2018 (10) TMI 136 - HC - Income Tax

Search-based reassessment u/s153A: deemed dividend addition without incriminating material rejected; revenue appeal dismissed.

In assessment under s.153A following search under s.132(1), the dominant issue was whether an addition on account of deemed dividend could be sustained ... Assessment u/s 153A - no material is found in the course of proceedings under Section 132(1) - Held that:- Members of the Tribunal rendered their opinion that factually there was no incriminating material found during the course of search relating to the addition made on account of deemed dividend. The very fact that Section 132 was resorted requiring the Assessing Officer to record the necessary satisfaction, was lacking in this case. The assessment, which had gained finality, in the absence of any material termed as incriminating having thus been subjected to assessment/reassessment, the Tribunal held in favour of the assessee. We do not think that the Tribunal's understanding of the legal provisions in the backdrop of these peculiar facts suffers from such legal infirmity or perversity necessitating our interference in further Appellate jurisdiction. No substantial question of law. Issues:1. Addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act 1961 for Assessment Years 2002-2003 and 2004-2005.2. Interpretation of Section 153A read with Section 143(3) of the Income Tax Act 1961.3. Application of legal principle regarding finality of assessment before search under Section 132(1) and subsequent additions under Section 153A.Analysis:1. The case involved the challenge to the addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act 1961 for Assessment Years 2002-2003 and 2004-2005. The respondent argued that the returns of income for these years had already been filed and assessed, attaining finality. The Tribunal confirmed additions of &8377; 1,69,68,750 for 2002-2003 and &8377; 4,65,76,000 for 2004-2005. However, the Tribunal, following legal precedent, held that if an assessment had attained finality before a search and no incriminating material was found during the search, no additions could be made under Section 153A.2. The respondent contended that the assessment orders for the relevant years had already attained finality before the search action was conducted under Section 132(1) of the Income Tax Act 1961. The Tribunal analyzed the legal provisions and held that no incriminating material was found during the search related to the deemed dividend additions. The absence of necessary satisfaction under Section 132 led the Tribunal to rule in favor of the assessee. The Tribunal's decision was based on the principle established in previous judgments, emphasizing the importance of incriminating material for additions under Section 153A.3. The Tribunal's decision was based on a detailed analysis of the legal provisions and relevant case law, particularly referring to the judgment in the case of Commissioner of Income Tax V. M/S Murli Agro Products Ltd. The Tribunal concluded that the absence of incriminating material during the search, coupled with the finality of the assessments before the search, precluded the additions made under Section 153A. The High Court upheld the Tribunal's decision, stating that the legal understanding of the provisions in light of the specific facts did not warrant interference in further appellate jurisdiction. Consequently, the Appeals were dismissed, with no substantial questions of law raised and no costs awarded.This detailed analysis of the judgment highlights the key legal issues, interpretations of relevant provisions, application of legal principles, and the final decision reached by the High Court in this matter.