Procedure of Additions / Assessments etc in Search and Seizure cases.

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Procedure of Additions / Assessments etc in Search and Seizure cases.

Issue has  been aptly elaborated by Kolkata Tribunal in RASHMI METALIKS LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX ITAT, KOLKATA ‘B’ BENCH

The key ratio of the decision in a nut shell is as under-

  1. In the absence of any incriminating material, completed assessment cannot be disturbed in the assessment under s. 153A; since the assessment for the relevant assessment year was not pending before the AO when the second search was conducted against the assessee and no incriminating material was found in the course of said search for making disallowance under s. 40(a)(ia), no addition or disallowance was permissible while framing the assessment under s. 153A
  1. AO having neither himself examined the persons whose statements recorded by the Investigation Wing were made the basis of the addition nor allowed an opportunity to be assessee to cross-examine any of these persons, the additions were made without complying with principles of natural justice; statements recorded from third parties behind the back of the assessee that the assessee has utilised accommodation entries through them cannot be construed as incriminating material found in the course of search when such adverse material/statements has not been provided to the assessee enable it to rebut/cross-examine the said parties; in the absence of any evidence on record to prove that the cash deposited in the bank accounts of entities forming part of the alleged cash trail either belonged to the assessee-company or originated from it, the impugned addition under s. 68 as well as addition towards alleged commission paid for obtaining entries are not sustainable
  1. Admittedly the assessment records of the share applicant, MSS Ltd. were transferred to the charge of Dy. CIT, CC-2(2), Kolkata only because search under s. 132 was conducted in R Group. It is a well established practice for the IT Department to centralize all cases belonging to any one Group which is subjected to search and seizure proceedings under s. 132. Not only the assessment records of MSS Ltd. was transferred to the charge of the DCIT, CC 2(2), the proceedings under s. 153C were also taken up against the share applicant on the ground that some incriminating material or books of accounts or documents belonging to the said company were found in the course of search conducted against ‘R Group’ to which the assessee as well as the share applicant belonged. Therefore, there is merit in the Authorised Representative’s primary submissions that the share applicant belonged to ‘R Group’ which was the promoter of the assessee. MSS Ltd. was subjected to assessment proceedings under s. 153C for asst. yrs. 2007-08 to 2013-14 and the orders were passed for these years under s. 153C/143(3) on 31st March, 2015 being the same date on which the same AO who passed the impugned assessment order. Therefore, both in the case of the assessee-company as well as MSS Ltd. the assessment orders for asst. yrs. 2007-08 to 2013-14 were simultaneously passed after conducting thorough enquiries and investigation. Neither the AO nor the Departmental Representative could dispute the fact that the investment made in the equity of assessee was duly disclosed in the books of the share applicant. In the same accounts of the share-applicant, the source of making investment was also recorded. In the assessment order of MSS Ltd. for asst. yr. 2012-13 passed under s. 153C, no adverse finding was recorded by the same AO in relation to its transactions involving purchase of shares of the assessee and source of making such investments was accepted by the same AO. Nowhere in the assessment orders passed for any of the seven years the AO recorded any finding to the effect that MSS Ltd. was either a shell company or Jamakharchi company engaged in providing accommodation entries. On the contrary its genuine existence was accepted by the AO in the regular assessment orders passed for asst. yrs. 2007-08 to 2013-14. Share subscription amounts received from three group entities during the same year was accepted by the AO on the premise that these corporate assessees were promoters of the assessee and these entities are identifiable. The AO not only accepted identity of the applicants but also creditworthiness and genuineness of the transactions. MSS Ltd. was subjected to proceedings under s. 153C for the asst. yrs. 2007-08 to 2013-14 on the ground that the documents or books of accounts belonging to the company were found and seized in the course of search in the case of ‘R Group’. Therefore, there is no consistency in the AO’s action to single out the subscription monies received from MSS Ltd. for differential treatment. For the reasons discussed in detail in the foregoing there is no merit in the Departmental Representative’s pleading to the effect that the matter needs to be restored to the file of the AO for decision afresh. This is particularly in view of the fact that in the orders under s. 153C/143(3), the AO of MSS Ltd. had accepted the genuineness of the transaction and therefore, it was not open to the same AO to question the genuineness of the receipt of monies in the hands of the assessee. Therefore, the AO is directed to delete the addition of Rs. 64,45,11,500.
  1. In view of the fact that the assessment records of the share applicant MSS Ltd. were transferred to the charge of Dy. CIT, CC-2(2) pursuant to the search under s. 132 conducted against ‘R’ group which was the promoter of the assessee-company and proceedings under s. 153C were taken up against MSS Ltd. on the ground that some incriminating material books of account and documents belonging to the said company were found in the course of said search, it is to be accepted that MSS Ltd. also belonged to the ‘R’ group; since the investment made in the equity of the assessee was duly disclosed in the books of the share applicant and the source of investment was also recorded which was accepted by the AO in the assessment of that company under s. 153C without recording any adverse finding in relation to the said transaction, it was not open to the same AO to question the genuineness of the receipt of monies in the hands of the assessee and, therefore, addition under s. 68 is not sustainable.

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