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2019 (11) TMI 365 - AT - Income TaxAssessment u/s 153A - HELD THAT - As the addition is involved in the appeal of the assessee as well as in the appeal of the learned assessing officer are not made on the basis of any incriminating material found during the course of search, all these 3 additions deserves to be deleted. Accordingly, we allow ground number 1 of the appeal of the assessee holding that no incriminating document was found during the course of search and therefore not all these additions made by the learned assessing officer could be made in the hands of the assessee. Addition made in the hands of the assessee as no incriminating material found during the course of search, the treatment of the long-term capital gain as income from other sources also deserves to be allowed in favour of the assessee for the reasons given by us while adjudicating ground number 1 of the appeal of the assessee. Accordingly, Ground no 2 is also allowed. Penalty u/s 271 (1) (c) - HELD THAT - Disclosure made by the assessee under the head short-term capital gain on sale of shares whereas the learned assessing officer treated the same as income from other sources, the above addition has already been deleted in the quantum of appeal of the assessee for assessment year 2005 06 as the addition was not made on the basis of the incriminating material found during the course of search, the penalty on this issue now do not survive. Accordingly ground number 1 of the appeal of the assessee challenging the levy of the penalty u/s 271 (1) (C) of the act is allowed.
Issues Involved:
1. Legality of additions made without incriminating material found during the search. 2. Deletion of additions under Section 68 and Section 2(22)(e) for AY 2005-06. 3. Treatment of long-term capital gain as income from other sources for AY 2005-06. 4. Legality of penalty levied under Section 271(1)(c) for AY 2005-06. 5. Deletion of additions under Section 41(1) and Section 2(22)(e) for AY 2006-07. Detailed Analysis: 1. Legality of Additions Made Without Incriminating Material Found During the Search: The primary issue revolves around whether the additions made by the Assessing Officer (AO) were valid in the absence of any incriminating material found during the search. The assessee argued that no such material was discovered, referencing the decision in CIT vs. Kabul Chawla, which states that completed assessments can only be interfered with based on incriminating material found during the search. The Tribunal agreed, noting that the additions were made without any reference to incriminating material, thus rendering the additions invalid. 2. Deletion of Additions Under Section 68 and Section 2(22)(e) for AY 2005-06: The AO had made two significant additions: INR 2,500,000 under Section 68 for unexplained loans and INR 6,500,000 under Section 2(22)(e) for deemed dividends. The CIT(A) had deleted these additions on merits. The Tribunal upheld this deletion, reiterating that no incriminating material was found during the search to justify these additions. Consequently, the AO’s appeal challenging the deletion of these additions was dismissed. 3. Treatment of Long-Term Capital Gain as Income from Other Sources for AY 2005-06: The AO had treated a declared long-term capital gain of INR 3,525,645 as income from other sources. The CIT(A) upheld this reclassification. However, the Tribunal found that this addition too was made without any incriminating material found during the search. Therefore, the Tribunal allowed the assessee's appeal, deleting the addition and treating the amount as long-term capital gain. 4. Legality of Penalty Levied Under Section 271(1)(c) for AY 2005-06: A penalty of INR 791,155 had been levied under Section 271(1)(c) for concealing income and furnishing inaccurate particulars. Since the primary addition of INR 3,525,645, which formed the basis for the penalty, was deleted due to the absence of incriminating material, the penalty could not be sustained. The Tribunal thus allowed the appeal, canceling the penalty. 5. Deletion of Additions Under Section 41(1) and Section 2(22)(e) for AY 2006-07: For AY 2006-07, the AO had made additions of INR 7,000,000 as deemed dividend and INR 2,804,022 under Section 41(1) for cessation of liability. The CIT(A) had deleted these additions, and the Tribunal upheld this deletion. The Tribunal noted that the assessment year was a concluded assessment and no incriminating material was found during the search. Therefore, the additions were not justified, and the AO’s appeal was dismissed. Conclusion: The Tribunal ruled in favor of the assessee for all the issues, primarily on the grounds that no incriminating material was found during the search to justify the additions made by the AO. The Tribunal allowed the appeals filed by the assessee and dismissed the appeals filed by the AO, thus deleting all the contested additions and the penalty levied.
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