Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘F‘ BENCH
Before: SHRI M.BALAGANESH & SHRI PAVAN KUMAR GADALEShri Vijay Kumar
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-37, Mumbai in appeal No.CIT(A)-37/I.T 622/ACCC-13/11-12 dated 11/01/2013 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 13/12/2011 by the ld. Asst. Commissioner of Income Tax, Central Circle-13, Mumbai (hereinafter referred to as ld. AO).
At the outset, we find that there is a delay of 169 days in filing of appeal by the assessee before this Tribunal. The assessee had filed a condonation petition together with his affidavit and also an affidavit from the Chartered Accountant of the assessee narrating the facts and explaining the reasons for delay. We have gone through those documents and we are convinced that assessee was prevented from reasonable cause in not filing the appeal before us within the prescribed time. Hence, we deem it fit and appropriate to condone the delay in filing of appeal by the assessee and admit the appeal for adjudication.
The assessee has challenged the additions made on account of unexplained cash of Rs.98,200/- and unexplained jewellery of Rs.15,40,205/- made by the ld. AO and confirmed by the ld. CIT(A) on ‘PROTECTIVE BASIS’.
3.1. We have heard rival submissions and perused the materials available on record. From the perusal of the assessment order, it is very clear and categorical that both the additions on account of unexplained cash and unexplained jewellery were made by the ld. AO on ‘PROTECTIVE BASIS’ in the hands of the assessee herein. The assessment order was framed by the ld. AO u/s.143(3) of the Act on 13/12/2011. On the date of passing of assessment order, no additions were made by the ld. AO in the hands of assessee’s wife Mrs. Veena Kumar on substantive basis. The law is very well settled that addition should always be made on a substantive basis in the hands of one person and protective addition may follow in the hands of another person only if there is some doubt in the minds of the Revenue as to in whose hands a particular income should be assessable. The concept of protective assessment is provided only to protect the interest of the Revenue. Hence, it is logical that first the substantive assessment should be made in the hands of one person and the same should be followed by protective assessment in the hands of another person. Ideally both the substantive and protective assessments should be framed simultaneously. From the facts narrated above, it is apparently clear that no substantive addition was made up to 13/12/2011 in the hands of Mrs.Veena Kumar. We find from the assessment order of Mrs. Veena Kumar for A.Y.2010-11 placed on record in pages 60-65 of the paper book by the ld. AR, the assessment was framed u/s.143(3) r.w.s. 147 of the Act on 22/11/2017 only in the hands of Mrs. Veena Kumar wherein very same sum of Rs.98,200/- towards unexplained cash and Rs.15,40,205/- towards unexplained jewellery was added on substantive basis in her hands. This categorically goes to prove that on the date of passing of assessment order in the hands of assessee i.e. on 13/12/2011, no substantive assessment was framed by the Revenue in the hands of any other person. Now, the legal question that arises is whether any protective addition could at all survive when no substantive addition at all were made in the hands of any other person. We find that this issue was subject matter of adjudication by the Co-ordinate Bench decision of Kolkata Tribunal in the case of Vikash Iron and Steel P. Ltd., vs. ITO in Income Tax Appeals No.330-334 (Kol) of 2012 and in (Kol) of 2011 dated 01/07/2015. This issue was also subject matter of consideration by the Co-ordinate Bench decision of this Tribunal in the case of Suresh K Jajoo vs. ACIT reported in 39 SOT 514 (Mum Trib.) and in the case of M.P. Ramachandran vs. DCIT in ITA No.587/Mum/2005. The said judgements laid down the following principles and held as under:-
4. On this issue the ld. Counsel for the assessee relied upon the decision of Mumbai 'E' Bench in the case of Suresh K. Jajoo v. ACIT, Circle-4(2), Mumbai [2010] 39 SOT 514 (Mum.) and argued that the Co-ordinate Bench of this Tribunal relying on another decision of ITAT in the case of M.P.
Ramachandran v. Dy. CIT [IT Appeal No. 587 (Mum) of 2005] has laid down the following principles :— "23. Before us, both the learned counsel for the assessee and the learned D.R have relied on the decision of Mumbai Bench of the ITAT in the case of M.P. Ramachandran v. Dy.CIT [IT Appeal No. 587(Mum) of 2005]. In the aforesaid case, facts were that in assessment under section 143(3) for assessment year 1997-98 was completed on 25-2-2000. On 3-22-2000, there was a search and consequent there to, notice under section 148 dated 26-3-2003 was issued to the assessee. Consequent to the search, block assessment order was framed on 30-11-2008 in which, sum of Rs. 5.27 crores was held to be expenditure not related to the business of the assessee and considered as undisclosed income for the block period. In the reassessment proceedings under section 148, very same amount was added on a protective basis. When the Assessing Officer made aforesaid addition in the reassessment proceedings under section 148, he noticed that the order of the Assessing Officer in the block assessment making the addition has already deleted by learned CIT(A). The appeal of the revenue before the Tribunal was pending. The Assessing Officer while making addition in the reassessment proceedings under section 148 had observed that the addition was being made on protective measure. It is in the aforesaid background of fact, question of validity of initiation of reassessment proceedings had come up for consideration before the Tribunal.
The Tribunal firstly explained the concept of Protective assessment, which was judicially recognized in the case of Lalji Haridas v. ITO [1961] 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.
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 assessment but always has to be later in point of time to the substantive assessment."
Further he drew our attention to the findings of ITAT Mumbai Bench of this Tribunal in the case of M.P. Ramachandran v. DCIT [2009] 32 SOT 592 wherein it has held as under :— "Though from the reasons recorded by the A.O., it comes up that he had taken the steps for including this amount in the reassessment with a view to protect the interest of Revenue, but he had not specifically spelt out his mind that the addition was to be made on protective basis. It is another matter that while passing the order u/s. 143(3) r.w.s. 147 addition of Rs. 527.85 lakhs was made on protective basis. Be that as it may, we shall proceed to decide the matter with the presumption that the AO reopened the original assessment made u/s 143(3) on this count for the purpose of making the disallowance of advertisement expenses on protective basis. Protective assessment cannot be independent of substantive assessment. Thus protective assessment is always successive to the substantive assessment. There may be a substantive assessment without any protective assessment, but there cannot be any protective assessment without there being a substantive assessment. In simple words there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition. Substantive addition/assessment is made in the hands of the person in whose hands the AO prima facie holds the opinion that the income is rightly taxable. Having done so and with a view to protect the interest of the Revenue, if the AO is not sure that the person in whose hands he had made the substantive addition rightly, he embarks upon the protective assessment. Thus the protective assessment is basically based on the doubt of the AO as distinct from his belief which is there is the substantive assessment. Obviously there is no place for "doubt' in the scheme of reassessment, as it has to be belief of the AO about the escapement of income, which is the foundation for assessment or reassessment u/s 147. Even if for a moment we agree with the ld. DR that the protective addition is different from substantive addition and hence the reassessment proceedings be upheld, we find that ultimately the same conclusion will follow if the substantive addition is struck down at a place where it was made. In such a scenario the protective addition will get converted into substantive addition in the reassessment. That will also run contrary to the format of reassessment, being to tax an income which has escaped assessment. In that case again it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. CIT v. Wipro Finance Ltd. [2008] 10 DTR (Kar.) 281 relied on;"
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the issue raised by the ld. Sr. Advocate
has been answered by the Hon'ble Supreme Court in the case of Lalji Haridas v. ITO [1961] 43 ITR 387 which reads as under :— "The main argument which is urged by Mr. Nambiar in support of this appeal is that respondent No. 1, the Income-tax Officer, who has issued the impugned notice, has no jurisdiction to assess the appellant for the income in question, because he contends that even according to respondent No. 1 the said proposed assessment would be in the nature of a precautionary or protective assessment, and Mr. Nambiar's case is that this concept of a precautionary or protective assessment is not recognised by the Act and as such any attempt to levy such assessment would be illegal. In support of this argument Mr. Nambiar strongly relied on the finding recorded against the appellant's brother, Lalji, in the ex parte assessment order which had originally been passed against him. It is no doubt true that the said ex parte order had held that Lalji was liable to pay the tax on the amount of income in question; but the said order has been subsequently set aside, and, as we have already seen, fresh proceedings against Lalji have been commenced at Jamnagar. Mr. Nambiar also relied on the admission made by the respondent in his statement of the case before this court, and he contended that the respondent himself seems to concede that the assessment proposed to be made against the appellant is no more than precautionary. It is true that paragraph 3 of the statement avers that "steps are being taken against the appellant for taxation of income in his hands only as a precautionary measure against the eventuality of its being finally held that the income is not liable to be taxed in his brother's hands", and it was added that "the appellant's contention that such a procedure is not warranted under the Act is entirely untenable"; but in appreciating the effect of this statement it would be necessary to consider the other relevant statements made by the respondent in his statement of the case. In paragraph 4, for instance, it is added that until the question of liability to pay tax in respect of the income in question is finally determined it may not be possible to safely predicate that it is the income of one and not of the other, and the respondent's case appears to be that in such circumstances protective assessments have to be made so that the income may not escape taxation altogether. In other words, the respondent's case clearly is that the notices issued against the two brothers by their respective Income-tax Officers are intended to determine who is responsible to pay tax for the income in question; now though Mr. Nambiar wanted to argue that protective or precautionary assessment of tax is not justified by any of the provisions of the Act he did not seriously contest the position that at the initial stage it would be open to the income-tax authorities to determine by proper proceedings who is in fact responsible for the payment of tax, and that is all that is being done at the present stage. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, we do not think that Mr. Nambiar would be justified in resisting the enquiry which is proposed to be held by respondent No. 1 in pursuance of the impugned notice issued by him against the appellant. Under these circumstances we do not propose to deal with the point of law sought to be raised by Mr. Nambiar. We would, however, like to add one direction in fairness to the appellants. The proceedings taken against both the appellants should continue and should be dealt with expeditiously having regard to the fact that the matter is fairly old. In the proceedings taken against Lalji the Income-tax Officer should make an exhaustive enquiry and determine the question as to whether Lalji is liable to pay the tax on the income in question. All objections which Lalji may have to raise against his alleged liability would undoubtedly have to be considered in the said proceedings. Proceedings against Chhotalal may also be taken by the Income-tax Officer and continued and concluded, but until the proceedings against Lalji are finally determined no assessment order should be passed in the proceedings taken against Chhotalal. If in the proceedings taken against Lalji it is finally decided that it is Lalji who is responsible to pay tax for the income in question it may not become necessary to make any order against Chhotalal. If, however, in the said proceedings Lalji is not held to pay tax or it is found that Lalji is liable to pay tax along with Chhotalal it may become necessary to pass appropriate orders against Chhotalal. When we suggested to the learned counsel that we propose to make an order on these lines they all agreed that this would be a fair and reasonable order to make in the present proceedings."
In view of the factual position that the revenue has not initiated any substantive assessment or no addition has been made on substantive basis in any other hand, there is no question of any protective assessment in the present case from the reasons recorded by the AO as reproduced hereinabove. We are of the view that the AO has initiated reassessment proceedings u/s 147/148 of the Act on the basis of the statement of one of the directors of the assessee company that the transactions in the hands of the other parties are not accounted for and this may be the income of the assessee. The revenue could not bring on record anything against the other parties or who are the other parties against whom substantive addition is to be made. There is no substantive addition made in any of the hand till date as conceded by the ld. Sr. DR before us now. In view of the above we are very clear that the reassessment proceedings initiated u/s 147/148 of the Act is invalid and hence quashed. The protective additions made by the A.O. are also quashed accordingly.
3.2. Respectfully following the same, we hold that the additions made on ‘PROTECTIVE BASIS’ in the hands of the assessee will have no legs to stand and are accordingly, directed to be deleted. The grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on 31/05/2022 by way of proper mentioning in the notice board.