Assessment Quashed as Department Failed to Share Incriminating Search Material

Jeewan Kukreja Vs DCIT (ITAT Raipur)

Summary : The Tribunal quashed the assessment order against the assessee on the ground of violation of principles of natural justice. The case arose from a search conducted on the J.M. Jain Group, where authorities discovered a parallel accounting system called the “JSK Server” allegedly used for recording unaccounted cash transactions through under-invoicing. Based on information obtained from the server and related investigation material, the Assessing Officer added Rs.89.97 lakh as unexplained accommodation entries and Rs.69.01 lakh as unaccounted sales. While the CIT(A) deleted the sales addition, it upheld the addition relating to alleged unaccounted transactions. Before the Tribunal, the assessee argued that crucial materials, including JSK Server data, screenshots, employee statements, and seized documents relied upon by the department, were never furnished for rebuttal. The Tribunal held that non-supply of incriminating material vitiated the assessment proceedings and rendered the order legally unsustainable, thereby quashing the entire assessment.

Core Issue: The core issue before the Tribunal was whether the assessment order was vitiated for breach of the principles of natural justice where the Assessing Officer relied upon material allegedly obtained during the search of the J.M. Jain Group, including JSK Server data, corroborative seized documents, employee statements, and screenshots received from the Investigation Wing, without furnishing those materials to the assessee.

Facts of the Case:- The assessee, Jeewan Kukreja, was engaged in the business of wholesale and retail trading of garments under the proprietorship concern M/s Utkal Mens Zone. A search under section 132 was conducted in the case of the J.M. Jain Group, where the Department alleged discovery of a parallel accounting system known as the “JSK Server.” According to the Revenue, the server contained coded entries of accounted cheque transactions and unaccounted cash components. The assessee was allegedly identified in the server under the code name “ROSHAN.”

Relying on this material, the Assessing Officer made an addition of ₹89,97,950 as unaccounted income from accommodation entries. A second addition of ₹69,01,788 on account of alleged discrepancy in sales was deleted by the CIT(A), but the first addition was sustained.

Before the Tribunal, the assessee contended that none of the materials relied upon by the Assessing Officer—namely JSK Server details, corroborative search documents, employee statements, emails, bank analyses, and screenshots from the Investigation Wing—were ever supplied to him.

The Department was unable to show any evidence that these materials had been furnished to the assessee.

ITAT Raipur Findings: The Tribunal held that the addition was founded entirely on third-party material gathered during the search on the J.M. Jain Group. Since the Revenue could not establish that such material had been supplied to the assessee, the assessee was denied any effective opportunity to explain, rebut, or cross-examine the evidence used against him.

The Tribunal observed that use of undisclosed material without supplying copies to the assessee constitutes a clear violation of the doctrine of audi alteram partem, which is a fundamental component of natural justice.

It held that such a defect goes to the root of the assessment and renders the order arbitrary, bad in law, and legally unsustainable.

Accordingly, without entering into the merits of the additions, the Tribunal quashed the assessment order in toto.

Cases Relied Upon: The Tribunal relied upon CIT v. Amitabh Bachchan, wherein the Supreme Court held that breach of natural justice vitiates an assessment order. Reliance was also placed on CIT v. Electro House, Micro Marbles Pvt. Ltd. v. ITO, Tata Capital Financial Services Ltd. v. ACIT, and ACIT v. Sun and Sun Inframetric Pvt. Ltd..

Conclusion: Where the Assessing Officer relies on third-party search material, server data, statements, or investigation reports, copies of such material must be furnished to the assessee before drawing adverse conclusions. Failure to do so violates the principles of natural justice and renders the entire assessment void. On this ground alone, the ITAT Raipur quashed the assessment, leaving the merits of the addition open.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 12.06.2025 for the assessment year 2022-23 as per the grounds of appeal on record.

2. The brief facts of the case are that a search action u/s.132 of the Income Tax Act, 1961 (for short ‘the Act’) was conducted on the J.M Jain Group wherein incriminating material was found indicating the it operated a sophisticated parallel accounting system, the “JSK Server,” to manage unaccounted sales, uncovered during a May 28, 2022 search. This SAP-based server recorded transactions with both “cheque” (taxable, official) and “cash” (non-taxable, undeclared) components. The cash portion, representing suppressed values from under-invoicing, facilitated off-book transactions and allowed J.M. Jain to earn unrecorded commission and interest income, received in cash. To mask identities, “Foreign entity” or “Foreign Name” aliases were used on the JSK Server (e.g., Shri Jeewan Kukreja was “ROSHAN”). The scheme involved generating “pakka” (taxable, suppressed value) invoices and “kachcha” (actual, higher value) slips, with the difference paid in unaccounted cash. Group employees, under partners Shri Jeetmal Jain and Shri Jai Choraria’s direction, managed these covert operations. The JSK Server data was extensively corroborated by employee admissions, seized documents, email analysis, bank statements, and the convergence of JSK and regular JMJ server data, confirming the group’s systematic generation of out-of-book income. Shri Jeewan Kukreja, assessee was identified as a beneficiary of this illicit system.

3. The assessee is engaged in the business of wholesale and retail of garments running a proprietary concern in the name M/s. Utkal Mens Zone. The assessee had filed his return of income on 10/25/2022, declaring a total income of Rs.15,35,607/-, which was processed u/s 143(1) on 10/26/2022. The case was selected for scrutiny due to identified high liabilities compared to low income/receipts and information from verification cases. A notice u/s.143(2) was issued on 06/02/2023, followed by notices u/s 142(1) on 10/11/2023, 11/29/2023, and 0140/2024. During the assessment proceeding the A.O. had requested specific details, including a copy of the Annual GST Return for F.Y. 2021-22, purchase and sales ledgers, a cash book, confirmations for unsecured loans from five specified parties (totaling Rs.58,09,938/-), a copy of M/s. J M Jain LLP’s (a sundry creditor) ledger in the assessee’s books, a confirmation from M/S J M Jain LLP, and bank statements for all accounts held from 04/01/2021 to 03/31/2022. The assessee submitted replies on 12/06/2023 and 01/24/2024, providing the requested documents. However, a show cause notice proposing variations was subsequently issued on 03/14/2024, with a compliance date of 03/18/2024, to which the assessee did not submit any response. The A.O concluded the assessment based on findings and analysis of search on M/s. JM Jain LLP, where a “JSK Server” was found recording unaccounted cash transactions and identifying Shri Jeewan Kukreja as “ROSHAN” for accommodation entries. Based on this, the assessing officer made two additions: an addition of Rs.89,97,950/- as unaccounted income from accommodation entries facilitated by M/s. J.M. Jain Group; and an addition of Rs.69,01,788/- as unaccounted sales, based on a discrepancy between the total sales reported in the sales ledger (Rs.8,28,37,396.51/-) and the turnover declared in the return of income (Rs.7,59,35,608/-). Considering these additions, the total income of the assessee was assessed at Rs.1,74,35,345/- u/s.143(3) r.w.s 144B of the Act.

4. That out of the aforesaid two additions, the Ld. CIT(Appeals)/NFAC had deleted the addition of Rs.69,01,788/- as unaccounted sales based on discrepancies in the total sales reported in sales ledger, while upholding the addition of Rs.89,97,950/- as unaccounted income from accommodation entry initiated with M/s. J.M Jain Group by observing as follows:

“7.1.9 In light of the facts, discussed in the above paragraphs, the appellant has failed to discharge the onus casted upon him of proving that the transactions made with M/s. J.M. Jain LLP which was found in the books of M/s. J.M. Jain LLP of Rs.89,97,950/- are not true and are not correct. Considering the material evidence of unaccounted income stemming from transactions facilitated by the J.M. Jain Group’s sophisticated parallel accounting system, the appellant being identified as a beneficiary within this system, under the ‘preponderance of human probability’ standard, the burden shifted to the appellant to provide a plausible and satisfactory explanation for these transactions, aligning with the principles laid down in Hon’ble Supreme Court judgments in Sumati Dayal (supra) and Durga Prasad More (supra). Given the evidence of a systematic scheme of tax evasion and the direct link to the assessee through the JSK server, it is held that the appellant has entered into an unaccounted transactions of Rs.89,97,950/-.

7.1.9 However, the appellant made an alternate contention that even if the alleged unaccounted transactions of Rs. 89,97,950/- were to be considered proven, only the undisclosed profit element embedded in these transactions should be added to the income, not the entire transaction value. The appellant stated that their gross profit ratio for the year was 8.27% and their net profit rate was 2.02%. Given the nature of their business (trading in garments), if any unaccounted transactions occurred, only the margin of profit from such sales should be subject to tax, not the full transaction amount.

I do not find merit in the contention of the appellant. On perusal of the assessment order, wherein the findings of search action was enumerated, it is evident that M/s J.M. Jain LLP was involved in unaccounted sales by under-invoicing in “pakka bill”. The appellant has paid payment to M/s J.M. Jain LLP which was not disclosed in the books of accounts over and above the invoir.e value, i.e. the amount denoted in the “pakka bill”. The appellant has not disclosed the source of these payments or the nature of the transaction made or what the arrangement the appellant had with M/s J.M. Jain LLP on these cash payment. In absence of explanation and these payments remained unexplained and the benefit the GP addition is not applicable in respect of these payments. Thus the contention raised by the appellant is hereby found to be not acceptable. Hence the addition made of Rs.89,97,950/- is upheld.

7.2.1 Addition of Rs.69,01,788/- (On account of variation in sales ledger and sales declared on ITR):This addition was made due to a difference between the sales reported in the sales ledger and the GST/Income Tax returns. The appellant clarified that his sales register reflects the total invoice value, which includes components such as sale price (before tax), freight, GST (IGST/CGST/SGST), and is recorded before adjusting for sales returns. The appellant provided a detailed reconciliation

The appellant produced reconciliation demonstrating that the sales declared in the return of income align with the sales register after accounting for these components:

The appellant in support of the same submitted all the relevant ledgers and GST return.

7.2.2 On perusal of the same it was found that the contention of the appellant seems to be correct. The A.O. in the assessment order has not considered these figures in a proper manner. Further, the A.O. noted that as per GST return sales was declared of Rs.7,63,05,751/-. On perusal of the GST return it was found that observation of the A.O. is not correct, the appellant has declared Rs.7,59,35,608 /- as “Supplies and advances on which tax is to be paid” which is the same as turnover declared in the ITR. Therefore, in view of these documents, the appellant has explained the difference in sales ledger and turnover declared in the ITR. No adverse inference can be drawn in this case. The A.O. is directed to delete the addition of Rs.69,01,788/-.”

5. At the time of hearing, the Ld. Counsel for the assessee brought to the notice of the Bench at Page 4 of the assessment order and submitted that as per the A.O’s findings, there is SAP based JSK Server which was used for recording transactions between vendors and customers containing cheque (accounted for in the books of the vendors and customers) and cash components (not accounted for in the books of the vendors and customers. The server records as held by the A.O, is unaccounted commission and interest income of J.M Jain of such transactions. These details of SAP based JSK Server which was used regarding transactions between vendors and customers was never shared with the assessee.

5.1 Second contention of the Ld. Counsel for the assessee was that during the course of search, whatever other evidences which was corroborated with JSK Server regarding following i.) Admission by key employees and cash collectors of vendors during the search; (ii). Analysis of seized material (Kachcha/pukka invoices/Reminder ledger seized during the search; iii) Analysis of Ledger/Challan of vendors and customers send through Email; (iv) Analysis of Bank statement/Ledger of Vendors and customers (v) Convergence of the JSK Server and JMJ Server and (vi) Miscellaneous files/Documents found in Digital devise cloned during the search. These corroboration of the JSK Server with regard to the aforesaid pertains to J.M Jain Group was never shared with the assessee for his comments.

5.2 Third contention of the Ld. Counsel for the assessee was that at Page 6 of the assessment order, the Department has relied on the screen shot from Investigation Department which was also not shared with the assessee to furnish his response regarding the same, therefore, principles of natural justice thereby has been violated since all these information were used by the Department for making addition at the back of the assessee without providing any opportunity to the assessee to place his submission on the aforesaid.

6. The Ld. Sr. DR could not bring on record any evidence to even suggest that these information were shared with the assessee. On the contrary, the Ld. Sr. DR submitted that these information only emanates from the assessment order and there is no record to suggest that they were shared with the assessee for his response. He also submitted upon query from the Bench that the screen shot chart as appearing at Page 6 of the assessment order is received from the DIT (Inv.) and the A.O has simply relied on such screen shot without providing any opportunity to the assessee.

7. The Hon’ble High Court of Rajasthan, Jodhpur Bench in the case of Micro Marbles Private Limited Vs. Office of the Income Tax Officer (2023) 475 ITR 569 (Raj.) has held and observed as follows:

“31. Thus, in the light of the decisions of the Delhi and the Bombay High Courts, as referred to above, the non-supply of the material, especially the documents of entry in the books of M/s Sanmatri Gems Pvt. Ltd. and the statement of Deepak Jain recorded under Section 132 (4) of the Act, is sufficient to vitiate the proceedings.

32. It may be noted that the statement recorded under Section 132 (4) of the Act can be used in evidence for making the assessment only if such statement is made in context with other evidence, or material discovered during search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger the assessment.

33. In view of the aforesaid facts and circumstances, we are of the opinion that shorn of all other technical aspects which may have been raised before us, the very fact that the material referred to in the “reasons to believe” was not supplied to the petitioner, the entire proceedings for the reopening of the assessment and leading to the consequential assessment stand vitiated in law.”

8. Further, the Hon’ble Bombay High Court in the case of Tata Capital Financial Services Limited Vs. Assistant Commissioner of Income Tax Circle & Ors., while deciding Writ Petition No.546/2022 vide judgment and order dated 15.02.2022, had directed the Revenue to adhere to certain guidelines in reopening the assessment proceedings. It emphasized that the Assessing Officer shall not merely state the reasons to believe in the letter addressed to the assessee, but if the reasons make reference to any other document or a letter or a report, such document or letter or report should be enclosed to the reasons. Therefore, in view of the aforesaid decision also, it is mandatory on the part of the Assessing Officer to supply the assessee with all relevant documents, referred to in the reasons for reopening so that the assessee may file proper objections opposing such reopening of the assessment.

9. The Hon’ble Chhattisgarh High Court in the case of ACIT, Circle-1, Raipur (C.G.) Vs. Sun and Sun Inframetric Pvt. Ltd., TAXC No. 5 of 2022 and TAXC No.7 of 2022, dated 03.08.2022, had upheld the findings of the Tribunal observing that information and statement which were used against the assessee without enabling the assessee to put forth his defence, such procedure defeats the rules of natural justice of doctrine of audi alteram partem.

10. The Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachhan (2016) 384 ITR 200 (SC) while upholding the mandatory requirement for adhering to the principles of natural justice, in any proceedings by a quasi-judicial authority also referred to the decision in the case of the C.I.T., West Bengal, II, Calcutta Vs. M/s. Electro House, (1972) 82 ITR 824 (SC), wherein it was held and observed that a breach of principles of natural justice effects the legality of the order. Any contravention of the principles of natural justice vitiates the order passed by the authority. Accordingly, the Hon’ble Apex Court has ruled that it is mandatory to provide an opportunity to the assessee to be heard on all issues especially where conclusions are drawn adverse to the assessee.

11. Same view has been upheld by the ITAT, DB, Raipur in the case of ITO-3(1), Raipur Vs. Rahul Kathuria, ITA Nos. 151 & 152/RPR/2025, dated 26.11.2025 and also by the ITAT, SMC Bench, Raipur in the case of Rajesh Kumar Chandwani Vs. ITO, Ward-1(1), Raipur (C.G.), ITA No.207/RPR/2026, dated 28.04.2026.

12. Considering the entire facts and circumstances of the case and judicial pronouncements, even without going into the merits of the matter, that since relevant information/documents which are emanating in the assessment order were never shared with the assessee which therefore becomes blatant defect in terms with principles of natural justice and therefore, passing of the assessment order in such a case becomes arbitrary, bad in law and legally unsustainable, hence, the assessment order is quashed.

13. Since assessment itself is quashed, subsequent all other proceedings becomes non-est as per law. Rest other grounds stands academic only.

14. That as per above terms, the appeal of the assessee is allowed.

Order pronounced in the open court on 12^th May, 2026.