2021 (8) TMI 898 - AT - Income Tax

Assessment u/s 153A - Deemed dividend addition u/s 2(22)(e) - whether the statement recorded during search u/s 132(4) of the Act or extracts of books of accounts maintained by the assessee constitute incriminating materials found during search or not? - HELD THAT - As decided in assessee;s own case 2021 (8) TMI 894 - ITAT MUMBAI such materials/evidences can not be said to be found during the course of search. We further find merits in the contentions of the assessee that materials has to be found during search and it has to be incriminating. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. In our considered opinion, the findings of the ld CIT(A) that statement recorded during search constitutes incriminating material is also not correct as the same can not be said to be found during the course of search but is recorded to elicit more information/explanation of the searched person on the incriminating documents/gold/jewellery found during search - we are of the considered view that a statement recorded during the course of search can not be considered an incriminating material in order to make addition in an unabated assessment year - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under section 2(22)(e) despite no incriminating material found during search.
2. Shareholding percentage of the appellant in Vish Wind Infrastructure Limited.
3. Nature of transactions between EIL and group companies.
4. Verification of ledger accounts and journal entries.
5. Verification of shareholding percentage and applicability of section 2(22)(e).

Detailed Analysis:

1. Addition under section 2(22)(e) despite no incriminating material found during search:
The appellant challenged the CIT(A)'s confirmation of the AO's action of making an addition under section 2(22)(e) of the Income Tax Act, despite no incriminating material or evidence being found during the search. The Tribunal noted that the search was conducted on 14.03.2013, and the assessment for the year 2008-09 was not pending at the time of the search. It was established that any addition in a non-abated assessment year could only be made based on incriminating material found during the search. Since no such material was found, the Tribunal directed the AO to delete the addition, citing precedents where statements recorded during the search did not constitute incriminating material.

2. Shareholding percentage of the appellant in Vish Wind Infrastructure Limited:
The appellant contended that they held only 14.29% shares in Vish Wind Infrastructure Limited before 22.05.2010, contrary to the AO's findings. The Tribunal directed the AO to verify this claim, emphasizing that the relevant materials were already available before the CIT(A). The Tribunal found that the CIT(A) should have adjudicated this issue based on the available evidence.

3. Nature of transactions between EIL and group companies:
The appellant argued that the transactions between EIL and group companies were commercial and business transactions, not loans or advances for the purpose of section 2(22)(e). The Tribunal agreed, noting that the advances were given for purchasing land due to land ceiling laws, which was necessary for the business of setting up windmills. The Tribunal concluded that these were genuine business transactions and should not be treated as deemed dividends.

4. Verification of ledger accounts and journal entries:
The CIT(A) had directed the AO to verify the ledger accounts of WWIL/EIL in the books of related concerns to ascertain the appellant's claim that there were no actual payments made, only journal entries. The Tribunal found merit in the appellant's contention that the ledger accounts were already available during the assessment proceedings and should have been considered by the CIT(A). The Tribunal directed the AO to delete the addition if the verification confirmed the appellant's claim.

5. Verification of shareholding percentage and applicability of section 2(22)(e):
The CIT(A) directed the AO to verify the appellant's claim of holding only 14.29% stake in Vish Wind Infrastructure Limited before 22.05.2010 and, if found correct, not to consider the transactions for the applicability of section 2(22)(e). The Tribunal emphasized that the evidence regarding shareholding was already available and should have been considered by the CIT(A). The Tribunal directed the AO to delete the addition if the verification confirmed the appellant's claim.

Conclusion:
The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the AO to delete the additions made under section 2(22)(e) based on the lack of incriminating material and the nature of the transactions being genuine business advances. The Tribunal emphasized the importance of verifying the appellant's claims with the available evidence.