2020 (12) TMI 393 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on Income Tax Act 2(22)(e) addition.

The Asst. CIT Panchkula Circle, Panchkula Versus Sh. Surinder Garg

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO under section 2(22)(e) of the Income Tax Act due to the absence of ... Assessment u/s 153A - Deemed dividend addition u/s 2(22)(e) - HELD THAT:- In a case where no assessment proceedings are pending on the date of the search and seizure proceedings, the assessment under section 153A can be carried out only on the basis of seized material. In a case where no incriminating material is unearthed during the course of search proceedings and the assessment proceedings remain unabated as on the said date, no additions can be validly made in the hands of the assessee. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of CIT vs. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT]. As on the date of the search and seizure proceedings no assessment proceedings were pending in the case of the assessee before us, therefore, in the absence of any incriminating material having been found in the course of such proceedings no addition could have been validly made in the hands of the assessee. Accordingly, respectfully following the aforesaid judgments in the case of M/s Mala Builders Pvt. Ltd. [2016 (11) TMI 1046 - ITAT CHANDIGARH] we find no infirmity in the view taken by the CIT(A) who had rightly quashed the addition made by the A.O u/s 2(22)(e) of the Act. - Decided against revenue. Issues Involved:1. Deletion of addition made by the AO under section 2(22)(e) of the Income Tax Act, 1961 on account of deemed dividend.2. Validity of the assessment under section 153A in the absence of any incriminating material found during the search.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 2(22)(e):The primary issue was whether the CIT(A) was correct in law to delete the addition made by the AO under section 2(22)(e) of the Income Tax Act, 1961, which pertains to deemed dividends. The AO observed that the assessee had received advances from M/s Hansa Metallic Pvt. Ltd., where he held substantial shareholding. The AO added Rs. 2,80,00,000 as deemed dividend, arguing that the amount received was an advance under section 2(22)(e).The assessee contended that the amount was a business receipt, not an advance, and was recorded as a book entry without actual fund transfer, thus not attracting section 2(22)(e). The CIT(A) found favor with the assessee, noting that the addition was made without any incriminating material found during the search, and thus, the addition could not be sustained.2. Validity of Assessment under Section 153A:The second issue was whether the AO could make an addition under section 153A in the absence of any incriminating material found during the search. The CIT(A) and subsequently the Tribunal, relying on various judicial pronouncements, including the Delhi High Court’s judgment in CIT vs. Kabul Chawla, held that no additions could be made under section 153A unless incriminating material was found during the search.The Tribunal noted that on the date of the search, no assessment proceedings were pending, and thus, the AO could not assume jurisdiction to make additions without incriminating material. The Tribunal referenced several cases, including CIT vs. Continental Warehousing Corporation and CIT vs. Anil Kumar Bhatia, to support that completed assessments can only be disturbed based on incriminating material found during the search.The Tribunal concluded that in the absence of any incriminating material found during the search, the addition made by the AO under section 2(22)(e) was invalid. Consequently, the Tribunal upheld the CIT(A)’s decision to delete the addition and dismissed the revenue’s appeal.Conclusion:The Tribunal dismissed the revenue's appeal, affirming the CIT(A)’s order that quashed the addition made by the AO under section 2(22)(e) due to the lack of incriminating material found during the search. The Tribunal emphasized that additions under section 153A can only be made based on incriminating material found during the search, aligning with established judicial precedents.