2019 (4) TMI 1736 - AT - Income Tax

Assessment framed u/s 153A - AY 2013-14- deemed dividend addition u/s 2(22)(e) - whether incriminating material found or seized during the course of search indicating the alleged addition? - HELD THAT - We note that the assessment for the year under consideration was not pending as on the date of search carried out on 3rd March, 2016. Therefore, the question arises whether the AO could make the addition in the proceedings under section 153A in the absence of any incriminating material found or seized during the course of search. An identical issue has been considered by us in the connecting appeal in case of Smt. Reema Harish Bhatia 2019 (5) TMI 96 - ITAT JAIPUR and held that the invocation of Section 153A by the Revenue was without any legal basis as there was no incriminating material qua each of those AYs. Addition made by the AO in the absence of any incriminating material is not sustainable in law. Therefore, the same is deleted. Since we have decided the issue on the validity of the addition in favour of the assessee, therefore we do not propose to go into the merits of the addition made by the AO under section 2(22)(e). Addition made u/s 2(22)(e) - AY 2016-17- HELD THAT - While considering the identical issue in case of Smt. Reema Harish Bhatia (supra), we have held that the amount given by the company was not for trading or business purposes of the said company but this amount was given to the assessee for making the investment in the shares of the company though the said investment was required for taking the loan from the bank. It was the duty of the promoters as a shareholder of the said company to infuse more capital in the said company, therefore the fund of the said company used by the assessee is nothing but the loan/advance in terms of section 2(22)(e). Since the facts as well as the issue is identical, therefore, in view of our finding in case of Smt. Reema Harish Bhatia(supra), we do not find any error or illegality in the order of ld. CIT (A) qua this issue.

Summary

Issues Involved:
1. Validity of addition under section 153A without incriminating material.
2. Nature of the amount given by M/s. Bhatia Corporation Pvt. Ltd. to the assessee.

Issue-wise Detailed Analysis:

1. Validity of Addition under Section 153A Without Incriminating Material:
The primary issue was whether the Assessing Officer (AO) could make an addition under section 153A of the Income Tax Act without any incriminating material found during the search. The assessee argued that since the assessment was not pending on the date of the search and no incriminating material was found, the addition made by the AO was not sustainable in law. The assessee cited various case laws, including Jai Steel (India) vs. Assistant Commissioner of Income Tax, Saumya Construction Pvt. Ltd., PCIT vs. Meeta Gutgutia, and CIT vs. Kabul Chawla, to support their contention that additions under section 153A can only be made based on incriminating material found during the search.

The Revenue, on the other hand, contended that section 153A does not specifically require incriminating material for making additions and that the AO is empowered to assess or reassess the total income of the assessee based on information available on record or that comes to notice during the assessment proceedings. The Revenue cited decisions from the Kerala High Court in CIT vs. St. Francis Clay Décor Tiles and E.N. Gopakumar vs. CIT to support their argument.

The Tribunal, after considering the rival submissions and relevant material, held that in the absence of any incriminating material found during the search, the addition made by the AO under section 2(22)(e) was not sustainable in law. The Tribunal relied on the principles laid down in the decisions of various High Courts, including the Delhi High Court in CIT vs. Kabul Chawla and the Rajasthan High Court in Jai Steel (India) vs. ACIT, which held that completed assessments can be interfered with under section 153A only if there is incriminating material found during the search.

2. Nature of the Amount Given by M/s. Bhatia Corporation Pvt. Ltd. to the Assessee:
The second issue was whether the amount given by M/s. Bhatia Corporation Pvt. Ltd. to the assessee for investment in the share capital of its group company M/s. Bhatia Colonizers Pvt. Ltd. was in the nature of a loan or advance, thereby attracting the provisions of section 2(22)(e) of the Income Tax Act.

The assessee argued that the amount was given for business expediency and was not in the nature of a loan or advance. However, the AO and CIT (A) treated the amount as a loan or advance and made additions under section 2(22)(e).

The Tribunal, while considering the identical issue in the case of Smt. Reema Harish Bhatia, held that the amount received by the assessee from the company was converted into investment and the ownership of the investment was with the assessee. The Tribunal noted that the assessee took the benefit of acquiring shares of the same company by utilizing the funds of the company and was also paying interest on the said amount, thereby treating it as a loan. The Tribunal concluded that the amount received by the assessee was in the nature of a loan or advance under section 2(22)(e) and upheld the addition made by the AO.

Conclusion:
The Tribunal allowed the appeal for the assessment year 2013-14, holding that the addition made under section 153A was not sustainable in the absence of incriminating material. However, for the assessment year 2016-17, the Tribunal upheld the addition under section 2(22)(e), treating the amount given by M/s. Bhatia Corporation Pvt. Ltd. to the assessee as a loan or advance.