading of the Finance Act, 2021 and the Explanatory Memorandum to the Finance Bill clearly indicates that the legislative intent was to bring all searches conducted on or after 1st April 2021 within the ambit of the new reassessment 38 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 regime under section 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to section 147 and section 148, along with the insertion of Explanations 1 and 2, and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation 2 to Section 147, it is evident that in cases where a search is initiated on or after 1st April 2021, the Assessing Officer shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law-specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT-is followed."
17. In so far as the arguments of the Ld. CIT (DR) in light of the decision of the Hon'ble Madras High Court in the case of S. R Trust vs. ACIT (Supra), we find that although the Ld. CIT (DR) argued the principle of constructive possession but, going by the facts of the above case, it is very clear that the case of the assessee was subject to assessment proceedings u/s 153C of the Act in consequent to search proceedings in the case of Trustee of the S.R. Trust and during the course of search proceedings, the Department found certain incriminating material pertains to or relates to the assessee in possession of the employee of the Trustee which has a bearing on the determination of the total income of SR Trust for the relevant A.Y. Since the assessment of the S.R. Trust was taken up with reference to a satisfaction note, recorded u/s 153C of the Act by the AO of the searched person, i.e. the Trustee of SR Trust, the material found in the possession of the employee has been used to arrive at an undisclosed income and for the purpose of the assessment. The appellant contended before the Hon'ble High Court that the material found in the possession of the 3 rd party cannot be used against the assessee. Under those facts, the Hon'ble High Court held that once incriminating material was found in the possession of the searched person, then same material can be used in the assessment of the searched person or any other person referred to u/s 153C of the Act. In the present case, facts are entirely different, because the AO used the material found in the possession of Shri Ramesh Kumar Sanaka, Sr. 39 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 Accounts Manager of Exel Group of Companies found during the course of search proceedings in his case and framed the assessment of the assessee. Therefore, in our considered view, the AO is bound to record satisfaction as per clause (iii) of Exp. (2) to Section 148 of the Act. The provisions of Section 148 of the Act is pari materia to section 153C of the Act. Therefore, satisfaction is pre-requisite before issue of notice under section 153C when the seized material pertains to the other person. In the same manner, when the AO has found the material which was seized in the premise of the other person which pertains to the appellant, he has to write satisfaction and take approval from the Pr. CIT for acquiring jurisdiction. Since, the AO has proceeded on the basis that search is conducted in the case of the assessee and clause (i) of Exp. (2) of Section 148 is applicable and recorded reasons, in our considered view, the reasons recorded by the AO for issue of notice u/s 148 is not in accordance with provisions of Section 148 of the Act and consequently, the notice issued by the AO u/s 148 of the Act and consequent assessment order is without any jurisdiction and ;liable to be quashed.
18. In the instant case, the A.O has made 2 additions, i.e. one addition by relying on the material seized from the residential premises of Shri Ramesh Kumar Sanaka, Sr. Accounts Manager i.e. FOCUS 5.5 software and the other addition by relying on the Pen Drive seized from the factory premises. On observation of the reasons recorded, the A.O has not demonstrated escapement of income as envisaged in the 1st proviso to section 148 of the Act. The A.O failed to prove any nexus between the material seized and the escapement of income while invoking the provisions of section 148 of the Act, which is evident from the relevant reasons recorded for reopening of the assessment. Therefore, in our considered view, the notice issued by the A.O under section 148 of the Act on the basis of the reasons recorded for reopening of the assessment is invalid and consequently, the assessment order passed by the A.O is bad in law and liable to be quashed.
19. The appellant has relied upon certain judicial precedents in support of its contention. The appellant has relied upon the decision of the Hon'ble Bombay High Court in the case of Kartik Suresh Chands vs. Assistant Commissioner of Income Tax (Supra). The Hon'ble High Court in light of provisions of section 148 has held as under:
"It goes to say that even the Asstt. Commissioner, who has sought approval, has not applied his mind. It is opined that if only the Asstt. Commissioner had read the report carefully, he would have never come to the conclusion that there is any material before him to 40 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 treat it as a fit case to issue notice under section 148 or pass order under section 148A(d). The safeguards provided in sections 148 and 151 were lightly treated by the Asstt. Commissioner and the Pr. Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. On this ground alone, the order passed under section 148A(d) and notice issued under section 148 have to be quashed and set aside"
20. The appellant had also relied upon the decision of the Hon'ble Delhi High Court in the case of Divya Capital One Pvt. Ltd vs. Assistant Commissioner of Income Tax (Supra), wherein the Hon'ble Delhi High Court held that "whether it is information to suggest" under amended law or 'reason to believe' under erstwhile law, the benchmark of 'escapement of income chargeable to tax' still remains the primary condition to be satisfied before invoking powers under section 147 of the Act.
21. Similar issue has come up before the Hon'ble Karnataka High Court in the case of Smt. Vasanthi Ramdas Pai vs. Income Tax Officer (Supra), where it has been held that to say that the A.O can invoke section 148 without any reason, could apart from the contrary to law, also falls foul of Article 14'. The Court has further held that on conjoint reading of provisions of section 147 and 148 of the Act, escapement of income is a sine qua non for initiating proceedings under section 147 of the Act."
18. In this view of the matter and considering the facts and circumstances of this case and also by following the ratios of the case laws discussed herein above, we are of the considered view that the notice issued under section 148 of the Act, on the basis of reasons recorded for reopening in light of search action conducted under section 132 of the Act, is bad in law, because the A.O. has considered the material found in the search proceedings conducted in the case of M/s. Vamsiram Group for 41 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 making additions in the hands of the assessee, even though there was a separate and simultaneous search in the case of the assessee. Further, when the A.O. relied upon the material found in the search proceedings of another person on or after the 1st day of April, 2021 which belongs to or relates to the assessee, then the A.O. is required to record reasons for reopening of the assessment in light of Clause (iii) or (iv) of Explanation 2 to section 148 of the Act, by following due procedure under the Act before issuing notice under section 148 of the Act. In the present case, the A.O. has invoked Clause (i) of Explanation 2 to section 148 on the ground that once there was a search, the A.O. shall be deemed to have information which suggests that income chargeable to tax has escaped assessment in the case of the assessee, even though there was a search in the case of the assessee, but the A.O. has made addition only on the basis of material found in the search proceedings of M/s. Vamsiram Group, and consequently, it is incumbent upon the A.O. to record reasons after satisfying with prior approval of the Pr. CIT that the books of account and other material found during the course of search in the case of another person belongs to or 42 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 relates to the assessee. Since the A.O. has recorded reasons on the premise that there was a search action in the case of the assessee under section 132 of the Act, even though the material available on record clearly shows that the addition made by the A.O. is not on the basis of any material found during the search proceedings in the case of the assessee, but based on the material found during the search proceedings in the case of M/s. Vamsiram Group, in our considered view, the reasons recorded for reopening of the assessment and consequent notice issued under section 148 of the Act is invalid and consequently, the assessment order passed by the A.O. becomes void ab initio and liable to be quashed. Therefore, we quash the assessment order passed by the A.O. under section 147 of the Act dated 21.03.2025
19. Ground Nos. 3 and 4 of the assessee's appeal relates to validity of assessment order passed by the A.O. under section 143(3) r.w.s. 147 of the Act, in light of approval for issuance of notice under section 148 of the Act, by the specified authority under section 151 of the Act.
43
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
20. The learned counsel for the assessee submitted that the assessee does not wish to press Grounds Nos. 3 and 4 and thus, Grounds Nos. 3 and 4 are dismissed as not pressed.
21. The next argument of the learned counsel for the assessee, in light of ground Nos. 6 to 10 of assessee's appeal is additions made by the A.O. towards alleged on-money payment made for purchase of commercial space by M/s. M.R. Estates.
22. The Ld. counsel for the assessee, submitted that the Ld. CIT(A) erred in rejecting the explanation of the assessee with regard to evidentiary value of the documents found in the premises of M/s. Vamsiram Group, even though it is a settled principle of law as held by various Courts that the provisions of section 132(4A) and section 292C of the Act, is not applicable in respect of documents found from the premises of a third party. In the present case, the A.O. made addition on the basis of diary and pen drive found from the premises of M/s. Vamsiram Group and alleged that there are certain cash payments made by the assessee for purchase of commercial space and the same has been recorded after truncating last two zeros, but fact remains that the above 44 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 documents are not in the handwriting of the assessee and were not found from the premises of the assessee. Therefore, once a document is not found in the premises of the assessee, the contents recorded therein are not required to be explained by the assessee and the rebuttable presumption contained under section 132(4A) r.w.s. section 292C of the Act is not applicable. In this regard, he relied on the decision of the Hon'ble Gujarat High Court in the case of PCIT Vs. Gaurang Bhai Pramod Chandra Upadhyay (R/Tax Appeal No.98 of 2020 and others dated 25.02.2020). The Ld. counsel for the assessee also relied on the following decisions :
1. SMC Share Brokers Ltd. Vs. DCIT reported in (2008) 22 SOT 7 (ITAT Delhi)
2. Prarthana Constructions (P) Ltd. Vs. DCIT reported in (2001) 118 Taxman 112 (ITAT Ahmedabad).
3. Straptex (India) (P) Ltd. Vs. DCIT reported in [2003] 84 ITD 320 (ITAT Mumbai)
4. Vinit Ranawat Vs. ACIT reported in [2017] 88 taxmann.com 428 (ITAT Pune)
5. Harmohinder Kaur Vs. DCIT reported in [2021] 124 taxmann.com 68 (ITAT Amritsar)
6. ACIT Vs. Kishore Lal Balwani Rai reported in [2007] 17 SOT 380 (ITAT Chandigarh)
7. Rama Traders Vs. First ITO reported in [1998] 25 ITO 599 (ITAT Patna) (TM)
8. Sheth Akshay Pushpavadan Vs. Dy. CIT reported in [2010] 130 TTJ 42 (ITAT Ahmedabad UO) 45 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
9. Jai Kumar Jain Vs. ACIT reported in (2007) 11 SOT 61 (ITAT Jaipur) (URO)
23. The Ld. counsel for the assessee further submitted that, the A.O. has relied upon the pen drive and the diary found from the premises of M/s. Vamsiram Group. The assessee denied the transactions recorded by the third party in the statement recorded during the course of search. Therefore, unless there is corroborative evidence to support the transactions recorded by the third party, there is no evidentiary value for a document seized from the third party which is neither in the handwriting of the assessee nor bears signature. The Ld. counsel for the assessee further submitted that the A.O. has not brought on record any corroborative documentary evidence, such as signed receipts to strengthen the finding that there are cash transactions between the assessee and M/s. Vamsiram Group Builders. Though the A.O. sought to employ the statements of the employees of M/s. Vamsiram Group as corroborative oral evidence, the said statements lack evidentiary value, because these statements were subsequently retracted. Further, there is no specific question asked about the payments made by the assessee to the Managing Director of M/s. Vamsiram Group or to the employees, and the 46 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 statements recorded were general in nature and therefore, cannot be considered as conclusive evidence for payment of cash. In this regard, he relied upon the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Sant Lal reported in (2020) 118 taxmann.com 432 (Delhi) and also the decision of the Hon'ble Bombay High Court in the case of PCIT Vs. Umesh Ishrani (2019) 108 taxmann.com 437 (Bom). He also relied on the following case laws :
o Gavireddygari Aparna Kalyani and Others Vs. ACIT reported in ITA Nos. 3-26/Hyd/2023 and others dated 28.02.2023.
o ACIT Vs. Katrina Rosemary Turcotte reported in (2017) 190 TTJ 681 (ITAT Mumbai Bench).
o ACIT Vs. Anand Jaikumar Jain reported in (2023) 147 taxmann.com 125 (ITAT Mumbai) o Naren Premchand Nagda Vs. ITO reported in IT Appeal No. 3265 (Mum.) of 2015, dated 8-7-2016 (ITAT Mumbai) o MM Financiers (P) Ltd. Vs. DCIT reported in (2007) 107 TTJ 200 (ITAT Chennai) o Pradeep Amrutlal Runwal Vs. TRO reported in [2014] 47 taxmann.com 293 (ITAT Pune) o Prarthana Construction (P) Ltd. Vs. DCIT reported in (2001) 118 Taxman 112 (ITAT Ahmedabad) (Mag).
o ACIT Vs. Prabhat Oil Mills reported in [1995] 52 TTJ 533 (ITAT Ahmedabad).
47
ITA Nos. 310 to 312/Hyd/2026
and ITA 940 and 941/Hyd/2026
o P. Koteshwara Rao Vs. DCIT in ITA Nos.251 and
252/Viz/2012 dated 12.08.2016.
24. The Ld. counsel for the assessee further submitted that, the additions made by the A.O. towards unexplained cash payments are purely on the basis of documents found in the premises of M/s. Vamsiram Group. The assessee has already disowned the documents found in the premises of M/s. Vamsiram Group, because the above documents are not in the handwriting of the assessee. Further, there is no corroborative evidence available with the A.O. for actual cash payments between the assessee and M/s. Vamsiram Group. In the absence of any corroborative evidence for actual cash transactions between the assessee and M/s. Vamsiram Group, the allegation of the A.O. on the basis of oral statements of two individuals (though subsequently retracted) is merely on the basis of suspicion and surmises without there being any conclusive evidence of payment of cash. Since the additions made by the A.O. are without any corroborative evidence, the same cannot be sustained. The Ld. CIT(A), without appreciating the relevant facts, simply on the basis of evidence found from the premises of third party and statements of accounting personnel of M/s. Vamsiram Group Builders, has 48 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 concluded that there is clear evidence of cash payments for purchase of commercial space and the same constitutes unexplained payments of the assessee, even though the documents relied upon by the A.O. are dumb documents without any explanation as to the nature of the transactions. In this regard, he relied upon the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Lavanya Land (P.) Ltd., reported in (2017) 83 taxmann.com 161 (Bom) and also the decision of ITAT, Visakhapatnam in the case of P. Koteswara Rao Vs. DCIT, Central Circle (supra). Therefore, they submitted that the addition made by the A.O. should be deleted.
25. The learned CIT-DR, on the other hand, supporting the order of the A.O., submitted that during the course of search in the premises of M/s. Vamsiram Group, incriminating evidence in the form of diary and pen drive was found, which contain various transactions between M/s. Vamsiram Group and the assessee in cash and the same was not recorded in the regular books of account maintained by the assessee. Further, the maker of the document explained that the entries in the diary had been recorded by truncating last two zeros. The A.O., on the basis of 49 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 evidence found during the course of search coupled with the statements recorded from the employees, has arrived at total cash payments made by the assessee to M/s. Vamsiram Group for purchase of commercial space and treated the same as unexplained cash payments. The learned CIT-DR although accepted the reasons given by the A.O. to treat the cash payments on the basis of documents found during the course of search, but observed that the A.O. erred in treating the above cash payments as unexplained without any basis and also without giving any valid reasons. The documents found during the course of search only contain details of the cash payments made by the assessee. However, it does not show any evidence regarding source of such payments. Therefore, they submitted that the additions made by the A.O. should be upheld.
26. We have heard both parties, perused the material available on record and had gone through the orders passed by the authorities below. We have also carefully considered the relevant evidences considered by the A.O. for making additions towards unexplained cash payments. Admittedly, during the course of search proceedings under section 132 of the Act, in the case of 50 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 M/s. Vamsiram Group, incriminating evidence in the form of diary and pen drive was found and seized which contains various cash transactions. It is also an admitted fact that during the course of survey under section 133A of the Act, nothing was found or impounded from the premises of the assessee, which relates to the additions made by the A.O. towards unexplained cash payments. The A.O. made additions towards cash payments by adding two zeros to the amounts recorded in the diary on the basis of statements recorded from Shri A. Chandrasekhar and Shri Regu Venkata Vara Prasad, wherein they have deposed that the entries in the diary were recorded by truncating last two zeros. According to the A.O., M/s. Vamsiram Group indulged in cash transactions and the same has been recorded by truncating last two zeros and therefore, the amounts recorded in the incriminating evidence have been arrived at by adding two zeros. The A.O. took support from the fact that an unregistered sale agreement for purchase of commercial space was found during the course of search and from the above, the A.O. inferred that the assessee has paid on-money for purchase of commercial space from M/s. Vamsiram Group. Therefore, the entire amount of cash payments culled out from the 51 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 seized diary has been treated as unexplained cash payments of the assessee and added back to the total income. On appeal, the Ld. CIT(A) accepted the reasons given by the A.O. to treat the unexplained cash payments.
27. We have gone through the relevant arguments of the learned counsel for the assessee and we found that, the additions made by the A.O. are on the basis of documents found from the premises of a third party. It is a well-established principle of law by the decisions of various Courts that the documents found from the premises of a third party, the rebuttable presumption as per section 132(4A) and section 292C of the Act, is not applicable. Therefore, it is necessary for the A.O. to support the addition with further corroborative evidence in cases, where any addition is made on the basis of third party information. In case there is no corroborative evidence, then there is no scope for making addition on the basis of third party evidence, because the presumption under section 132(4A) is not applicable and the assessee is not required to explain the said documents. This principle is supported by the decision of the Hon'ble Gujarat High Court in the case of PCIT Vs. Gaurang Bhai Pramod Chandra Upadhyay 52 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 (supra), wherein the Hon'ble High Court clearly held that since the documents were not found or recovered from the premises of the assessee, no presumption under section 132(4A) r.w.s. section 292C of the Act, could be drawn against the assessee in such circumstances. A similar view has been taken by the Hon'ble High Court of Patna in the case of Dharmaraj Prasad Bibhuti Vs. ITAT, Patna reported in (2019) 109 taxmann.com 388 (Patna), wherein it was held that the presumption under section 292C of the Act, can only be drawn against such person from whose possession or control any books of accounts or other documents, money, etc. are found during the course of search. The sum and substance of the ratio laid down by various Courts is that the rebuttable presumption under section 132(4A) r.w.s. section 292C of the Act, cannot be pressed into service against the assessee with regard to material seized during the course of search from the premises of a third party, unless there is corroborative evidence. Therefore, in our considered view, the addition made by the A.O. on the basis of third party evidence without any corroborative evidence cannot be sustained.
53
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
28. Further, the documents found during the course of search are claimed to have been recorded by M/s. Vamsiram Group by truncating last two zeros. The A.O. has arrived at the above conclusion from the statements recorded from Shri Chandrasekhar Atla and Shri Regu Venkata Vara Prasad, who during the course of search recorded statements under section 132(4) of the Act, wherein they deposed that the entries contained in the diary have been recorded by truncating last two zeros. The A.O., on the basis of statements recorded from two individuals, has reached a conclusion that the entries in the diary have been recorded by truncating last two zeros and accordingly added two zeros to the amounts recorded therein and arrived at total cash payments alleged to have been made by the assessee to M/s. Vamsiram Group Builders. Once again, we do not subscribe to the reasons given by the A.O. for the simple reason that, the loose sheets found during the course of search from third party premises were neither in the handwriting of the assessee nor containing any signature of the assessee. Once the documents are neither in the handwriting of the assessee nor bearing any signature of the assessee, then on the basis of third party 54 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 statements without any confrontation to the assessee for its rebuttal, the additions cannot be made. In the present case, no such corroborative documentary evidence by way of signed receipts or otherwise was unearthed during the course of search and there is no reference to any corroborative evidence in the assessment order. Although, the A.O. tried to establish that the entries contained in the Excel sheet found in the pen drive are recorded by truncating two zeros by conducting enquiries in the case of certain payments made by the assessee group for rendering certain services and claimed that in many cases, the bills submitted by the service providers and payments made by the assessee for rendering such services are in lakhs, whereas the payments recorded in the seized Excel sheets are in thousands, and from the above, it is very clear that the assessee has recorded all entries in the Excel sheets by truncating two zeros. We, once again, do not agree with the reasons given by the A.O. for the simple reason that the A.O. has examined various third parties with reference to payments made to them and linked the said payments to the entries recorded in the Excel sheets found from the pen drive and claimed that these entries are recorded after 55 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 truncating two zeros. However, the A.O. has not made any attempt to examine the assessee with reference to the entries recorded in his name so as to ascertain whether the payments made by the assessee are exactly what is recorded in the Excel sheet after truncating two zeros. Since the A.O. has not examined the assessee with reference to the said entries and solely relied upon the enquiry conducted in the case of the third party, in our considered view, the conclusion drawn by the A.O. on the basis of third party enquiries that the assessee has also received the amount from M/s. Vamsiram Group and the same has been recorded after truncating two zeros is only a suspicion and is not backed by any evidence and cannot be accepted. Further, the A.O. sought to rely upon the statements of the employees of M/s. Vamsiram Group as corroborative oral evidence, but said statements lack any evidentiary value, because these statements were retracted subsequently. Further, there is no specific question about the payment made by the assessee was put to the Managing Director of M/s. Vamsiram Group or to the employees of M/s. Vamsiram Group Builders, therefore, the generalized statements recorded from the employees cannot be considered as conclusive 56 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 evidence to allege cash payments made by the assessee. Therefore, in our considered view, in the absence of any corroborative evidence and merely on the basis of statements of two individuals, additions cannot be made.
29. We further note that, the maker of the statement is answerable to the contents, however, unless the said documents are found in the premises of the assessee, the assessee need not to explain the said documents and is also not answerable to the statements of third parties. In the present case, neither the A.O. has brought on record any corroborative evidence to support the statements of the third parties nor confronted the said statements of the third party to the assessee for its rebuttal. Since the assessee denied any cash payments to M/s. Vamsiram Group and further, the A.O. does not have any evidence to support the finding that the entries contained in the diary represent unaccounted cash payment of the assessee, in our considered view, merely on the basis of statements of third parties, no addition can be made. This legal position has been laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Sant Lal (supra) wherein it has been held that where the diary was found 57 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 from the premises of a third party allegedly containing entries including the assessee, no addition can be made based on the said entries, since the diary was neither found from the premises of the assessee nor was in the handwriting of the assessee and the Revenue failed to produce cogent evidence to link the assessee to the diary. A similar view has been taken by the Hon'ble Allahabad High Court in the case of CIT Vs. Shadiram Ganga Prasad Charitable Trust, Smt. Prema Lata Kanodia and Shri S.P. Kanodia reported in (2011) 9 taxmann.com 119, wherein it was clearly held that in the absence of corroborative evidence, no adverse inference can be drawn from the entries against the assessee. Therefore, in our considered view, the additions made by the A.O. and sustained by the Ld. CIT(A) cannot be sustained.
30. Coming back to another argument of the Ld. counsel for the assessee. The Ld. counsel for the assessee submitted that, the evidence relied upon by the A.O. for making addition does not have any evidentiary value unless it is supported by corroborative evidence. It is an admitted fact that the sole basis for the A.O. to make addition is the documents found from the premises of M/s. Vamsiram Group. The A.O. has not referred to any independent 58 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 corroborative documentary evidence in support of his conclusions in the assessment order. The Hon'ble Bombay High Court in the case of PCIT Vs. Umesh Ishrani (supra) considered an identical issue and held that the additions made by the A.O. on the basis of entries found in loose sheets without any corroborative evidence are not sustainable. In the present case, it is an admitted fact that the A.O. during the course of assessment proceedings neither carried out any further enquiries to ascertain the nature of entries contained in the diary nor brought on record any independent corroborative evidence like cash receipts or bills submitted by the assessee so as to conclude that M/s. Vamsiram Builders has received cash payments for purchase of commercial space. The A.O. has not brought on record any evidence to prove that there is exchange of cash between the parties. It is very important for the A.O. to bring further evidence, including cash receipts, to support the entries contained in the seized documents, as held by the Hon'ble Bombay High Court in the case of CIT Vs. Lavanya Land Pvt. Ltd. (supra), wherein it was held that the addition made under section 69C of the Act, towards cash payments based on the contents of seized documents is not sustainable where there is 59 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 no material to conclusively show that huge amounts revealed from seized documents were actually transferred from one side to another. This decision was further fortified by the decision of the Hon'ble Supreme Court in the case of Pr. Commissioner of Income-tax Vs. Krutika Land (P.) Ltd. reported in [2019] 103 taxmann.com 9 (SC). The ITAT, Visakhapatnam in the case of P. Koteswara Rao Vs. DCIT (supra) has also considered an identical issue and held that the maker of a statement can bind himself with the said statement, but it cannot bind others without there being any further evidence on record. The Tribunal further noted that, the A.O. failed to note that admission of other parties cannot be considered as conclusive evidence against the assessee unless there is corroborative evidence on record. In the present case, the addition made by the A.O. is only on the basis of loose sheets found during the course of search from the premises of a third party without any corroborative evidence. The assessee denied the documents found during the course of search and also denied having made any cash payments to M/s. Vamsiram Group Builders. Since the assessee has denied such payments and there is no conclusive proof brought on record by the A.O. to establish 60 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 that there were cash transactions between the assessee and M/s. Vamsiram Group Builders, in our considered view, the additions made by the A.O. on the basis of evidence found from the third party cannot be sustained.
31. Coming back to the findings of the Ld. CIT(A). The Ld. CIT(A) approved the findings recorded by the A.O. to treat the cash payments as unexplained money of the assessee under section 69A of the Act, on the basis of evidence found during the course of search and statements recorded from the employees of M/s. Vamsiram Group and observed that the evidence clearly shows the date of transactions, particulars of payments and the same has been admitted by the employees. We once again do not agree with the findings recorded by the Ld. CIT(A) for the simple reason that, the Ld. CIT(A) has not brought on record any supporting evidence to reach to the above conclusion that the documents found during the course of search show clear transactions between the assessee and M/s. Vamsiram Group. Further, the Ld. CIT(A) has relied upon the statements of Shri Chandrasekhar Atla and Shri Regu Venkata Vara Prasad, but fact remains that the above two persons have retracted their statements and filed retraction statements 61 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 before the Investigating Officer. Once the initial statements recorded have been subsequently retracted by filing affidavits, then there is no evidentiary value for the initial statements unless the statements recorded at the time of search are further corroborated by any independent evidence. Since there is no corroborative evidence before the A.O. and the Ld. CIT(A) to support the finding of cash payments by the assessee, in our considered view, the conclusion drawn by the Ld. CIT(A) that there is clear evidence of cash payments is contrary to the material available on record and cannot be accepted. Therefore, for the above reasons, addition made by the A.O. for cash payments canot be sustained.
32. The next leg of the argument of the learned counsel for the assessee, in light of Grounds Nos. 5 and 11 of the assessee's appeal, is with regard to addition made by the A.O. towards on- money paid for purchase of property under section 69A of the Income-tax Act, 1961.
33. The learned counsel for the assessee, referring to the additions made by the A.O. towards alleged on-money under 62 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 section 69A of the Act, submitted that the additions made by the A.O. and sustained by the Ld. CIT(A) is unsustainable in law, because the essential conditions to invoke provisions of section 69A of the Act, is ownership of money or valuable assets, and evidence of such articles not being recorded in the books of accounts, if any, and failure to satisfactorily explain the nature and source of said investment. In the present case, the A.O. made additions towards on-money payment made for purchase of the property on the basis of entries in the loose sheets found during the course of search and the said entries cannot be considered as money, bullion, jewellery or other valuable article and further, the same should not be considered as books of account for the purpose of invoking section 69A of the Income-tax Act, 1961. Therefore, they submitted that, the allegation of payment of on- money on the basis of entries in the loose sheets does not fit into the provisions of section 69A of the Act, and therefore, the additions made by the A.O. under section 69A of the Act, cannot be sustained. In this regard, they relied upon the decision of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Ravi Kumar (2008) 168 Taxmann.com 150 (Punjab and Haryana) 63 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 and also the decision of ITAT, Hyderabad in the case of M/s. R.K. Infracorp Private Limited Vs. DCIT in ITA Nos.363 and 235/Hyd/2025 dated 25.02.2016.
34. The learned CIT-DR. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, merely because of reference to wrong section in the assessment order, the addition made by the A.O. towards alleged on-money payment for purchase of the property cannot be held to be unsustainable in law. Further, it is essential to see the substance over the form and, going by the facts of the present case, it is an admitted fact that, the assessee has paid on-money for purchase of the property and the same has been recorded in the excel sheets after truncating the last two zeros. The A.O., after considering the relevant facts and also on the basis of statements of employees, has rightly arrived at on-money payment made for purchase of the property and thus, the addition made by the A.O. should be upheld.
35. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. 64
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 We have also carefully considered the relevant provisions of section 69A of the Act, along with the various case laws referred to by the learned counsel for the assessee. The provisions of section 69A deals with unexplained money, etc., and as per the said provision, where, in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature and source of acquisition of such money, bullion, jewellery, etc., or the explanation offered by him, is not in the opinion of the A.O., satisfactory, then the money and the value of bullion or jewellery or any other valuable article may be deemed to be the income of the assessee for such financial year. The plain reading of section 69A of the Act, it is very clear that in order to invoke section 69A of the Act, the assessee should be the owner of any money, bullion, jewellery or any other valuable article and the same should not be recorded in the books of account, if any, maintained by him and further, the explanation offered by the assessee is not satisfactory. In the present case, the A.O. made 65 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 additions towards alleged on-money payment made for purchase of property by the partnership firm as unexplained money under section 69A of the Act, even though the A.O. has not found any money, bullion, jewellery or other valuable article during the course of search in the case of the assessee. Further, the A.O. has considered the additions on the basis of entries contained in the loose sheets and in our considered view, the loose sheets found during the course of search cannot be considered as books of account for the purpose of section 69A of the Act, and therefore, invocation of section 69A of the Act, in this case is totally contrary to the facts available on record and cannot be accepted. Therefore, in our considered view, the additions made by the A.O. under section 69A of the Act, cannot be sustained.
36. The assessee has relied upon the decision of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Ravi Kumar (supra), and we find that, the Hon'ble High Court on identical set of facts has held as under :
"A Division Bench of the Calcutta High Court in Kantilal Chandulal & Co. v. CIT [1982] 136 ITR 889/10 Taxman 265, while interpreting the provisions of section 69A, had laid down that two conditions need to be fulfilled before the provisions of section 69A are applied. The first condition for applying the provisions of section 69A is that the assessee should be found to be owner of any money, bullion, jewellery or other 66 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 valuable article and, secondly, the same should not be found recorded in the books of account, if any, maintained by him. [Para 7] In the instant case, the assessee was found to be in possession of loose slips and not of any valuable articles or things. Neither the possession nor the ownership of any jewellery mentioned in the slips could be proved. In view thereof, the provisions of section 69A had rightly not been applied by the Tribunal to the facts of the instant case. Accordingly, the Tribunal was right in deleting additions made by the Assessing Officer. [Para 8] The revenue could not point out any illegality on the basis of which the findings recorded by the Tribunal could be said to be perverse. Therefore, the findings recorded by the Tribunal were not perverse. [Para 10]"
37. The assessee has also relied upon the decision of ITAT, Hyderabad Bench in the case of R.K. Infracorp Private Limited Vs. DCIT (supra). The Coordinate Bench of the Tribunal, under identical set of facts, has held as under :
"Coming to the facts of the present case, we find that it is the claim of the revenue that they had during the course of the search proceedings conducted on the assessee company seized certain loose sheets, viz., Annexure A-1/Pages 01-02, which revealed that certain expenses that were debited by the assessee company and claimed as a deduction either during the year under consideration or in the immediately preceding year were received back in cash from the concerned parties. However, we concur with the CIT(A) that as during the course of the search proceedings, no corroborative evidence based on the notings of the seized loose sheets, viz. Annexure A-1/Pages 01-02 was found which would reveal that the assessee company was the owner of any unaccounted cash, unaccounted jewellery, unaccounted assets etc., therefore, the basic pre-condition for invoking the provisions of section 69A of the Act, i.e., ownership of money or bullion, jewellery or valuable articles, not recorded in the books of recorded in the books of accounts and failure to satisfactorily explain the nature and source of the same is in itself not met out, as a result whereof the provisions of section 69A of the Act could not have been invoked by the AO. Our aforesaid view that the first condition for applying the provisions of Section 69A is that the assessee should be found to be the owner of any money, bullion, jewellery or other valuable article and, secondly, the same should not be found recorded in the books of account of the assessee, if any, maintained by him is supported by the Judgment of the Hon'ble High Court of Punjab & Haryana in CIT Vs. Ravi Kumar (2008) 168 Taxman 67 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 150 (P&H). In the case before them, the Hon'ble High Court observed that based on the loose slips found in the course of he search proceedings from the assessee the addition was made under Section 69A of the Act. The Hon'ble High Court observed that the assessee before them was found in possession of loose slips and not of any valuable article or thing. Also, it was further observed that neither the possession nor the ownership of any jewellery mentioned in the slips could be proved. The High Court, based on the aforesaid facts, upheld the view taken by the Tribunal that the provisions of Section 69A of the Act could not have been applied. Also, we find that a similar view had earlier been taken by the Hon'ble High Court of Calcutta in the case of Kantilal Chandulal & Co. Vs. CIT (1982) 136 ITR 889 (Cal). 49. Alternatively, the CIT(A) has rightly observed that now, when the AO, while framing the assessment, had himself tried to relate the entries in the seized loose sheets with the duly recorded entries in the books of accounts of the assessee company, i.e., as cash received by the assessee company from its vendors/sub- contractors on account of bogus or inflated expenses that it had booked in its books of account for either the year under consideration or the Immediately preceding year, thus, the said aspect itself contradicts the invoking of the provisions of section 69A of the Act.. We, thus, in terms of our aforesaid observations concur with the CIT(A) that as the AO had failed to take cognizance of the fact that the basic conditions required for triggering the provisions of section 69A of the Act in the case of the assessee company had not been satisfied, therefore, there could have been no justification for him to have made the impugned additions qua the alleged bogus or inflated expenses in the hands of the assessee company under the said statutory provision". The Ground of appeal No.3 raised by the revenue is dismissed."
38. The assessee has also relied upon the decision of Hon'ble Supreme Court, in the case of D.N. Singh Vs. CIT, Central reported in (2023) 150 taxmann.com 301 (SC) and the Hon'ble Supreme Court on the issue of difference between section 69 and section 69A of the Act, held as under :
"Section 69 and section 69A, apart from being close neighbours, do bear resemblance with one another. Section 69 deals with unexplained investment. Section 69A deals with unexplained money, bullion, jewellery or other valuable articles. Section 69A was inserted by Amending Act 5 of 68 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 1964 and it came into effect with effect from 1-4-1964. Both sections require that the subject matter of the provisions, viz., investments in the case of section 69 and money, bullion, jewellery or other valuable articles in the case of section 69A are not recorded in the books of account. That is, in a case where Books of Account are maintained. In the case of investments under section 69, necessarily, the Law Giver contemplates the Assessing Officer finding that the assessee had made the investments. In the case of section 69A, the assessee must be found to be the owner of the money, bullion, jewellery or other valuable articles. In both cases, if the assessee is able to offer an explanation for the nature and the source for the investments and money, bullion, jewellery or other valuable articles, respectively, and it is not found unsatisfactory, there can be no deemed income under either section. [A.Para 26]"
39. In the present case, there is no dispute with regard to the fact that the A.O. has not found any money, bullion, jewellery, or any other valuable article. Further, the addition made by the A.O. is not based on books of account maintained by the assessee, but is based on entries contained in the loose sheets. In our considered view, loose sheets found during the course of search cannot be considered as books of account maintained by the assessee. Therefore, for all these reasons, additions made by the A.O. under section 69A of the Act, towards alleged on-money payment for purchase of the property by a partnership firm as unexplained money under section 69A of the Act, cannot be sustained. Thus, we delete the additions made by the A.O. towards alleged on-money payment for purchase of the property under section 69A of the Act.
69
ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026
40. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the additions made by the A.O. towards alleged on-money payment made for purchase of property where the property has been purchased by the partnership firm, namely M/s. M.R. Estates, as unexplained money of the assessee under section 69A of the Act. The learned CIT(A), without appreciating the relevant facts, simply sustained the additions made by the A.O. Thus, we set aside the order of the learned CIT(A) and delete the additions made by the A.O. towards on-money payment made for purchase of the property under section 69A of the Income-tax Act, 1961.
41. In the result, the appeal filed by the assessee for A.Y. 2020- 21 is allowed.
ITA Nos.311 and 312/Hyd/2026 for A.Y. 2021-22 and 2022-23
42. The facts and issues involved in these two appeals are identical to the facts and issues which we had considered in the assessee's own case in ITA No.310/Hyd/2026 for A.Y. 2020-21. The only difference in these two appeals filed by the assessee is that the Ld. CIT(A) confirmed the additions made by the A.O. 70 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 towards alleged on-money payment made for purchase of the property in the hands of the assessee wherever the A.O. has made substantive additions. Further, the Ld. CIT(A) deleted the protective additions made by the A.O. towards alleged on-money payment made for purchase of the property for both the assessment years, because the substantive additions made in the hands of M/s. M.R. Estates have been confirmed. Except for the above changes, there is no change in facts for both the assessment years. The A.O. made addition towards alleged on- money payment made for purchase of commercial space by M/s. M.R. Estates in the hands of the assessee on the basis of excel sheets found during the course of search in a pen drive in the case of Vamsiram Builders. We had considered an identical issue of additions made towards alleged on-money payment made for purchase of property for the assessment year 2020-21. The grounds raised by the assessee, including legal grounds challenging the validity of notice issued under section 148 of the Act, are similar to the grounds raised for A.Y. 2020-21. Therefore, the reasons given by us, in the preceding paragraph nos. 25 to 40 shall mutatis mutandis apply to these appeals as well. Therefore, 71 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 for similar reasons, we delete the additions made by the A.O. towards on-money payment made for purchase of property as unexplained money under section 69A of the Act, for the assessment years 2021-22 and 2022-23.
43. In the result, the appeals filed by the assessee for A.Ys. 2021-22 and 2022-23 are allowed.
ITA Nos.940 and 941/Hyd/2026 for A.Y. 2021-22 and 2022-23.
44. Coming to the appeals of the Revenue. The Revenue has challenged the deletion of additions made by the A.O. towards alleged on-money payment for purchase of property under section 69A of the Act, for both the assessment years. The Ld. CIT(A) deleted the additions made in the hands of the assessee for the assessment years 2021-22 and 2022-23 on protective basis, because the substantive additions made in the hands of M/s. M.R. Estates, a partnership firm, have been confirmed on similar grounds. The Revenue has challenged the findings of the Ld. CIT(A) only on one ground that unless the issue of substantive additions and protective additions made towards on-money payment made for purchase of property in the hands of the 72 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 assessee and M/s. M.R. Estates have reached finality, the Ld. CIT(A) ought not to have deleted the protective additions made in the hands of the assessee. Except this, the Revenue has not advanced any arguments as to why the protective additions made in the hands of the assessee should not be sustained. Since the substantive additions made in the hands of M/s. M.R. Estates have been upheld by the Ld. CIT(A) and the same has been dealt separately in the appeals filed by the assessee, M/s. M.R. Estates, in our considered view, there is no error in the findings of the Ld. CIT(A) to delete the protective additions in the hands of the assessee, because the alleged on-money payment made for purchase of property has to be dealt with in the case of M/s. M.R. Estates only, because it was the partnership firm which has purchased the property and on-money, if any, paid for purchase of the property, should be considered in the hands of the partnership firm only, but not in the hands of assessee. Therefore, in our considered view, there is no error in the order of the Ld. CIT(A) to delete the protective additions in the hands of the assessee in both the assessment years and thus, we are inclined to uphold the 73 ITA Nos. 310 to 312/Hyd/2026 and ITA 940 and 941/Hyd/2026 findings of the Ld. CIT(A) and dismiss the appeals filed by the Revenue for both the assessment years.
45. In the result, both the appeals filed by the Revenue are dismissed.
46. To sum up, the appeals of assessee are allowed and the appeal of Revenue are dismissed.
Order pronounced in the Open Court on 30th April, 2026.
Sd/- Sd/-
श्री विजय पाल राि (मंजूनाथ जी)
(VIJAY PAL RAO) (MANJUNATHA G.)
उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER
Hyderabad, dated 30.04.2026.
TYNM/sps
74
ITA Nos. 310 to 312/Hyd/2026
and ITA 940 and 941/Hyd/2026
आदे शकी प्रतततिति अग्रेतषत/ Copy of the order forwarded to:-
1. तिर्ााररती/The Assessee : Bharat Kumar Kondareddy, D.No.8-2-293/82A/405, Road No.22A, Jubilee Hills, Hyderabad - 500033.
2. राजस्व/ The Revenue : The Deputy Commissioner of Income Tax, Central Circle -1(1), Hyderabad The Assistant Central Circle 2(4), Hyderabad.
3. The Principal Commissioner of Income Tax, (Central), Hyderabad.
4. तिभागीयप्रतततितर्, आयकर अिीिीय अतर्करण, हैदराबाद / DR, ITAT, Hyderabad
5. गार्ा फ़ाईि / Guard file आदे शािुसार / BY ORDER TIRUPATI Digitally signed by TIRUPATI YAMINI NAGA YAMINI NAGA MALLESWARI Date: 2026.04.30 16:59:16 MALLESWARI +05'30' Sr. Private Secretary ITAT, Hyderabad