2015 (9) TMI 80 - HC - Income Tax

Assesment u/s 153A - Deemed dividend u/s 2(22)(e) - Completed Assessment - Whether additions made to the income of the Assessee for the AYs were not sustainable because no incriminating material concerning such additions were found during the course of search and further no assessments for such years were pending on the date of search? - Held that - Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Thus the present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. Decided in favour of the Assessee

Summary

Issues Involved:
1. Whether additions made to the income under Section 2(22)(e) of the Income Tax Act, 1961 were sustainable without incriminating material found during the search.
2. Whether the Assessing Officer (AO) could reopen completed assessments under Section 153A of the Income Tax Act, 1961 without any incriminating material.

Issue-wise Detailed Analysis:

1. Additions under Section 2(22)(e) without Incriminating Material:
The Court examined if the additions made to the income of the Respondent Assessee for AYs 2002-03, 2005-06, and 2006-07 under Section 2(22)(e) were sustainable without incriminating material found during the search. A search was conducted on 15th November 2007, and no assessment proceedings were pending for the mentioned AYs. The AO issued notices under Section 153A, and the Assessee filed returns. The AO made additions including deemed dividend under Section 2(22)(e). The CIT (A) upheld these additions, noting that the Assessee was a substantial shareholder in the companies that received loans. The ITAT, however, concluded that the additions were not based on any incriminating material found during the search and therefore, were not sustainable in law. The ITAT set aside the impugned assessment orders and directed the deletion of the additions.

2. Reopening Completed Assessments under Section 153A:
The Court analyzed whether the AO could reopen completed assessments under Section 153A without any incriminating material. The Revenue argued that Section 153A did not require incriminating material to be found during the search to frame an assessment. The Assessee contended that the settled law required some incriminating material to be unearthed during the search for making additions. The Court referred to various judgments, including CIT v. Anil Kumar Bhatia, which left open the question of whether Section 153A could be invoked without incriminating material. The Court noted that the decision in CIT v. Chetan Das Lachman Das emphasized the need for relevance or nexus with seized material for making assessments under Section 153A. The Court also referred to decisions in Ranbaxy Laboratories Ltd. and Jai Steel (India), which supported the requirement of incriminating material for reopening completed assessments.

Summary of Legal Position:
The Court summarized the legal position regarding Section 153A as follows:
- Notice under Section 153A(1) must be issued mandatorily after a search.
- Assessments and reassessments pending on the date of search shall abate.
- The AO has the power to assess and reassess the total income for six years preceding the search.
- Additions should have relevance or nexus with the seized material.
- Completed assessments can be interfered with only on the basis of incriminating material found during the search.

Conclusion:
For AYs 2002-03, 2005-06, and 2006-07, the assessments were already completed on the date of the search, and no incriminating material was found. Therefore, no additions could be made to the income already assessed. The Court answered the question in favor of the Assessee and against the Revenue, dismissing the appeals with no orders as to costs.