2016 (12) TMI 684 - HC - Income Tax

Revision u/s 263 - deemed dividend addition under Section 2(22)(e) - addition under Section 153A - Held that - There is no dispute that the search and seizure proceedings in this case did not result in anything therefore material either in the form of books of account or other documents related to the issue of deemed dividend under Section 2(22) of the Act. The amounts paid were in fact originally declared in the assessment returns of the assessee. The CIT therefore had opportunity to exercise his powers as it were on the basis of returns as filed originally and validly under Section 263 of the Act. In the circumstances in the absence of any material disclosing that the issue of deemed dividend had been wilfully derived or had been deemed or otherwise withheld from the assessment an addition under Section 153A was warranted based on the proposition taught by this Court in CIT vs Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . Therefore we concur with the ITAT s opinion in this regard. The search and seizure proceedings in such cases are undoubtedly meant to bring to tax amount that are to be determined on the basis of materials seized in the course of such searches; permitting anything over and above that would virtually amount to letting the Revenue have a third or fourth opinion as it were. - Decided against revenue

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1963 regarding addition of deemed dividend under Section 2(22)(e).
2. Jurisdiction of Commissioner of Income Tax (CIT) to revise assessment order under Section 263.
3. Applicability of search and seizure proceedings in determining additions under Section 153A of the Act.
4. Judicial precedent in determining deemed dividend under Section 2(22)(e).
5. Authority of the Income Tax Appellate Tribunal (ITAT) to interfere with CIT's determination.

Analysis:
1. The High Court addressed the issue of the Revenue challenging the ITAT's order setting aside the addition made by the CIT under Section 263 of the Income Tax Act, bringing certain amounts as "deemed dividend" under Section 2(22)(e) into tax. The Court examined whether the ITAT's decision was erroneous based on the materials available from search and seizure operations.

2. The Court noted that the CIT considered the assessment order prejudicial and erroneous to the Revenue's interest, directing its revision to include an amount under Section 2(22)(e). However, the ITAT concluded that the search and seizure operations did not provide fresh material justifying the addition under Section 153A, leading to the CIT's lack of authority to add an amount based on existing materials from the original assessment.

3. It was established that the search and seizure proceedings did not yield new material related to deemed dividend under Section 2(22)(e). The amounts in question were originally declared in the assessee's assessment returns, allowing the CIT to exercise powers under Section 263 based on the original returns filed.

4. The Court referred to a previous judgment in CIT vs Kabul Chawla, highlighting the necessity for wilful derivation or withholding of deemed dividend from assessment to warrant an addition under Section 153A. The Court emphasized that search and seizure proceedings are intended to tax amounts determined from seized materials, preventing multiple opinions by the Revenue.

5. Ultimately, the High Court agreed with the ITAT's decision, emphasizing that no questions of law arose in the case. The appeal was dismissed based on the Court's analysis of the jurisdictional aspects and the application of relevant legal principles in determining deemed dividend under the Income Tax Act.