S. R. Constructions Vs DCIT (ITAT Bangalore)
Search-Based Additions Cannot Rest Solely on 132(4) Statements—ITAT Deletes Bogus Sub-Contractor Additions; Affidavits, RA Bills & Unrebutted Evidence Prevail
The appeals filed by S.R. Constructions and the cross-appeals by the Revenue arose from assessments completed u/s 153A pursuant to a search conducted on 23-11-2016 at the Ananthapur & Bangalore offices. The AO treated substantial payments to 27 sub-contractors as bogus expenditure, relying almost entirely on statements recorded u/s 132(4), the presence of certain signed/unsigned cheque books, and the declaration extracted during search.
The Assessee explained that the cheque books were kept only for logistical convenience because the sub-contractors executed work in remote areas without banking access, and employees withdrew cash strictly for labour payments. It was emphasised that no cash, valuables, unaccounted assets, or incriminating documents were found during search. RA bills, work orders, tax returns of sub-contractors, affidavits, audit reports, ledgers and contemporaneous documents—many of which formed part of the seized record—were produced to prove that all sub-contractors were genuine.
The Tribunal noted that despite filing affidavits from all 27 sub-contractors, the AO did not examine any of them, nor did he reject the books of account. Summons issued during investigation were abandoned by the Department after the sub-contractors appeared. The AO relied only on parts of the statements recorded under stressful search conditions without corroborative material. The Tribunal held that 132(4) statements cannot, by themselves, constitute incriminating material—particularly when the assessees file voluminous counter-evidence which is not rebutted.
The CIT(A) had partly sustained additions based on whether cheque books were found, but the Tribunal held that such a mechanical distinction had no evidentiary basis. The Revenue’s reliance on the so-called “admission” doctrine also failed because uncontroverted affidavits and documentary evidence showed that genuine work was executed and payments were made through banking channels with TDS.
For AY 2016-17, disallowance u/s 40A(3) was also deleted since cash payments were proved to fall under Rule 6DD exceptions and, in any event, additions cannot be made when income is already assessed on estimated basis.
Applying the principles laid down in Abhisar Buildwell (SC), the Tribunal noted that in an unabated assessment, additions must be based on incriminating material—none existed here beyond cheque books whose presence was satisfactorily explained.
Result
All additions towards alleged bogus sub-contractor expenditure deleted; 40A(3) disallowance deleted; Revenue’s appeals dismissed; Assessee’s appeals allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
ITA Nos.636, 637/Bang/2025 :
