2022 (7) TMI 1482 - AT - Income Tax

Validity of Assessment u/s 153A - Deemed dividend u/s. 2(22)(e) - whether incriminating documents found during the course of search? - HELD THAT - Assessing Officer has issued the notice u/s. 153A of the Act without indicating any details on the incriminating material found during search and we observe that the assessee has raised this jurisdictional issue before us that Assessing Officer has issued improper notice u/s. 153A of the Act to initiate proceedings in unabated assessment year under consideration. In the similar situation the Coordinate Bench of this Tribunal has decided the similar issue relying on the decision of Underwater Services Co. Ltd. v. ACIT others 2021 (10) TMI 1158 - BOMBAY HIGH COURT AND in the case of D D cor Exports Pvt. Ltd., v. DCIT 2022 (4) TMI 1180 - ITAT MUMBAI issuance of notice is the preliminary step which enables the assessee to effectively deal with the case made out by the revenue. Further, the section 153A provides that an assessment has to be made under the said section only on the basis of seized material u/s 132 or 132A, in the absence of such details in the notice issued under the said section, the assessee is not in a position to appreciate which return of income should be filed in response to the notice issued u/s 153A, whether the original return of income filed or revised return of income. Thus we are inclined to accept the submissions of the Ld. AR that notice issued u/s. 153A is bad in law and assessment made by issue of improper notice is also bad in law. Assessment made u/s. 143(3) r.w.s. 153A of the Act is bad in law - No merit of additions made by the Assessing Officer u/s. 2(22)(e) - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 153A of the Income Tax Act, 1961.
2. Applicability of Section 2(22)(e) of the Income Tax Act regarding deemed dividend.
3. Requirement of incriminating material for additions in search assessments.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued under Section 153A:
The primary issue raised by the assessee was the validity of the notice issued under Section 153A. The assessee argued that the notice did not mention any incriminating materials found during the search, making it jurisdictionally defective. The Tribunal noted that the notice issued was general in nature and did not specify any incriminating material found during the search. The Tribunal referenced the decision of the Hon'ble Bombay High Court in Underwater Services Co. Ltd. v. ACIT & Others, which emphasized that a notice under Section 153A must mention the basis for its issuance to enable the assessee to respond appropriately. Following this precedent, the Tribunal held that the notice issued under Section 153A was bad in law, rendering the subsequent assessment invalid.

2. Applicability of Section 2(22)(e) - Deemed Dividend:
The Assessing Officer had made additions under Section 2(22)(e) of the Act, treating certain transactions between the assessee and D Décor Home Fabrics Private Limited as deemed dividends. The assessee contended that these transactions were part of a running current account and not loans or advances, thus not falling under the purview of deemed dividends. However, since the Tribunal found the notice under Section 153A to be invalid, it did not delve into the merits of this issue. The Tribunal kept this ground open and did not adjudicate upon it, considering the primary jurisdictional defect.

3. Requirement of Incriminating Material for Additions in Search Assessments:
The assessee argued that no incriminating material was found during the search to justify the additions made. The Tribunal observed that the assessment was made without any reference to incriminating material found during the search. The Tribunal cited various judgments, including those from the Bombay High Court, which held that in the absence of incriminating material, additions in search assessments are not justified. The Tribunal noted that the cases cited by the Department, where additions were made without incriminating material, were either from non-jurisdictional courts or pending final decisions from the Supreme Court. Therefore, the Tribunal followed the binding jurisdictional precedents, which required incriminating material for making additions in search assessments.

Conclusion:
The Tribunal concluded that the notice issued under Section 153A was invalid due to the lack of details on incriminating material, rendering the assessment bad in law. Consequently, the appeal filed by the assessee was partly allowed on jurisdictional grounds, and the appeal filed by the Revenue was dismissed. The Tribunal did not adjudicate on the merits of the deemed dividend issue due to the primary jurisdictional defect. The order was pronounced on 6th July 2022.