2016 (3) TMI 1057 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - assessment under Section 153A - Held that - Revenue has not placed any material on record to demonstrate that incriminating material with respect to deemed dividend (which has been added in the impugned assessment) was found during the course of search at the premises of the assessee. In such a situation, we are of the view that no addition u/s. 2(22)(e) of the Act could have been made in the present case. We, therefore, direct the deletion of addition. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of assessment framed under Section 153A of the Income Tax Act.
2. Applicability of Section 2(22)(e) regarding deemed dividend.
3. Consideration of incriminating material found during the search.
4. Levy of interest under Section 234B/C.
5. Initiation of penalty proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 153A:
The Assessee argued that the assessment under Section 153A should be quashed as no incriminating documents were found during the search. The Tribunal noted that the Revenue did not present any material showing that incriminating evidence was found during the search. Citing the decisions in CIT vs. Kabul Chawla and Intas Pharmaceuticals Ltd. vs. DCIT, the Tribunal held that in the absence of incriminating material, the assessment under Section 153A is not sustainable. Consequently, the Tribunal quashed the assessment framed under Section 153A.

2. Applicability of Section 2(22)(e) - Deemed Dividend:
The Assessee received a loan of Rs. 1,99,02,409 from Jupiter Corporate Services Ltd. The Assessing Officer treated this amount as deemed dividend under Section 2(22)(e) because a common shareholder existed between the Assessee and Jupiter Corporate Services Ltd. The Assessee contended that it was not a registered shareholder of Jupiter Corporate Services Ltd., and hence, no addition under Section 2(22)(e) could be made. The Tribunal, relying on the decisions in ACIT vs. Bhaumik Colors P. Ltd. and CIT vs. Ankitech (P.) Ltd., agreed with the Assessee and held that the provisions of Section 2(22)(e) were not applicable. Therefore, the addition was directed to be deleted.

3. Consideration of Incriminating Material:
The Tribunal emphasized that for an assessment under Section 153A to be valid, there must be incriminating material found during the search. The Tribunal found that no such material was presented by the Revenue. The Tribunal reiterated that completed assessments can only be interfered with based on incriminating material unearthed during the search, as established in the case of Kabul Chawla. Since no incriminating material was found, the addition under Section 2(22)(e) was not justified.

4. Levy of Interest under Section 234B/C:
The Assessee contested the levy of interest under Section 234B/C. However, the Tribunal's order does not provide a detailed discussion on this issue, implying that the primary focus was on the validity of the assessment under Section 153A and the applicability of Section 2(22)(e).

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The Assessee also challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal's decision to quash the assessment under Section 153A and delete the addition under Section 2(22)(e) implies that the basis for penalty proceedings was invalidated. Therefore, the initiation of penalty proceedings would not stand.

Conclusion:
The Tribunal allowed the Assessee's appeal, quashing the assessment under Section 153A and deleting the addition made under Section 2(22)(e). The Tribunal emphasized the necessity of incriminating material for assessments under Section 153A and upheld the Assessee's contention regarding the non-applicability of Section 2(22)(e) in the absence of being a registered shareholder. The appeal was allowed, and the assessment was quashed.