DCIT Vs Arun Kumar Pillai (ITAT Bangalore)
The ITAT Bangalore delivered a split ruling—upholding validity of proceedings u/s 153C, but deleting the entire addition of deemed dividend due to absence of incriminating material.
The case arose from a search on Skanray group, where documents led the AO to initiate proceedings u/s 153C against the assessee and tax ₹21.64 crore as deemed dividend u/s 2(22)(e) based on loans from group companies.
On the legal issue, the Tribunal noted that earlier reliance on Karnataka HC ruling in Sunil Kumar Sharma (favouring 153A over 153C) no longer holds good in light of a later Karnataka HC decision (C.R. Ram Mohan Raja). Accordingly, initiation u/s 153C was held valid.
However, on merits, the Tribunal found that:
- The assessment years were completed/unabated assessments at the time of search
- The alleged deemed dividend transactions were already disclosed in audited financial statements
- No incriminating material was found during search linking to undisclosed income
Relying on the Supreme Court ruling in Abhisar Buildwell, the Tribunal held that no addition can be made in completed assessments without incriminating material.
Accordingly, while jurisdiction u/s 153C was upheld, the addition u/s 2(22)(e) was deleted in full, resulting in partial relief to Revenue but substantive victory for assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal is filed by The Deputy Commissioner Of Income Tax Central Circle -2(3), Bangalore [ the Id. AO ] in the case of ARUN KUMAR PILLAI [The Revenue / Respondent] for the assessment years 2015-16 to 2017-18 against the common order passed by the Ld. CIT(Appeals)-15, Bengaluru [Id. CIT(A)] dated 24.1.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 153C of the Income Tax Act, 1961 [the Act] on 9.9.2021 was allowed following the decision of the Coordinate Bench in assessee’s own case in ITA No.872/Bang/2024 dated 30.8.2024 for AY 2014-15. Therefore, the order of the Id. CIT(A) is contested before us.
