2019 (1) TMI 1993 - AT - Income Tax

Assessment u/s 153A - abatement of assessment proceedings pending as on the date of search - HELD THAT - As in the present case the return of income was filed by the assessee on 30.07.2005 and the search took place on 30.09.2005. As per the second proviso to section 153A of IT Act assessment or reassessment proceedings if any relating to any Assessment Year falling within the period of six Assessment Years pending on the date of initiation of the search shall abate. Hence if the income for Assessment Year 2005- 06 for which assessment pending on the date of search on 30.09.2005 cannot be assessed u/s. 153A then such income will remain unassessed because as per second proviso to section 153A pending assessment proceedings on the date of search shall abate. This cannot be an interpretation of the provisions of section 153A and hence we find no merit in these grounds raised by the assessee and therefore the same are rejected. Disallowance of business loss - As seen that the disallowance made by the AO is not on adhoc basis. AO has noted that the assessee has claimed expenses of Rs. 34, 379/- as against miscellaneous income of Rs. 5, 160/-. The AO has also noted that out of Rs. 34, 379/- the assessee has filed copy of bank account for having paid works contract tax of Rs. 20, 000/-. In our considered opinion this payment of Rs. 20, 000/- is covered u/s. 43B of IT Act and therefore the AO disallowed the remaining amount of expenses of Rs. 14, 379/- being Rs. 34, 379/- less Rs. 20, 000/-. This disallowance made by the AO is on this basis that the assessee has not carried on any business activity in his individual capacity as proprietor of M/s. Rakha Builders and Developers. Hence on this issue we find no infirmity in the orders of authorities below. Accordingly Ground no. 4 is also rejected. Deemed dividend addition u/s 2(22) - HELD THAT - CIT(A) has given a categorical finding that assessee has failed to prove that the payment is not in the nature of advance. Before us also it could not be established by assessee that the amount given by the company to the assessee was given under business exigencies. Therefore we find no merit in this claim. We also find that CIT (A) has also given this finding that this is undisputed fact that the company which advanced the money to the present assessee is not engaged in the business of lending of money and therefore the payment made by the company by way of advance to assessee should be assessed as deemed dividend u/s. 2(22)(e) and this categorical finding of CIT(A) could not be controverted by ld. AR of assessee. This is also a clear finding of CIT(A) that the assessee is a shareholder of that company holding not less than 10% of the voting power of that company in question i.e. M/s. Anriya Project Management Services Pvt. Ltd. Therefore in respect of advance given by company to the present assessee the provisions of section 2(22) (e) of IT Act are applicable - We find no infirmity in the order of CIT(A) on this issue. Ground no. 5 and 6 are also rejected.

Summary

Issues Involved:
1. Validity of the assessment under Section 153A of the Income Tax Act.
2. Disallowance of business loss claimed by the assessee.
3. Addition of deemed dividend under Section 2(22)(e) of the Income Tax Act.
4. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the assessment under Section 153A of the Income Tax Act:
The assessee contended that the mandatory requirements for assuming jurisdiction under Section 153A were not complied with, and no reasons for invoking Section 153A were recorded, making the assessment invalid. The assessee relied on judgments from the Karnataka High Court and Delhi High Court, arguing that assessments under Section 153A should be based on incriminating materials found during the search. The Tribunal noted that the search was conducted on 30.09.2005, and the return of income for the relevant assessment year was filed on 30.07.2005, making the assessment proceedings pending on the date of search. The Tribunal clarified that Section 153A does not require the existence of incriminating material for issuing a notice if the search is conducted. The Tribunal distinguished the cited judgments as they pertained to Section 153C or cases where no assessment was pending on the date of search. Consequently, the Tribunal upheld the validity of the assessment under Section 153A.

2. Disallowance of business loss claimed by the assessee:
The assessee claimed a business loss of Rs. 14,379/-, which was disallowed by the Assessing Officer (AO) on the grounds that the assessee did not carry on any business activity during the relevant period. The AO noted that the claimed expenses were not connected to any business activity. The Tribunal found that the disallowance was not adhoc but based on the fact that the assessee did not engage in any business during the relevant year. Therefore, the Tribunal upheld the disallowance of the business loss.

3. Addition of deemed dividend under Section 2(22)(e) of the Income Tax Act:
The AO added Rs. 14,70,383/- as deemed dividend under Section 2(22)(e), which was upheld by the CIT(A). The assessee argued that the payment was made in the exigencies of business. The Tribunal noted that the assessee failed to prove that the payment was not an advance and that the company was not engaged in the business of lending money. The Tribunal also noted that the assessee held not less than 10% of the voting power in the company, making the provisions of Section 2(22)(e) applicable. The Tribunal found no merit in the assessee's claim and upheld the addition of deemed dividend.

4. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act:
The assessee contested the charging of interest under Sections 234A, 234B, and 234C. The Tribunal held that the charging of interest is consequential and does not require separate adjudication. Hence, this ground was also rejected.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the validity of the assessment under Section 153A, the disallowance of business loss, the addition of deemed dividend under Section 2(22)(e), and the charging of interest under Sections 234A, 234B, and 234C.