2017 (9) TMI 463 - AT - Income Tax

Validity of the proceedings u/s 153A - Income u/s 2(24) - derived benefit in terms of section 2(24)(iv) - benefit obtained by purchase of unquoted shares at face value under a business re-arrangement between the family members and approved by the Hon ble Delhi High Court with the fact that the shares could not be sold to outsiders - Held that - It is not the case of the department that any material disclosing the issue of transfer of shares was withheld from the assessment and was found and seized during the course of search. It is also not the case of the department that any other incriminating material which could point out to such transfer of shares was unearthed during the course of search and was subsequently relied upon by completing the assessment u/s 153A. No whisper of any incriminating material having been found and relied upon by the department relating to these additions on account of perceived benefits u/s 2(24)(iv) - Decided in favour of assessee.

Issues Involved:
1. Validity of notice under section 153A of the Income Tax Act.
2. Additions made under section 2(24)(iv) of the Income Tax Act regarding derived benefits from share transfers.
3. Jurisdictional requirements and the legality of assessment proceedings under section 153A.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 153A:
The assessee challenged the validity of the notice issued under section 153A, arguing that no incriminating material was found during the search at the premises of a third party. The Tribunal observed that the Assessing Officer did not refer to any incriminating material found during the search that could justify the additions made. The Tribunal cited the case of Pr. CIT Central vs. Mahesh Kumar Gupta, where the Delhi High Court held that in the absence of any incriminating material, no valid assessment under section 153A could be made. The Tribunal concluded that the proceedings under section 153A were against the scheme of the Act and quashed the proceedings for all the assessees.

2. Additions under Section 2(24)(iv) Regarding Derived Benefits from Share Transfers:
The Assessing Officer added substantial amounts to the income of the assessees under section 2(24)(iv), arguing that the transfer of shares at face value constituted a derived benefit. The assessees contended that the shares were transferred as part of a family business restructuring approved by the Delhi High Court and were not freely transferable. The Tribunal noted that the shares were transferred among family members and were not sold to outsiders. The Tribunal found that the transfer was part of a restructuring scheme and not a benefit or perquisite. The Tribunal upheld the CIT(A)'s decision to delete the additions, emphasizing that the transfer of shares did not result in any derived benefit under section 2(24)(iv).

3. Jurisdictional Requirements and Legality of Assessment Proceedings under Section 153A:
The Tribunal examined whether the Assessing Officer satisfied the jurisdictional requirements for initiating proceedings under section 153A. The Tribunal found that the Assessing Officer did not rely on any new incriminating material found during the search. The Tribunal referred to the case of CIT vs. Kabul Chawla, where the Delhi High Court held that in the absence of incriminating material, the Assessing Officer could not assume jurisdiction under section 153A. The Tribunal concluded that the Assessing Officer failed to meet the jurisdictional requirements, rendering the entire assessment proceedings null and void.

Conclusion:
The Tribunal allowed the cross-objections of the assessees, quashing the proceedings under section 153A for all the assessees. Consequently, the departmental appeals challenging the deletion of the impugned additions were dismissed as infructuous. The order was pronounced in the open court on 30th August 2017.

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