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Tax Publishers Mani Square Ltd. v. Asstt. CIT [IT (SS) A Nos. 58 to 62, 75 to 78/Kol/2019, dt. 6-8-2020] : 2020 TaxPub(DT) 3121 (Kol-Trib) Search and seizure -- Additions on alleged incriminating evidences/documents -- Sustainability *Facts:* A search and seizure operation took place in the hands of a third party based on which additions for on monies was sustained by assessing officer against the assessee who was in real estate business. Subsequently vide a separate search and seizure operation undertaken in assessee's premises as well certain additions were sustained. The additions broadly could be bucketed as under -- 1. On monies collected by assessee based on papers from search of 3rd party. 2. Telescoped additions were made on assessee on loans and interest paid by assessee holding that these were from entry operators/bogus transactions thus deserve addition under section 68, 69C. 3. Assessment order issued with additions made in the name of an non-existent entity which stood since merged with assessee -- validity of the same was questioned by assessee. In a complex maze of appeals by both assessee and department the ITAT adjudicated the said issues as under -- Held in favour of the assessee that the additions could not be sustained. 1. In case of a search the assessing officer is required to make a block assessment for 6 prior assessment years depending on whether or not the assessments in those years were completed assessments (unabated) or open (abated) assessments vide section 153A. 2. In respect of abated assessments assessing officer is empowered to make additions based on the search operation as he deems it fit giving him greater latitude on this. 3. In respect of unabated assessments they will remain sine die unless there is incriminating evidences unearthed in the search and seizure based on which alone the assessment may be reassessed. But existence of incriminating evidence is a must to reopen/reassess the unabated assessment years. Thus held in CIT v. Kabul Chawla (2016) 380 ITR 573 (Del) : 2015 TaxPub(DT) 3486 (Del-HC). Department SLP appeal dismissed vide 380 ITR (St.) 4 (SC). 4. To trigger additions based on evidences unearthed in a search and seizure operations of a third party; process under section 153C needs to be followed by referring the evidences to the jurisdictional assessing officer who then has to initiate action by issuing a notice. If this is not followed the additions cannot be sustained. 5. When such third party evidences are put across for sustaining additions the assessing officer is expected to offer the assessee the right of cross examination of such evidences/witnesses/recorded statements in the absence of which the additions become invalid. 6. To impute addition under section 68 there has to be a credit in the books in the books of accounts in the said assessment year. To sustain addition under section 68/69C, assessing officer is expected to investigate and confirm with adducing evidences that the additions were warranted and they being bogus in nature or were only hawala transactions. In the absence of the same the onus shifts to benefit of assessee especially if he was able to produce a number of reasons/evidences. 7. Telescoping additions based on estimates and surmises cannot be sustained. 8. Assessment made on a non-existent entity is void. This is confirmed by Maruti Suzuki SC case. *Editorial Note:* There are a number of verdicts discussed in this lengthy judgment which are worth revisiting on additions made post search and seizure operations.

Tax Publishers

Mani Square Ltd. v. Asstt. CIT [IT (SS) A Nos. 58 to 62, 75 to 78/Kol/2019, dt. 6-8-2020] : 2020 TaxPub(DT) 3121 (Kol-Trib)

Search and seizure -- Additions on alleged incriminating evidences/documents -- Sustainability

Facts:

A search and seizure operation took place in the hands of a third party based on which additions for on monies was sustained by assessing officer against the assessee who was in real estate business.

Subsequently vide a separate search and seizure operation undertaken in assessee's premises as well certain additions were sustained.

The additions broadly could be bucketed as under --

1. On monies collected by assessee based on papers from search of 3rd party.

2. Telescoped additions were made on assessee on loans and interest paid by assessee holding that these were from entry operators/bogus transactions thus deserve addition under section 68, 69C.

3. Assessment order issued with additions made in the name of an non-existent entity which stood since merged with assessee -- validity of the same was questioned by assessee.

In a complex maze of appeals by both assessee and department the ITAT adjudicated the said issues as under --

Held in favour of the assessee that the additions could not be sustained.

1. In case of a search the assessing officer is required to make a block assessment for 6 prior assessment years depending on whether or not the assessments in those years were completed assessments (unabated) or open (abated) assessments vide section 153A.

2. In respect of abated assessments assessing officer is empowered to make additions based on the search operation as he deems it fit giving him greater latitude on this.

3. In respect of unabated assessments they will remain sine die unless there is incriminating evidences unearthed in the search and seizure based on which alone the assessment may be reassessed. But existence of incriminating evidence is a must to reopen/reassess the unabated assessment years. Thus held in CIT v. Kabul Chawla (2016) 380 ITR 573 (Del) : 2015 TaxPub(DT) 3486 (Del-HC). Department SLP appeal dismissed vide 380 ITR (St.) 4 (SC).

4. To trigger additions based on evidences unearthed in a search and seizure operations of a third party; process under section 153C needs to be followed by referring the evidences to the jurisdictional assessing officer who then has to initiate action by issuing a notice. If this is not followed the additions cannot be sustained.

5. When such third party evidences are put across for sustaining additions the assessing officer is expected to offer the assessee the right of cross examination of such evidences/witnesses/recorded statements in the absence of which the additions become invalid.

6. To impute addition under section 68 there has to be a credit in the books in the books of accounts in the said assessment year. To sustain addition under section 68/69C, assessing officer is expected to investigate and confirm with adducing evidences that the additions were warranted and they being bogus in nature or were only hawala transactions. In the absence of the same the onus shifts to benefit of assessee especially if he was able to produce a number of reasons/evidences.

7. Telescoping additions based on estimates and surmises cannot be sustained.

8. Assessment made on a non-existent entity is void. This is confirmed by Maruti Suzuki SC case.

Editorial Note: There are a number of verdicts discussed in this lengthy judgment which are worth revisiting on additions made post search and seizure operations.