2019 (9) TMI 95 - AT - Income Tax

Assessment u/s 153A - addition on the basis of statement in the absence of incriminating material - deemed dividend addition u/s 2(22)(e) - HELD THAT - The Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has held that if two conditions of completed assessment and no incriminating material for making addition are fulfilled then no addition could have been made in that assessment year. On perusal of the order of the lower authorities, we find that the instant addition has been made on the basis of the submissions made by the assessee during the course of assessment proceedings under section 153A of the Act. DR could not point out any incriminating material on the basis of which this addition could have been claimed to be made. It is also not disputed that the assessments stood completed prior to the date of the search in view of no notice issued under section 143(2) for scrutiny of the case within the limitation period available in the Act. Thus, the assessee fulfils both the conditions for invoking the ratio in the case of Kabul Chawla that no addition could have been made in case of completed assessment in absence of any incriminating material found during the course of the search. In similar set of facts, the Hon ble High Court of Bombay in the case of Principal CIT Vs. Jignesh P. Shah 2015 (9) TMI 80 - DELHI HIGH COURT held that no addition of deemed dividend could be made in assessment order passed under section 153A of the Act in absence any incriminating material. Addition on the ground that the document relied upon for making the addition was found from the premises of the third party and thus, the addition could have only been made u/s 153C - HELD THAT - Separate search warrant has been issued in the case of the assessee as well in the case of Sh. Ashok Chowdhary and the Assessing Officer has used the material found in the course of search at the premise of Sh. Ashok Chowdhary, which is not permitted in view of the express provision of the law. The addition made by the Assessing Officer in violation of the procedure provided in the Act is bad in law and void-ab-initio and cannot be sustained. Accordingly, the addition of ₹ 3.3 crore, made protectively on the basis of the documents found from the premises of the third party, by the Assessing Officer and upheld by the Ld. CIT(A) on substantive basis, is deleted. The ground of the appeal of assessee is accordingly allowed.

Issues Involved:
1. Legality of the order passed by the Ld. CIT(A) under section 250 of the Income Tax Act, 1961.
2. Rejection of additional grounds by the Ld. CIT(A) under section 250(5) of the Income Tax Act.
3. Addition under section 2(22)(e) of the Income Tax Act without incriminating material.
4. Addition of ?3.30 crore on a protective basis based on documents found from a third party.
5. Principles of natural justice.

Detailed Analysis:

1. Legality of the order passed by the Ld. CIT(A) under section 250 of the Income Tax Act, 1961:
The assessee contested that the order passed by the Ld. CIT(A) was bad in law and on facts. This issue was rendered academic and not adjudicated upon since relief was granted on other grounds.

2. Rejection of additional grounds by the Ld. CIT(A) under section 250(5) of the Income Tax Act:
The Ld. CIT(A) rejected additional grounds raised by the assessee, stating that they were factual and not legal, thus not applicable under the judgment of the Hon'ble Supreme Court in NTPC 229 ITR 383. This issue was also rendered academic and not adjudicated upon due to the relief granted on other grounds.

3. Addition under section 2(22)(e) of the Income Tax Act without incriminating material:
The assessee argued that the addition under section 2(22)(e) was made without any incriminating material found during the search, which contravenes the judgment of the Hon'ble Delhi High Court in CIT Vs. Kabul Chawla (2016) 380 ITR 573 (Delhi). The Tribunal found that the addition of ?6 lakh was made based on submissions during assessment proceedings and not on any incriminating material. As the assessments were completed before the search and no notice under section 143(2) was issued, the Tribunal held that no addition could be made in the absence of incriminating material. Thus, the addition under section 2(22)(e) was deleted, and ground No. 3 of the appeal was allowed.

4. Addition of ?3.30 crore on a protective basis based on documents found from a third party:
The addition of ?3.30 crore was made based on documents found from the premises of a third party, Sh. Ashok Chowdhary, and was upheld by the Ld. CIT(A) on a substantive basis. The Tribunal noted that the material relied upon was not found from the premises of the assessee and that the procedure under section 153C of the Act was not followed. The Tribunal emphasized that the Assessing Officer must adhere to the provisions of the Act and cannot devise shortcuts. The addition made under section 153A based on documents found from a third party was held as bad in law and void-ab-initio. Consequently, the addition of ?3.3 crore was deleted, and ground No. 6.2 of the appeal was allowed.

5. Principles of natural justice:
The assessee argued that the order passed by the Ld. CIT(A) was against the principles of natural justice. This issue was rendered academic and not adjudicated upon due to the relief granted on other grounds.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions made under section 2(22)(e) and ?3.30 crore on a protective basis. Other grounds were rendered academic and dismissed as infructuous. The order was pronounced in the open court on 20th August 2019.

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