AJAY KISHIN BHATIA,UAE vs. INCOME TAX OFFICER (INTL. TAX)-1(2)(1), MUMBAI

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ITITA 579/MUM/2025Status: DisposedITAT Mumbai07 August 2025AY 2019-204 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the protective assessment made in the hands of the appellant is invalid and therefore quashed. The reasoning was based on the established principle that a protective assessment cannot stand independently and must be preceded by a substantive assessment. The Tribunal noted that the AO's response confirmed that no substantive assessment had been made in the hands of Smt. Varsha Bhatia for AY 2019-20, and no further action could be taken against her due to the limitation period under Section 149 of the Act. Respectfully following the decisions of the co-ordinate benches of the Tribunal, which in turn relied on the Supreme Court's observations in Lalji Haridas v. ITO, it was concluded that a protective assessment without a substantive assessment is not sustainable in law. The appeal of the appellant was allowed, with the operative direction being the quashing of the protective assessment.

What were the facts?

The assessee, Ajay Lishin Bhatia, is in appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, against the order for Assessment Year 2019-20. The appeal challenges additions made by the Assessing Officer (AO) and confirmed by the Dispute Resolution Panel (DRP). The assessee's primary contention, raised as a legal ground, is that the assessment order passed under Section 147 of the Income Tax Act, 1961, and the sanction for reopening are invalid. Specifically, the assessee argues that the assessment was framed as a 'protective assessment' based on the DRP's directions, but no 'substantive assessment' has been carried out in the hands of the person whose income is allegedly substantive (Smt. Varsha Bhatia). The AO confirmed that no substantive assessment has been made in Smt. Varsha Bhatia's case for AY 2019-20, and no further action can be taken due to limitation under Section 149.

What were the issues?

1. Whether the protective assessment framed under Section 147 read with Section 144C(13) of the Income Tax Act, 1961, is bad in law and void ab initio in the absence of a substantive assessment in the hands of Smt. Varsha Bhatia for Assessment Year 2019-20? (Question of law and mixed fact). Assessee's contentions: The assessee argued that a protective assessment cannot exist independently and must follow a substantive assessment. Reliance was placed on the Mumbai Tribunal's decisions in Suresh K. Jajoo and Lalitha Narendra Kothari, which held that a substantive assessment must precede a protective assessment. The assessee further submitted that the AO confirmed that no substantive assessment has been made in Smt. Varsha Bhatia's case and no action can be taken due to the limitation under Section 149 of the Act. Therefore, the protective assessment in the assessee's hands should be quashed. Revenue's contentions: The Revenue relied on the orders of the Ld. AO and Ld. DRP.

Which sections of the Income-tax Act were involved?

Section 147,Section 144C(13),Section 149

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Mumbai “I” Bench, Mumbai.

Before: Shri Rahul Chaudhary (JM) & Shri Omkareshwar Chidara (AM)

For Appellant: Shri Krishna Kumar
Pronounced: 07/08/2025

Per Omkareshwar Chidara (AM) :-

In the above cited appeal, the appellant has taken several grounds on merits with respect to additions relating to bank deposit claimed to have been received from appellant’s wife through bank transfer of funds. There are other grounds relating to treatment of mutual fund units and ownership of these mutual fund units claimed to be belonging to appellant’s wife. Before going into the merits of the case, the Ld. AR of the appellant has argued on the legal ground, that passing an order under section 147 of the I.T. Act and sanction given for reopening of assessment are bad in law as they are mechanical in nature and without application of mind. The second legal ground taken by appellant is that the Ld. AO erred in following the direction of DRP to complete this assessment as “protective assessment”.

2.

During the hearing proceedings, Ld. AR of the appellant relied on the following decisions of Mumbai Tribunal :-

a) Suresh K. Jajoo (39 SOT 514) b) Lalitha Narendra Kothari Vs. ITO (ITA No. 1732/Mum/2024)

2 Ajay Kishin Bhatia 3. In both these decisions, it was held that first there should be a substantive assessment to treat some other case as a protective assessment. In this case, the Ld. AR has argued that there is no substantive assessment and hence there cannot be a protective assessment on a standalone basis. The Ld. AR of the appellant has filed written submissions and the same is reproduced below :- “1) The case of the Appellant has been framed based on the direction of DRP u/s 144C(5) as protective assessment vide order dated 17.12.2024 u/s 147 r.w.s 144C(13) of the Income Tax Act, 1961 (the 'Act') while the assessment of Smt. Varsha Bhatia PAN ALAPB0262C would be substantive assessment for AY 2019-20

2) However, the substantive assessment has not been carried out till date in case of Smt. Varsha Bhatia and therefore, it was argued before the Hon'ble Bench on 10-06-2025 that the protective assessment without substantive assessment is void ab initio and liable to be quashed.

3) The assessee relied on the decision of the co-ordinate bench of Mumbai Tribunal in case of Suresh K. Jajoo [2010] 39 SOT 514 (Mum- Trib.) wherein it has been held that the assessment can be considered as protective only when there is substantive assessment and thus, substantive assessment has to precede protective assessment. Held portion of the decision is reproduced here below for ready reference:

24.

The Tribunal firstly explained the concept of Protective assessment, which was judicially recognized in the case of Lalji Haridas v. ITO [19611 43 ITR 387. The Hon'ble Supreme Court held that where it appears to the income-tax authorities that certain income has been received doing the relevant assessment year; but it is not clear who has received that income and prima facie, it appears that income may have been received either by the A or B or by both together, it would be open to the relevant income-tax authority to determine the said question by taking appropriate proceedings both against A and B. The Supreme Court, however, observed that in the proceedings taken against the one or the other, an exhaustive enquiry should be made and the question as to who is liable to pay the tax in question should be determined after hearing objections and that the proceedings against the other person may also continue and be concluded but until proceedings against the one has been finally determined, no assessment order should be passed. A final determination had, therefore, to be made in one of the proceedings. 25. The Tribunal thereafter opined that a Protective assessment is not confined to making assessment of same income in the hands of two different persons; but can also be made in the case of income of one person where the Assessing Officer is uncertain as to the year in which the income had been earned. The Tribunal thereafter held that protective assessment cannot be independent of substantive

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assessment but always has to be later in pint of time to the substantive assessment. "

4) The assessee further places reliance on the recent decision of the co- ordinate bench of Mumbai Tribunal in case of Ms. Lalita Narendra Kothari Vs. Income Tax officer 19(3)(1) (ITA No. 1732/Mumbai/2024), wherein it has been held that the impugned protective addition made on standalone basis in absence of a substantive assessment, is not sustainable in law. The Hon'ble Tribunal has relied the decision of Suresh Jajoo (supra) in this case. Pis. refer Para 6 and 7 of the order. Copy of the decisions have been supplied at the time of hearing on 10-06-2025.

5) Further, it is to be noted that the report from Assessing officer was called as to whether the substantive assessment in the hands of Smt. Varsha Bhatia has been made for AY 2019-20 in respect of the protective additions? If not, whether any action can still be taken in the case of Smt. Varsha Bhatia keeping in mind the limitation prescribed in section 149 of the Act?

6) In response to the same, the Assessing Officer ITO(IT) 1(2)(1), Mumbai has replied vide its email dated 16/05/2025 that the substantive assessment has not been made in Smt. Varsha Bhatia for AY 2019-20 and no action can be taken in view of the provisions of section 149 of the Act as well. Copy of the response is placed on record by the CIT DR during the hearing.

7) Thus, in view of the above submission, the Appellant request your honours to quash the protective assessment made in the hands of Appellant without any substantive assessment in the hands of Smt. Varsha Bhatia.

8) In case of any further clarification required, we shall be obliged to provide the same.”

4.

The Ld. DR relied on the orders of Ld. AO and Ld. DRP.

5.

Heard both sides. From the written submissions filed by Ld. AR of the appellant and after perusing the paper book filed by him, it is observed that there is no substantive assessment in this case till now (para 6 supra). In the absence of substantive assessment, the protective assessment does not have legs to stand. Respectfully following the orders of Tribunal (supra), where reliance was placed on the decision of Hon'ble Supreme Court, it is held that this protective assessment is invalid and hence quashed.

4 Ajay Kishin Bhatia

6.

The appeal of appellant is allowed.

Order pronounced in the open Court on 07/08/2025.

Sd/- Sd/- (RAHUL CHAUDHARY) (OMKARESHWAR CHIDARA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Copy of the Order forwarded to :

1.

The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai PS

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