2018 (3) TMI 663 - AT - Income Tax

Revision u/s 263 - deemed dividend u/s 2 (22)(e) addition - search assessments completed u/s 143(3) r.w.s. 153A - Held that - As perused the materials available on record and gone through the orders of the authorities below. In this case, the search assessments were completed u/s 143(3) r.w.s. 153A by an order dated 31.3.2005 accepting the income returned. CIT has taken up the case for revision u/s 263 with regard to the advances given by the company to the Directors who are holding substantial share in the companies. The company was having sufficient resources and the issue has to be considered as deemed dividend u/s 2 (22)(e). However, as per the decided case laws, the entries made in the regular books of accounts should not be considered in search assessments unless the assessment is incomplete. It is not permissible to revise the assessment order in the case of search assessments without referring to incriminating material in the case of completed assessments. Accordingly, we set aside the order of the Principal Commissioner of Income Tax and allow the appeals of the assessee.

Summary

Issues Involved:
Appeals against order of Principal CIT for assessment year 2007-08 on grounds of revision u/s 263 of Income Tax Act, 1961 regarding deemed dividend u/s 2(22)(e) for advances given by company to directors holding substantial shares.

Analysis:
The appeals were filed against the order of the Principal CIT for the assessment year 2007-08, concerning revision under section 263 of the Income Tax Act, 1961. The issue revolved around deemed dividend under section 2(22)(e) for advances made by the company to directors who held significant shares. The Principal CIT observed that the directors had received advances from the company, which fell under the purview of deemed dividend, as they held more than 10% of voting power. The CIT held that the assessment order was erroneous as it did not address the issue of deemed dividend, which was prejudicial to the revenue's interest. Consequently, the Principal CIT directed a re-assessment to examine the issue thoroughly.

During the appeal hearing, the appellant argued that the assessment was completed under section 143(3) r.w.s. 153A based on incriminating material found during the search. The appellant contended that the issue of deemed dividend, though accounted for in the books, should not be a basis for revision under section 263 in search assessments. Reference was made to a tribunal decision supporting this argument.

The tribunal analyzed the case, noting that the search assessments were completed under section 143(3) r.w.s. 153A, accepting the returned income. The tribunal observed that the issue of deemed dividend raised by the CIT regarding advances to directors with substantial shares should not be considered in search assessments based on entries in regular books, unless the assessment was incomplete. Citing a relevant tribunal order, the tribunal emphasized that revision under section 263 in completed assessments required incriminating material from the search. As no new material was found during the search, the tribunal concluded that revising the assessment without incriminating material was impermissible. The tribunal, in line with precedent, set aside the CIT's order and allowed the appeals of the assessees.

In conclusion, the tribunal held that revising assessment orders in search assessments without incriminating material from completed assessments was not permissible. Therefore, the tribunal set aside the Principal CIT's order and allowed the appeals of the assessees.