In the absence of incriminating material found during a search, no additions can be made to the income already assessed for the relevant years under Section 153A of the Income Tax Act.

S. Muralidhar, J.

The issue

1. These three appeals by the Revenue under Section 260A of the Income Tax Act, 1961 (“Act”) are directed against the common order dated 25th May 2014 passed by the Income Tax Appellate Tribunal (“ITAT”) in ITA Nos. 779, 780 and 781/Del/2013 relating to Assessment Years (“AYs”) 2002-03, 2005-06 and 2006-07.

2. The issue that the Court proposes to address in these appeals is the same that was considered by the ITAT viz., 'Whether the additions made to the income of the Respondent Assessee for the said AYs under Section 2(22)(e) of the Income Tax Act, 1961 (“Act”) were not sustainable because no incriminating material concerning such additions were found during the course of search and further no assessments for such years were pending on the date of search?'

Background facts

3. A search was carried out under Section 132 of the Act on 15th November 2007 on BPTP Ltd., a leading real estate developer operating all over India and mainly in the National Capital region and some of its group companies. A search was on the same date carried out in the premises of the Assessee who along with his wife Mrs. Anjali Chawla owned and controlled the group. As on the date of the search, no assessment proceedings were pending for AYs 2002-03, 2005-06 and 2006-07. For the said AYs, assessments had already been made under Section 143(1) of the Act.

4. Pursuant to the search a notice under Section 153A(1) of the Act was issued to the Assessee on 3rd September 2008. Pursuant to the said notice, the Assessee filed returns for the three AYs on 19th January 2009. For AY 2002-03, the Assessee declared a total income of Rs.12,42,740. The assessment was finally completed by the Assessing Officer (AO) on the total income of Rs.68,31,740 which, inter alia, included an addition of Rs. 50 lakhs on account of a gift received by the Assessee from Mrs. Gianna Fissore, Rs. 2 lakhs on account of low house withdrawals and Rs. 37,162 on account of deemed dividend under Section 2(22)(e) of the Act. For AY 2005-06, the income was assessed at Rs. 82,51,126 which, inter alia, included an addition of Rs. 2 lakhs on account of low house withdrawals and Rs. 62,70,496 on account of deemed dividend under Section 2(22)(e) of the Act corresponding to the additions made on protective basis in the hands of Business Park Overseas Pvt. Ltd. (BPOPL), Countrywide Promoters & Developers Pvt. Ltd. (CPDPL) and Poonam Promoters & Developers Pvt. Ltd. (PPDPL), in which companies the Assessee was a substantial shareholder. For the AY 2006-07, the income was assessed at Rs. 1,35,87,112 which, inter alia, included two additions of Rs. 12,77,193 and Rs. 90,26,389 on account of deemed dividend under Section 2(22)(e) of the Act corresponding to the additions made on protective basis in the hands of Shalimar Town Planners Pvt. Ltd. (STTPL) and on a substantive basis in the hands of other companies of the BPTP Group in which the Assessee was a substantial shareholder.

5. The Assessee filed an application under Section 154 of the Act seeking rectification of the assessments on the ground that the accumulated profits of the companies paying the dividend were less than the amount of loan or advance given by them to the recipient companies. Negativing the contention, the Assessing Officer (“AO”) decline to rectify the assessments.

The order of the CIT (A)

6. The Assessee filed appeals before the Commissioner of Income Tax (Appeals) [“CIT (A)”]. The grounds urged before the CIT (A) was that as far as the additions made under Section 2(22)(e) of the Act were concerned, no evidence had been unearthed during the search to warrant such additions. It may be mentioned here that as far as AY 2002-03 was concerned, the Assessee did not contest the addition of Rs.50 lakhs made on account of the gift received from Ms. Fissore and tax thereon was paid.

7. By the orders dated 27th November 2012, the CIT (A) dismissed the appeals. The CIT (A) noted the submission of the Assessee that th