2021 (3) TMI 654 - AT - Income Tax

Assessment u/s 153A - Deemed dividend addition u/s 2(22)(e) - AY 2007-08 - HELD THAT From the perusal of the assessment order, it can be seen that no incriminating material has been found during the search and seizure operation and the Assessing Officer has not made any additions in respect of search and seizure operation. This assessment is non-abated assessment. There is no loan or advance as envisaged u/s. 2(22)(e) which should be treated as deemed dividend in present assessee's case. The issue is, therefore, squarely covered by the decision of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT particularly when original assessment had been framed u/s. 143(3) prior to the search in the case of the assessee. Hence, appeal of the assessee for Assessment Year 2007-08 is allowed. For Assessment Year 2012-13, closing balance as on 31/3/2012 was ₹ 9,21,582/- as against opening balance of ₹ 32,70,774/- which categorically states that during the year, the assessee has repaid the advance taken in earlier years. From perusal of the assessment order, he Assessing Officer has over looked these aspects and also taken into account the earlier Assessment Year amounting without giving any detailed reasoning while the same is added to the income of the assessee. From the perusal of the submissions before the CIT(A) we can see that the amount raised by the assessee is credited to the account with the company and its repayment is regularly debited to the said account. Provisions of Section 2(22)(e) relating to loan or advance can be deemed as dividend only to the extent of accumulated profit or so far as the loan is not reflected in the accounts, but in instance case the addition was made on the basis of the prior year amounts which was not at all discussed by the Assessing Officer as well as CIT(A) as to how the said amount was taken in respect of the current year account for making addition. Hence, the appeal of the assessee for Assessment Year 2012-13 is allowed.

Summary

Issues Involved:
1. Appeal against CIT(A) orders for assessment years 2007-08 and 2012-13.
2. Rejection of ground against notice under section 153A.
3. Addition of income without incriminating material post search.
4. Invocation of section 2(22)(e) for addition related to flat purchase.
5. Disallowance of interest amount in assessment year 2012-13.

Analysis:

Issue 1: Appeal against CIT(A) orders
The assessee filed appeals against the orders passed by CIT(A) for assessment years 2007-08 and 2012-13. The original assessment for 2007-08 was completed under section 143(3) before a search operation was conducted. The assessment included an addition related to the purchase of a flat under section 2(22)(e). For the assessment year 2012-13, the return of income was filed, and after scrutiny, an addition was made for disallowance of interest. The CIT(A) dismissed the appeals in both instances.

Issue 2: Rejection of ground against notice under section 153A
The appellant contested the notice issued under section 153A, arguing that the provisions of section 124(3) were not applicable to their case. They also cited the judgment of the Delhi High Court in CIT vs. Kabul Chawla, emphasizing that no incriminating material was found during the search. The tribunal found merit in this argument and allowed the appeal for the assessment year 2007-08.

Issue 3: Addition of income without incriminating material post search
In the case of the assessment year 2007-08, the tribunal noted that no incriminating material was found during the search and seizure operation. The Assessing Officer had made additions under section 2(22)(e) related to a loan, which the tribunal found did not meet the criteria for deemed dividend income. The tribunal relied on the decision of the Delhi High Court and allowed the appeal for this assessment year.

Issue 4: Invocation of section 2(22)(e) for addition related to flat purchase
Regarding the addition made under section 2(22)(e) for the purchase of a flat, the tribunal found that the loan raised by the company did not qualify as deemed dividend income. The tribunal observed discrepancies in the assessment order and concluded that the addition was not justified, allowing the appeal for the assessment year 2007-08.

Issue 5: Disallowance of interest amount in assessment year 2012-13
For the assessment year 2012-13, the tribunal noted that the Assessing Officer had made a disallowance of interest amount without proper reasoning. The tribunal found that the advance taken in earlier years had been repaid during the relevant year, and the addition made by the Assessing Officer was not adequately supported. Consequently, the tribunal allowed the appeal for the assessment year 2012-13.

In conclusion, the tribunal allowed both appeals of the assessee, overturning the orders of the CIT(A) for the assessment years 2007-08 and 2012-13.