2018 (3) TMI 1575 - AT - Income Tax

Legality of the addition u/s 153A - deemed dividend addition u/s 2(22)(e) - time limit for issue of notice - incriminating material found during the course of search - Held that - In the present case, the search took place on 09.09.2010 in Amrapali Group of Cases. The impugned Assessment Year before us is Assessment Year 2007-08. The assessee filed return of income on 22.10.2007. The notice u/s 143(2) of the Act could have been issued to the assessee up to 30.09.2008. No such notice was issued. Therefore, as on the date of search the assessment was completed assessment - if any addition is made in the concluded assessment it has to be made only on the basis of incriminating material found during the course of search. If there is no incriminating material found then assessment u/s 153A was to be passed only on the returned income or earlier assessed income. In the present case, it is apparent that addition has been made on the basis of the same material, which was there prior to the date of search, and no incriminating material was mentioned in the assessment order or produce before us. - Decided in favour of assessee. For deemed dividend addition u/s 2(22)(e) transactions of the loan received by the assessee is also required to be examined from the aspect of the circular where it has been stated that the nature of advances given will determine whether it would be considered as deemed dividend or not. Some of the decisions relied upon by the assessee before the Ld. CIT (A) are also mentioned in the above circular however, the Ld. CIT appeal has not verified whether the facts of the present case are covered by those decisions. In view of above facts, in the interest of Justice, we set aside ground No. 2 of the appeal back to the file of the Ld. AO. for examination of the full facts of the loans given by the lender company to the assessee and its taxability as deemed dividend. The assessee is first directed to produce all the necessary details to show that how the advances received by the assessee does not fall into the definition of deemed dividend. Addition of benefit or perquisite under section 2 (24) (iv) - Held that - We reject the finding of the Ld. CIT (A) that benefit is to be received from the company. We could not find the text of the section that benefit is to be received from the company. It provides rather that the benefit is to be obtained from the company. Furthermore, there is no relationship between the amount advanced to the appellant to provide guarantee for raising of the bank loan by the lender company to fund the project and headed you commercial expediency. CIT (A) has applied the reasons given by him while deleting the addition of the deemed dividend also for deleting the above addition with respect to the benefit of deemed - set aside ground of the revenue to the file of the Ld. assessing officer with a direction to the assessee to show before him that how the about transaction of receiving loan from a firm to the assessee free of interest where a company where the assessee is director which is provided huge interest free funds to such firm is not chargeable to tax as income under section 2 (24)(iv) of the act. The Ld. AO may examine the arguments of the assessee and decide the issue afresh

Issues Involved:
1. Legality of notice issued under Section 153A.
2. Validity of additions made under Section 153A.
3. Application of Section 2(22)(e) regarding deemed dividend.
4. Application of Section 2(24)(iv) regarding benefit or perquisite.

Detailed Analysis:

1. Legality of Notice Issued Under Section 153A:
The assessee challenged the legality of the notice issued under Section 153A, claiming it was illegal and without jurisdiction. The tribunal noted that the search took place on 09.09.2010, and the returns were filed on 22.10.2007 for AY 2007-08, 20.08.2008 for AY 2008-09, and 01.10.2009 for AY 2009-10. Since no notice under Section 143(2) was issued within the prescribed time, the assessments for AY 2007-08 and 2008-09 were considered completed. Therefore, any addition could only be made based on incriminating material found during the search. For AY 2009-10, the assessment was pending, so additions could be made without incriminating material.

2. Validity of Additions Made Under Section 153A:
For AY 2007-08 and 2008-09, the tribunal found that the additions were made based on the same material available before the search, without any incriminating material. Citing the Delhi High Court's decision in CIT Vs. Kabul Chawla (380 ITR 573), the tribunal concluded that additions in the absence of incriminating material were unsustainable. For AY 2009-10, since the assessment was pending at the time of the search, the tribunal held that additions could be made even without incriminating material, provided other conditions were met.

3. Application of Section 2(22)(e) Regarding Deemed Dividend:
The revenue challenged the deletion of additions made under Section 2(22)(e) for deemed dividend. The assessee had received advances from Ultra Home Construction Pvt. Ltd., where he held significant shares. The CIT(A) deleted these additions, citing that the advances were due to commercial expediency, as the assessee had provided personal guarantees and pledged shares for the company's bank loans. The tribunal, however, found that the CIT(A) did not verify the facts adequately and remanded the matter back to the AO for a detailed examination of whether the advances constituted deemed dividends.

4. Application of Section 2(24)(iv) Regarding Benefit or Perquisite:
For AY 2008-09 and 2009-10, the AO made additions under Section 2(24)(iv), considering interest-free loans received by the assessee from a joint venture. The CIT(A) deleted these additions, stating that Section 2(24)(iv) applies to benefits received from a company, not a partnership firm. The tribunal disagreed, referencing the Madras High Court's decision in Ravi Prakash Khemka V CIT (295 ITR 33), which held that benefits routed through a partnership firm could still be taxable. The tribunal remanded this issue back to the AO for re-examination, directing the assessee to demonstrate how the transactions did not fall under Section 2(24)(iv).

Conclusion:
- For AY 2007-08 and 2008-09, the tribunal dismissed the revenue's appeals and partly allowed the assessee's cross-objections, ruling that additions without incriminating material were unsustainable.
- For AY 2009-10, the tribunal allowed the revenue's appeal for statistical purposes, remanding the issues of deemed dividend and benefit or perquisite back to the AO for re-examination.
- The tribunal emphasized the need for a detailed factual examination to determine the applicability of Sections 2(22)(e) and 2(24)(iv).

Order Pronounced:
The tribunal pronounced the order in the open court on 26/03/2018.

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