Section 153A assessment invalid due to improper notice lacking incriminating material details from search

ITAT Mumbai held that assessment under section 153A was invalid due to improper notice. The Assessing Officer failed to specify incriminating material found during search in the notice, making it jurisdictionally defective. Following precedents from Bombay HC and coordinate bench decisions, the tribunal ruled that without details of seized material, the assessee cannot determine appropriate response. The notice under section 153A and subsequent assessment under section 143(3) read with section 153A were declared bad in law. Additions made under section 2(22)(e) regarding deemed dividend were consequently rejected. Appeal decided in favor of assessee.

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Issues Involved:
1. Validity of notice issued under Section 153A of the Income Tax Act, 1961.
2. Applicability of Section 2(22)(e) of the Income Tax Act regarding deemed dividend.
3. Requirement of incriminating material for additions in search assessments.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued under Section 153A:
The primary issue raised by the assessee was the validity of the notice issued under Section 153A. The assessee argued that the notice did not mention any incriminating materials found during the search, making it jurisdictionally defective. The Tribunal noted that the notice issued was general in nature and did not specify any incriminating material found during the search. The Tribunal referenced the decision of the Hon'ble Bombay High Court in Underwater Services Co. Ltd. v. ACIT & Others, which emphasized that a notice under Section 153A must mention the basis for its issuance to enable the assessee to respond appropriately. Following this precedent, the Tribunal held that the notice issued under Section 153A was bad in law, rendering the subsequent assessment invalid.

2. Applicability of Section 2(22)(e) - Deemed Dividend:
The Assessing Officer had made additions under Section 2(22)(e) of the Act, treating certain transactions between the assessee and D Décor Home Fabrics Private Limited as deemed dividends. The assessee contended that these transactions were part of a running current account and not loans or advances, thus not falling under the purview of deemed dividends. However, since the Tribunal found the notice under Section 153A to be invalid, it did not delve into the merits of this issue. The Tribunal kept this ground open and did not adjudicate upon it, considering the primary jurisdictional defect.

3. Requirement of Incriminating Material for Additions in Search Assessments:
The assessee argued that no incriminating material was found during the search to justify the additions made. The Tribunal observed that the assessment was made without any reference to incriminating material found during the search. The Tribunal cited various judgments, including those from the Bombay High Court, which held that in the absence of incriminating material, additions in search assessments are not justified. The Tribunal noted that the cases cited by the Department, where additions were made without incriminating material, were either from non-jurisdictional courts or pending final decisions from the Supreme Court. Therefore, the Tribunal followed the binding jurisdictional precedents, which required incriminating material for making additions in search assessments.

Conclusion:
The Tribunal concluded that the notice issued under Section 153A was invalid due to the lack of details on incriminating material, rendering the assessment bad in law. Consequently, the appeal filed by the assessee was partly allowed on jurisdictional grounds, and the appeal filed by the Revenue was dismissed. The Tribunal did not adjudicate on the merits of the deemed dividend issue due to the primary jurisdictional defect. The order was pronounced on 6th July 2022.

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