2018 (11) TMI 942 - AT - Income Tax

Revision u/s 263 - presumption that the assessment order passed u/s 153C has erroneous and prejudicial to the interest of the revenue - addition of deemed dividend - Held that - The question of applicability of deemed dividend does not arise as there is no incriminating material was found in the course of search in respect of deemed dividend. Assessee has filed original return of income u/s.139(1) of the Act and also in compliance to notice dated 22.01.2016 filed written submission on the return of income on 04.02.2016 with nil income, whereas the ld. DR could not substantiate with any evidence or with any proof that there is any incriminating material was found in respect of deemed dividend as dealt in the revision order passed by the Pr. CIT. We are of the opinion that the proceedings u/s.263 of the Act are in respect of the order passed u/s.153C r.w.s.143(3) of the Act dated 31.03.2016 whereas the AO has accepted the assessee s return of income without any additions and the issue of deemed dividend. Similar issue on deemed dividend was decided by the Kolkata Bench of the Tribunal in the case of M/s Tanuj Holding Pvt. Ltd 2016 (2) TMI 426 - ITAT KOLKATA wherein as held addition towards deemed dividend u/s 2(22)(e) of the Act in the assessments framed u/s 153C of the Act for the Asst Years 2007-08 to 2010-11 without any incriminating materials found during the course of search with respect to those assessment years, is not warranted and held as not in accordance with law. - decided in favour of assessee

Issues Involved:
1. Jurisdiction and validity of the assessment order under Section 153C.
2. Rejection of the argument that assessment under Section 153C should be based solely on seized material.
3. Applicability of Section 2(22)(e) regarding deemed dividend.
4. Overall legality and factual accuracy of the Principal CIT's order under Section 263.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Assessment Order under Section 153C:
The assessee contended that the assessment order passed under Section 153C was without jurisdiction, null, and void as no specific incriminating material was found during the search, and no proper satisfaction note was prepared before initiating the proceedings under Section 153C. The Tribunal noted that the original assessment order was completed with a Nil income, and the Principal CIT issued a revision notice claiming that the assessee had obtained unsecured loan advances from a group company, which should be treated as deemed dividends under Section 2(22)(e). The Tribunal found that the Assessing Officer (AO) had accepted the assessee’s return of income without any additions and without finding any incriminating material during the search. Therefore, the Tribunal held that the proceedings under Section 263 were not justified as the original assessment under Section 153C was valid.

2. Rejection of the Argument that Assessment under Section 153C Should be Based Solely on Seized Material:
The assessee argued that the assessment under Section 153C should be based solely on seized material. The Tribunal supported this argument by referencing the decision of the Kolkata Bench in the case of M/s Tanuj Holdings Pvt. Ltd. vs. DCIT, which stated that no incriminating materials were found during the search regarding the issue of deemed dividend. Therefore, the Tribunal concluded that the addition could not be made under Section 153C proceedings without such materials, making the Principal CIT’s order erroneous.

3. Applicability of Section 2(22)(e) Regarding Deemed Dividend:
The Principal CIT presumed that the advance of ?70 lakhs to the assessee attracted Section 2(22)(e) regarding deemed dividend, which was not examined by the AO during the assessment under Section 153C. The Tribunal noted that the AO had assessed the income at Nil and found no incriminating material during the search to support the deemed dividend claim. The Tribunal relied on judicial precedents, including the Bombay High Court decision in CIT vs. Murli Agro Products Ltd., which held that additions based on audited accounts already available with the revenue could not be made in Section 153C proceedings without incriminating material. Consequently, the Tribunal found the Principal CIT’s order to be without basis.

4. Overall Legality and Factual Accuracy of the Principal CIT's Order under Section 263:
The Tribunal reviewed the Principal CIT’s order under Section 263, which set aside the assessment order under Section 153C and directed the AO to re-do the assessment. The Tribunal found that the Principal CIT’s order was not based on any new or incriminating evidence found during the search. The Tribunal emphasized that the AO had correctly followed the procedure, and the original assessment was valid. The Tribunal quashed the Principal CIT’s order, thereby allowing the assessee’s appeal.

Conclusion:
The Tribunal concluded that the Principal CIT’s order under Section 263 was not justified as it was not based on any incriminating material found during the search. The original assessment under Section 153C was deemed valid, and the issues raised by the Principal CIT regarding deemed dividend were not substantiated by any new evidence. Thus, the assessee’s appeal was allowed, and the Principal CIT’s order was quashed.

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