2020 (1) TMI 859 - AT - Income Tax

Assessment u/s 153A - period of limitation - absence of any incriminating material found in the course of search u/s.132 or not? - approval of the draft assessment orders by superior authority without fulfillment of pre requisites of Section 153D - Whether the AO was justified in passing the assessment order hurriedly without waiting for expiry of at least the date on which a compliance to the questionnaire issued was sought? - HELD THAT - On appraisal of the facts and circumstances of the case and peculiarities of the instant case and having regard to the long line of judicial precedents in similar circumstances including Pr.CIT vs. Shreelekha Damani 2018 (11) TMI 1563 - BOMBAY HIGH COURT , Geetarani Panda 2018 (7) TMI 1888 - ITAT CUTTACK , Rishabhbhai Buildwell P. Ltd. 2019 (7) TMI 365 - ITAT DELHI , AAA Paper Marketing Ltd. 2017 (4) TMI 1371 - ITAT LUCKNOW and Indira Bansal 2018 (2) TMI 1858 - ITAT, JODHPUR we find no hesitation to hold that the action of the JCIT under s.153D of the Act is to be regarded as perfunctory and mechanical in subversion of the spirit of Section 153D of the Act. Such symbolic approval is unfounded in law. As a corollary, in the absence of any valid approval under s.153D of the Act, the respective assessment orders giving cause of action in the form of captioned appeals requires to be quashed on this score also. We find merit in the legal proposition canvassed on behalf of the assessee. It is not in dispute that the assessment pertaining to assessment years in question viz. AYs. 2009 10, 2010-11, 2011-12 2012-13 stood concluded either under s.143(1) or under s.143(3) of the Act and not eventually pending at the time of search. Thus, assessment for these 4 years will not get abated in consequence of search. In the backdrop of these pertinent facts, we straightway notice that the scope of assessment under s.153A of the Act in respect of concluded and unabated assessments is circumscribed by the condition that additions/ disallowances must have some rational connection with the incriminating material against the assessee detected in the course of search. The scope of assessment under s.153A of the Act in respect of concluded and unabated assessment is thus narrower in its sweep as held in long line of judicial precedents of different jurisdictions. additions/disallowances under s.153A of the Act towards unabated assessments are permissible only where incriminating materials are found in search showing unaccounted income. In the absence of any reference to such seized documents in the assessment order and in view of the overwhelming reference to unsubstantiated tax evasion petition obtained in November 2016 post search, the action of the AO towards making additions in respect of concluded assessments towards undisclosed income is contrary to the judicial dicta. Accordingly, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested under s.153A of the Act owing to absence of any incriminating material or evidence deduced as a result of search in so far as completed assessments are concerned. As noted, no reference of such incriminating material, if any, is found in any of the assessment orders for the purposes of making various additions/disallowances. Additions/disallowances made in assessments framed under s.153A of the Act in respect of captioned assessees pertaining to AYs. 2009-10 to 2012-13 are thus required to be quashed on this score too. The assessments/re-assessments pending on the date of search i.e. AY 2013-14 to 2015-16 which stood abated by operation of law will however be governed by normal assessment powers under s.153A Addition u/s 2(22)(e) - receipt of loans and advances by the assessee from K. D. S. Contractors P. Ltd. in which both the Directors of the assessee company viz; Tripta Sharma K. D. Sharma holds substantial interest in both the companies - HELD THAT - Recipient assessee not being a registered shareholder cannot be taxed under the deeming fiction of Section 2(22)(e). See DAISY PACKERS PVT LTD. 2015 (7) TMI 253 - GUJARAT HIGH COURT - Additions under the deeming fiction of Section 2(22)(e) of the Act requires to be deleted on this first parameter itself i.e. the assessee not being shareholders of the lender company cannot be taxed under s. 2(22)(e) of the Act. There is a considerable force in the alternative argument raised on behalf of the assessee that while considering accumulated profits of the company for the purposes of additions under s.2(22)(e) of the Act for the assessment years in question, the payment made by the lender company which stood disallowed in the earlier years is required to be adjusted and consequently, accumulated profits of the lender company would stand reduced to the extent of disallowances carried out by the AO in the earlier assessment years. When a loan by a company to a shareholder in the manner set out in section 2(22)(e) is treated as a deemed dividend, it is to be treated as payment out of accumulated profits of the company. Hence, the addition under s.2(22)(e) of the Act for a given assessment year is required to be made having regard to the adjusted accumulated profits available with the lender company.

Summary

Issues Involved:
1. Legitimacy of assessment orders and their alleged antedating.
2. Validity of Joint Commissioner’s approval under Section 153D.
3. Scope and ambit of assessment under Section 153A in the absence of incriminating material.
4. Application of Section 2(22)(e) regarding deemed dividend.
5. Adequacy of opportunity provided for compliance and factual correctness of additions/disallowances.

Detailed Analysis:

1. Legitimacy of Assessment Orders and Their Alleged Antedating:
The assessee contended that the assessment orders were antedated and passed without waiting for the compliance date, thus rendering them void. The Tribunal found considerable weight in this plea, noting the unrealistic speed with which the AO purportedly prepared 28 assessment orders and obtained approval from the JCIT on the same day. The Tribunal observed that such actions are beyond comprehension and do not align with the conduct expected from responsible statutory authorities. The Tribunal concluded that the assessment orders were indeed antedated, as evidenced by the timing of the reply to the questionnaire and the dispatch of the assessment orders. Consequently, the assessment orders were deemed null and void.

2. Validity of Joint Commissioner’s Approval under Section 153D:
The Tribunal scrutinized the approval process of the JCIT, noting that the approval was granted in a baffling haste and without proper application of mind. The Tribunal emphasized that the JCIT's approval was mechanical and perfunctory, reducing it to an empty ritual. The Tribunal referenced various judicial precedents to support its conclusion that the approval did not meet the legal requirements under Section 153D, rendering the assessment orders invalid.

3. Scope and Ambit of Assessment under Section 153A in the Absence of Incriminating Material:
The Tribunal addressed the legal contention that additions/disallowances under Section 153A must be based on incriminating material found during the search. The Tribunal noted that the assessments for AYs 2009-10 to 2012-13 were concluded and could not be disturbed without incriminating material. The Tribunal cited several judicial precedents, including decisions from the Delhi, Gujarat, and Bombay High Courts, affirming that additions in respect of concluded assessments are permissible only if linked to incriminating material found during the search. The Tribunal found that the additions were based on a Tax Evasion Petition (TEP) received post-search, which could not justify the additions in the absence of incriminating material. Consequently, the additions for these years were quashed.

4. Application of Section 2(22)(e) Regarding Deemed Dividend:
The Tribunal examined the application of Section 2(22)(e) concerning loans/advances received by the assessee from K.D.S. Contractors Pvt. Ltd. The Tribunal found merit in the assessee's argument that the provisions of Section 2(22)(e) do not apply as the assessee was not a registered shareholder of the lender company. The Tribunal referenced judicial precedents, including the Supreme Court's decision in CIT vs. Madhur Housing And Development Company, to support this conclusion. The Tribunal also noted that any disallowances made in earlier years should be adjusted against the accumulated profits of the lender company, further reducing the scope of deemed dividend additions.

5. Adequacy of Opportunity Provided for Compliance and Factual Correctness of Additions/Disallowances:
The Tribunal observed that the opportunity provided to the assessee for compliance was grossly inadequate. The Tribunal referenced the decision in Sona Builders vs. UOI, emphasizing that the additions/disallowances made due to such inadequacy are bad in law. The Tribunal concluded that all additions/disallowances, except for the deemed dividend issue, should be set aside and remitted back to the AO for reconsideration. However, the Tribunal reiterated that the assessment orders themselves were invalid, rendering further consideration of these additions/disallowances moot.

Conclusion:
The Tribunal allowed the appeals, quashing the assessment orders for being antedated and lacking valid approval under Section 153D. It also held that additions/disallowances under Section 153A require incriminating material, which was absent in this case. The application of Section 2(22)(e) was also deemed incorrect as the assessee was not a registered shareholder. The Tribunal emphasized the need for adequate opportunity for compliance, setting aside the factual additions/disallowances for reconsideration.