Tribunal rules no additions without incriminating material under Income Tax Act

The Tribunal held that in the absence of incriminating material found during the search, no additions could be made under Section 153A/143(3) and Section 2(22)(e) of the Income Tax Act. The Tribunal ruled in favor of the assessee, citing precedents and emphasizing the need for incriminating material for additions in completed assessments. Consequently, the Tribunal deleted the Rs. 1,77,72,706/- deemed dividend addition and allowed the appeal of the assessee.

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Issues Involved:
1. Jurisdiction and validity of assessment under Section 153A/143(3) of the Income Tax Act.
2. Addition of Rs. 1,77,72,706/- as deemed dividend under Section 2(22)(e) of the Income Tax Act.
3. Shareholding percentage and its impact on the deemed dividend addition.

Detailed Analysis:

1. Jurisdiction and Validity of Assessment under Section 153A/143(3):
The primary contention was whether the Assessing Officer (AO) had the jurisdiction to frame the assessment under Section 153A/143(3) of the Income Tax Act in the absence of any incriminating material found during the search. The assessee argued that no incriminating material was found during the search operation conducted on 11.02.2016, and hence, the addition made was not permissible in law. The assessee cited several judicial precedents, including the jurisdictional bench of ITAT Amritsar in the case of Smt. Sanjana Mittal vs. DCIT, which held that no addition can be made if no incriminating material is found during the search and the assessment proceedings remain un-abated.

The Tribunal agreed with the assessee's contention, noting that the assessment for the relevant year had already attained finality and no incriminating material was found during the search. The Tribunal relied on the judgment of the Hon’ble Delhi High Court in CIT vs. Kabul Chawla, which was upheld by the Supreme Court, confirming that no addition can be made in the absence of incriminating material for completed assessments.

2. Addition of Rs. 1,77,72,706/- as Deemed Dividend under Section 2(22)(e):
The AO made an addition of Rs. 1,77,72,706/- as deemed dividend under Section 2(22)(e) of the Act, based on the loan received by the assessee from M/s Bhagwati Lacto Foods Pvt. Ltd. The assessee contended that the addition was made without considering the submissions and without observing the principles of natural justice. The Tribunal noted that the AO's addition was based on the disclosed bank statements and the return of income filed by the assessee, which were already part of the records and not based on any incriminating material found during the search.

3. Shareholding Percentage and Its Impact on the Deemed Dividend Addition:
The assessee argued that his shareholding in M/s Bhagwati Lacto Foods Pvt. Ltd. was less than 10%, and hence, the provisions of Section 2(22)(e) were not applicable. The assessee submitted that he held only 10,000 shares, constituting 0.2163% of the total shareholding, as per the revised Annual Return filed with the ROC. The AO, however, mentioned that during the post-search enquiry, it was found that the assessee held 10,10,000 shares as on 31.03.2015. The Tribunal did not delve deeply into this issue as it had already decided the matter in favor of the assessee based on the absence of incriminating material.

Conclusion:
The Tribunal concluded that in the absence of any incriminating material found during the search, no addition could be made for the year under consideration. The Tribunal deleted the addition made by the AO and allowed the appeal of the assessee. The order was pronounced on 23.12.2021.

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