DCIT, CENTRAL CIRCLE-2(2), BANGALORE vs. CHOLAN BUILDINGS & ESTATES, BANGALORE

Therefore the ld. AO is aggrieved and has preferred the appeal. The only grievance is that the ld. CIT(A) has deleted the protective addition in the hands of the assessee, whereas the substantive addition in the hands of Shri Gunasekaran had not attained finality.

The brief facts of the case show that the assessee is a partnership firm engaged in the business of real estate. It has filed the return of income u/s. 139(1) of the Act on 18.9.2012 at a total income of Rs.38,68,120.

Search took place u/s. 132 of the Act in the case of Team Life Care India Private Limited on 20.10.2011 wherein the premises of the assessee was also covered. Based on the evidence found, the Managing Partner, Sri N. Gunasekaran, in his statement, admitted undisclosed income of Rs.12,18,07,871. In the return of income filed by the assessee for AY 2012-13, sum of Rs.16,60,000 was included as income pursuant to statement u/s. 132 of the Act. After issuing notice the assessee was saddled with an addition of deemed dividend u/s. 2(22)(e) of the Act on protective basis, whereas the same is taxed in the hands of N. Gunasekaran on substantive basis of Rs.2,08,57,499. The assessment order was passed by making protective addition in the hands of partnership firm and substantive addition in the hands of the partner.

The assessee challenged the above addition before the ld. CIT(A) wherein the assessee stated that substantive addition made in the hands of the assessee by the AO in hands of N. Gunasekaran vide order dated 24.3.2014 which is confirmed by the ld. CIT(A) by appellate order dated 27.7.2023 and therefore as the substantive addition is confirmed, protective addition could not have been sustained, the ld. CIT(A) deleted the same.

The AO is aggrieved with the same. The ld. CIT(DR) vehemently submitted that the ld. CIT(A) should have waited till the addition in the hands of N. Gunasekaran attained finality. None appeared on behalf of the assessee.

We have carefully considered the issue and find that when the substantive addition has already been made and sustained in the hands of the partner of the firm, protective addition deserves to be deleted in the hands of this assessee. Naturally a protective assessment is effectively not a final assessment and cannot by itself justify permanent additions against the protective assessee. When in doubt, protective assessments are permissible but must not continue indefinitely; the Department must decide whose income it is and make substantive assessment accordingly. The ld. DR could not show any reason that the addition made in the hands of N. Gunasekaran should have been made in the hands of the assessee.

It is also true that position of the two persons, in whose hands substantive and protective additions are made, must be taken together with regard to their final liability and then the question of additions has to be considered. But question is who must do it and pursue it, the answer is naturally the revenue. In this case the ld. Revenue authorities have failed to pursue both the matters i.e. substantive and protective addition together.

In view of the above facts, we do not find any infirmity in the order of the ld. CIT(A), however, if in case the substantive addition is deleted in the hands of the N. Gunasekaran holding that the addition should have been made in the hands of the assessee, we give liberty to the ld. AO to appropriately move an application for restoration of this appeal. However, at present, we do not find any such circumstances to upset the order of the ld. CIT(A).

In the result, appeal filed by the Assessee stands dismissed.