2018 (8) TMI 669 - AT - Income Tax

Assessment u/s 153C - Deemed dividend u/s 2(22)(e) - additions account of unexplained credit - claim of exemption u/s 10(38) towards long term capital gains from sale of shares - The issue involved in the cross objections is that where the addition made is not based on any incriminating material found during search, such addition made u/s 153C of the IT Act is not legally sustainable. - Held that - Contentions of the assessee found to be valid - No additions - Decided against the revenue.

Summary

Issues involved:
Department's appeals and assessee's Cross-objections for Assessment Years 2006-07 to 2007-08 and 2010-11 involving common issues.

Analysis:

Department's Grounds:
1. Whether the Ld. CIT (A) erred in allowing relief on account of deemed dividend u/s 2(22) (e) without admissible evidence?
- The Department contested the relief granted by the Ld. CIT (A) without sufficient evidence.
2. Whether the Ld. CIT (A) erred in deleting the addition of unexplained credit without proper evidence?
- The Department challenged the deletion of an addition made by the AO due to lack of admissible evidence.
3. Whether the Ld. CIT (A) erred in directing treatment of capital gain as exempt under section 10(38) without adequate evidence?
- The Department questioned the decision to treat capital gain as exempt under section 10(38) without substantial proof.

Assessee's Cross-objection:
Whether additions made under section 153C without incriminating material are legally sustainable?
- The assessee raised objection to additions made under section 153C without any incriminating material found during the search.

The issue of additions without incriminating material was addressed first. The Tribunal referred to the case of 'CIT vs. Kabul Chawla' where it was held that additions without incriminating material are not legally sustainable under section 153A. The Tribunal emphasized that for additions to be valid under section 153C, incriminating material must be found during the search. As no such material was discovered in the current case, the additions were deemed invalid.

The Tribunal cited 'Meeta Gutgutia' case to support the decision, highlighting the importance of incriminating material for additions under section 153C. The Tribunal concluded that in the absence of such material, the additions made were beyond jurisdiction and hence, unsustainable.

Following the precedent set by 'Kabul Chawla', the Tribunal accepted the Cross-objections raised by the assessee and proceeded to delete the additions made in all years. The Tribunal dismissed the Department's appeals as the issues were resolved in favor of the assessee based on the lack of incriminating material. The order was pronounced on 08/08/2018, with all Cross-objections allowed and Department's appeals dismissed.