Section 153A: Assessment – Search or requisition-No addition can be made in respect of an unabated assessment which has become final if no incriminating material is found during the search. [Section 132, 143(3)]

5.  The Pr. CIT-4 vs. Jignesh P. Shah [Income tax Appeal no 555 of 2016, Dated: 26^th September, 2018 (Bombay High Court)]. 

[Jignesh P. Shah vs. DCIT; dated 13/02/2015 ; ITA. No 1553 & 3173/Mum/2010, Mum.  ITAT ]

Section 153A: Assessment – Search or requisition-No addition can be made in respect of an unabated assessment which has become final if no incriminating material is found during the search. [Section 132, 143(3)]

The assessee is an individual being the member of Financial Technologies India Ltd., was covered under search and seizure action. In pursuance of search action u/s. 132(1), notices u/s. 153A was issued to the assessee on 25.10.2007 for the six assessment years immediately preceding the assessment year of the year of the search, which included the aforesaid assessment years. In response to the said notices the assessee filed his return of income on 26.11.2007 on the same income which was declared in the original return of income filed u/s. 139. In the assessment order passed u/s. 153A, r.w.s 143(3), the addition on account of deemed dividend of Rs.1,69,68,750/- for the A.Y. 2002-03 and Rs.4,65,76,000/- for the A.Y. 2004-05 was made, vide separate order dated 31.03.2009.

The Ld. AO noted the facts about receiving the payments by the assessee from Lotus investment, which was a division of La-fin Financial Services Pvt. Ltd. in which the assessee held 50% of share, from the balance sheets and records already filed along with the return of income. However, an Assessment Order was made and this time, an addition, on account of deemed dividend of Rs.1,69,68,750/for AY: 2002-03 and Rs.4,65,76,000/- for AY:  2004-05, was made. This came to be confirmed by the CIT (A).

The assessee submitted that during the course of search and seizure action, no incriminating document, material or unaccounted assets were found from the assessee. The A.O, without there being any incriminating material found in the course of search relating to the deemed dividend has made the addition on the basis of information already available in the return of income. This is also evident from the copy of panchnama and statement on oath of the assessee recorded at the time of search. The Ld. AO has noted the facts about receiving of the payments by the assessee from Lotus investment, which was a division of La-fin Financial Services Pvt. Ltd. in which the assessee held 50% of share, from the balance sheets and records already filed along with the return of income. Since the assessment for the A.Ys. 2002-03 & 2004-05 had attained finality before the date of search and does not get abated in view of second proviso to section 153A, therefore, without there being any incriminating material found at the time of search, no addition over and above the income which already stood assessed can be made. This proposition he said, is squarely covered by the decision of All Cargo Global Logistics Ltd. vs. DCIT reported in (2012) 137 ITD 287 (SB) (Mum).

Even the Hon’ble jurisdictional (Bombay) High Court in the case of CIT vs. Murli Agro Products Ltd. ITA No. 36 of 2009 order dated 29.10.2010, has clearly held that, once the assessment has attained finality before the date of search and no material is found in the course of proceedings u/s. 132(1), then no addition can be made in the proceedings u/s. 153A. This proposition has been reiterated by Hon’ble Rajasthan High Court in the case of Jai Steel (India) vs. ACIT reported in (2013) 259 CTR (Raj) 281. Thus, the addition of deemed dividend made by the assessing officer is beyond the scope of assessment u/s 153A for the impugned assessment years.

The Tribunal held that the principle which was enunciated by the judgment of this Court rendered in the case of Commissioner of Income Tax vs. M/S Murli Agro Products Ltd. (Income Tax Appeal No.36 of 2009 decided on 29^th October 2010) was applied. That judgment held that, once the assessment has attained finality before the date of search and no material is found in the course of proceedings u/s. 132(1), then, no addition can be made in the proceedings u/s. 153A. After setting out this principle in great details, 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.

Being aggrieved with the order of the ITAT, the Revenue filed the Appeal before High Court. The Court upheld  the order of the Tribunal. Accordingly, dismissed the departments appeal .