2014 (2) TMI 731 - AT - Income Tax

Legality of Addition made u/s 153A of the Act Held that - The assessment had been processed under section 143(1) and no notice under section 143(2) had been issued - The decision in Alcargo Global Logistics Ltd. v. Dy. CIT 2012 (7) TMI 222 - ITAT MUMBAI(SB) followed - provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search thus, the AO had no jurisdiction to make addition under section 153A - The addition made is therefore deleted on the legal ground. Merit of additions u/s 68 and Section 2(22)(e) of the Act Held that - The addition made is on account of gift which is nothing but loan taken by the assessee which was converted into gift during the year - Thus source of gift was loan which the AO himself has admitted had been taken by the assessee in the year prior to 2000 - addition if any could have been made in the year of loan - CIT(A) rightly held that the current year profit has to be excluded - there is no case for any addition under section 2(22)(e) Decided in favour of Assessee.

Summary

Issues Involved:
1. Legal validity of additions made under section 153A of the Income Tax Act, 1961
2. Merit of additions under section 68 of the Act
3. Merit of additions under section 2(22)(e) of the Act

Analysis:

Issue 1: Legal validity of additions under section 153A
The dispute centered on the interpretation of section 153A, which empowers the Assessing Officer (AO) to assess or reassess the total income of six assessment years preceding the year of search. The contention was whether additions could be made under section 153A without any incriminating material found during the search. The CIT(A) rejected the argument that additions require the presence of incriminating material, stating that section 153A is activated upon conducting a search, regardless of any undisclosed income found. The Tribunal referred to a Special Bench decision, emphasizing that additions under section 153A can be made based on incriminating material or undisclosed income discovered during the search. As no incriminating material was found in this case, the Tribunal ruled that the AO lacked jurisdiction to make additions under section 153A. Consequently, the additions made under this section were deleted.

Issue 2: Merit of additions under section 68 of the Act
The AO had added amounts under section 68 related to loans taken by the assessee, which were later shown as gifts. The CIT(A) upheld the additions under section 68, but recognized that the current year's profit could not be considered as accumulated profit. As a result, the addition as deemed dividend under section 2(22)(e) was deleted. The Tribunal concurred with the CIT(A), noting that the gifts were sourced from loans taken by the assessee in previous years, and there was no accumulated profit to justify the addition under section 2(22)(e). Therefore, the Tribunal dismissed the revenue's appeal and allowed the assessee's appeal.

Conclusion:
The Tribunal ruled in favor of the assessee, allowing their appeal and dismissing the revenue's appeal. The additions made under section 153A were deemed invalid due to the absence of incriminating material, and no merit was found to sustain the additions under sections 68 and 2(22)(e) of the Act.