2021 (8) TMI 894 - AT - Income Tax

Assessment u/s 153A - addition based on statement recorded u/s 132(4) - whether the statement recorded during search u/s 132(4) of the Act or extracts of books of accounts maintained by the assessee constitute incriminating materials found during search or not? - HELD THAT -materials/evidences can not be said to be found during the course of search. We further find merits in the contentions of the assessee that materials has to be found during search and it has to be incriminating. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. In our considered opinion, the findings of the ld CIT(A) that statement recorded during search constitutes incriminating material is also not correct as the same can not be said to be found during the course of search but is recorded to elicit more information/explanation of the searched person on the incriminating documents/gold/jewellery found during search. Therefore after perusing the material on record and considering rival contentions and also the decisions cited before us, we are of the considered view that a statement recorded during the course of search can not be considered an incriminating material in order to make addition in an unabated assessment year. The case of the assessee is supported by the decision of the co-ordinate bench of the Tribunal in the case of DCIT vs. Shivali Mahajan others 2019 (3) TMI 1196 - ITAT DELHI On the issue of statement recorded u/s 132(4) of the Act being incriminating material, we are not in agreement with the conclusion drawn by the Ld. CIT(A). In our considered view the statement recorded under section 132(4) of the Act can not be considered as incriminating material found in the course of search. Besides it is a settled legal position that in an assessment framed under section 153A of the Act which is unabated on the date of search, no addition can be made without incriminating seized materials. Deemed dividend addition u/s 2(22)(e) - In the case of Akruti City Ltd. vs. DCIT 2010 (8) TMI 1081 - ITAT MUMBAI The identical issue was decided in favour of the assessee by holding that financial transactions out of business expediency between two sister concerns can not be called as loans or advances for the purpose of invoking section 2(22)(e) of the Act. The same view as held by the Hon ble High Court of Punjab Haryana in the case of CIT vs. Suraj Dev Dada 2014 (5) TMI 625 - PUNJAB HARYANA HIGH COURT wherein it has been held that it will be a travesty of law to apply the provision of section 2(22)(e) of the Act where the assessee had running account with the company with whom the assessee advanced money to the company as and when required for the purpose of business and also in real sense the assessee has not derived any benefit from the funds of the company. The issue is also clarified by CBDT in its circular No.19/2017 dated 12.06.2017 wherein it has been clarified that trade advances in the nature of commercial transactions would not fall within the ambit of words loans/advances within the meaning of section 2(22)(e) of the Act. Considering the facts and circumstances of the case in the light of various decisions as discussed above, we are of the considered view that the money advanced is used for the purpose of business of the former and therefore can not a loan/deposit to be treated as deemed dividend. Accordingly, we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. Thus we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. - Decided in favour of assessee.

Issues Involved:
1. Jurisdictional issue regarding the validity of the assessment framed under section 143(3) read with section 153A of the Income Tax Act.
2. The applicability of section 2(22)(e) regarding deemed dividend in the context of loans and advances made by M/s. Wind World India Ltd. to related entities.
3. The evidentiary value of statements recorded under section 132(4) of the Income Tax Act during the search.
4. The nature of transactions between related entities and whether they constitute commercial transactions or deemed dividends.

Detailed Analysis:

1. Jurisdictional Issue:
The primary issue raised by the assessee was against the order of the CIT(A) upholding the assessment framed under section 143(3) read with section 153A. The assessee contended that no incriminating material was found during the search, and thus, no addition could be made in the absence of such material since the assessment had attained finality and was unabated on the date of the search. The Tribunal referred to several judicial precedents, including the Hon’ble Delhi High Court in the case of Kabul Chawla, which summarized the legal position that completed assessments can be interfered with by the AO under section 153A only on the basis of some incriminating material unearthed during the search. The Tribunal concluded that in the absence of incriminating material, the completed assessment could not be disturbed, thus siding with the assessee on this jurisdictional issue.

2. Applicability of Section 2(22)(e):
The AO had treated the advances made by M/s. Wind World India Ltd. to related entities as deemed dividends under section 2(22)(e). The assessee argued that these advances were given out of commercial considerations and expediency, specifically for purchasing land due to land ceiling laws in various states, and thus could not be treated as deemed dividends. The Tribunal noted that these transactions were indeed out of commercial considerations and for the purpose of business, aligning with the judicial precedents that similar financial transactions between sister concerns for business purposes do not attract the provisions of section 2(22)(e). Consequently, the Tribunal directed the AO to delete the addition made on this ground.

3. Evidentiary Value of Statements Recorded Under Section 132(4):
The Tribunal examined whether the statements recorded during the search under section 132(4) could be considered incriminating material. The assessee argued that statements recorded during the search could not be treated as incriminating material. The Tribunal agreed with this view, citing the Hon’ble Jurisdictional High Court's decision in Harjeev Aggarwal, which held that statements recorded during search operations do not constitute incriminating material on their own. The Tribunal concluded that the addition made on the basis of such statements was not justified.

4. Nature of Transactions Between Related Entities:
The Tribunal analyzed the nature of the transactions between M/s. Wind World India Ltd. and its related entities, determining whether these were commercial transactions or deemed dividends. The Tribunal found that the advances were made to overcome land ceiling restrictions and were necessary for the business operations of installing windmills. The Tribunal noted that these transactions were out of business and commercial considerations, supported by judicial precedents and a CBDT circular clarifying that trade advances for commercial transactions do not fall under section 2(22)(e). Therefore, the Tribunal directed the AO to delete the addition, concluding that these transactions were not loans or advances for the purpose of invoking section 2(22)(e).

Conclusion:
The Tribunal allowed the appeals of the assessees, concluding that:
1. The assessment framed under section 143(3) read with section 153A was invalid in the absence of incriminating material.
2. The advances made by M/s. Wind World India Ltd. to related entities were commercial transactions and not deemed dividends.
3. Statements recorded under section 132(4) during the search do not constitute incriminating material.
4. The transactions between related entities were out of commercial considerations and thus not subject to section 2(22)(e).

The Tribunal directed the AO to delete the additions made, aligning with the judicial precedents and the nature of the transactions.

← Previous Next →