ASSISTANT COMMISSIONER OF INCOME TAX, CHENNAI vs. MULLIAMBAL RATHNASAMY PITCHAKANNU ERAAVANAN, CHENNAI

amongst which the only issue emanates for our consideration is whether the ld. CIT(A) is justified in deleting the addition, which was protectively made by the Assessing Officer in the facts and circumstances of the case. The ld. CIT(A) adjudicated the issue in detail and the same is reproduced herein below for ready reference: 6.1 The AR during the course of Appellate Proceedings has brought to the notice of the undersigned that the Appellant had passed away and the appeal of the Appellant is now pursued by the (Late) Appellant’s son and mother. The AR also has filed the copy of Death certificate and Legal Heir Certificate. 6.2 The undersigned after having examined the assessment order passed by the AO, the written submission and additional written submission made substantiating the grounds of appeal and the additional grounds of appeal, the remand report of the AO and the rejoinder to remand report, the various grounds and additional grounds raised are adjudicated here as under: 6.3 At the outset, before going to adjudicate the various grounds raised, it is essential to bring on record the background that necessitated the AO to contemplate protective addition in the hands of the Appellant. 6.4 The Appellant filed return of income for the AY 2009-10 by admitting an income of Rs. 7,86,290/- on 31.03.2010. The return of the Appellant was selected under CASS by issuing notice u/s 143(2) of the Act on 06.09.2010. The AO on the basis of information already with the department that the assessee had sold & C.O. No. 74/Chny/24 Immovable property for Rs. 9,58,38,600/- called for details by issuing notice u/s 142(1) of the Act. 6.5 During the course of assessment proceedings, the assessee responded to the notice that he as a Power Agent of Shri. R. Thangarajan Nadar sold a property consisting of land and building in Patta No. 1715 to the extent of 4.56Acres in Survey No. 411/4 to 7. (Old survey No. 411/3) to Shri. Sethupathy. The AO summoned Shri. Sethupathy and recorded a statement u/s 131 of the Act. Shri. Sethupathy in the statement recorded admitted that the purchase consideration was paid to Shri. R. Thangarajan Nadar. 6.6 The AO thereafter asked the assessee to produce Shri. R. Thangarajan Nadar to verify the statement of Shri. Sethupathy. The assessee could not produce Shri. R. Thangarajan Nadar before the AO on account of old age and illiness. The AO completed the assessment by disallowing the benefit of Cost of Indexation and the Long Term Capital Gain arising out of sale proceeds of Rs. 9,58,38,600/- in the hands of Shri. R. Thangarajan Nadar was assessed protectively in the hands of the assessee and passed order u/s 143(3) of the Act on 30.12.2011. 6.7 In this back drop the original grounds and additional grounds raised are taken up for adjudication, Now on examination of the original grounds and the additional grounds raised by the Appellant, it can be seen that the grounds raised revolves around the core issue of making a protective addition in the hands of Appellant. 6.8 During the course of Appellate Proceedings the AR made the following written submission, the relevant extract of the same is reproduced here as under :- "The Appellant is only a Power Agent of Mr. Thangarajan Nadar as per General Power of Attorney dt 15/02/2008 registered as Doc. No. 221/2008 appointed to sell 10 Gr and 322 sq. ft of land at 110 GST Road, Zamin Pallavaram Vilage, Tambaram Taluk, Kancheepuram District comprising old survey No 411/3, New Survey No. 411/4 to 7. The Power of Attorney executed is not supported by any consideration and the said attorney shall be able to render full and proper account to the owner M: Thangarajan Nadar. The purchaser Mr.Sethuprakasam was summoned u/s 131 and statement was recorded. The copy of the statement was not provided to the Appellant The AO has stated that Mr.Sethuprakasam (wrongly mentioned as sethupathy has admitted that he had purchased The land from Mr. Thangarajan Nadar, whereas a dispute has happened between Mr. Thangarajan Nadar and Mr Sedhupathy. He had paid some advance earlier to Thangarajan Nadar. But Mr. Thangarajan had refused to register the property. Hence, a common friend Mr. Eraavanan was engaged and Mr. Thangarajan Nadar accepted to register the said property. For that Mr. Thangarajan Nadar had gave a power to Mr.Eraavanan to sell the said property and also he stated that the amount was given only to Mr. Thangarajan Nadar. Hence, no amount was given to Mr.Eraavanan. As a friend of Mr.Sethupathy, the assessee Mr.Eraavanan was engaged in this activity and hence no amount was paid by way of commission/brokerage to Mr. Eraavanan.

& C.O. No. 74/Chny/24 The AO has stated that the Appellant has sold 4.56 acres as a power agent. But actually out of this only 10 Grand 322 sq ft was sold by the Appellant as a power agent. He has also not given the details of sale deed and how he has arrived at the sale consideration at Rs. 9,58,38,600/-. And the assessing officer has added the entire sum of Rs. 9,58,38,600/- to the assessment of the Appellant as capital gain. He has not given any workings for capital gain. From this it is clear that the assessing officer has not applied his mind and the assessment was completed hurriedly. The entire order is erroneous and wrong assessment is made on the assessee. The details of sale are given in a separate annexure along with copies of Sale Deeds executed by the Power Agent and the copy of the General Power of Attorney dated 16th February 2008 executed by the land owner in favour of the Appellant. The AO has not taken any steps to summon the real owner and to make a substantial assessment in the hands of the person really assessable, even though the assessment details of the real owner were available with him." 6.9 It can be seen that, during the course of assessment proceedings, the AO after recording statement u/s 131 of the Act from the buyer has brought on record in the order passed the following with regard to the transaction relating the said land property, the relevant portion of the same is reproduced here as under- “During the course of hearing, the assessee stated that he sold the property is Land and building at No. 110 GST Read, Chrompet, Chennai 44 in Patta No. 1715 to the extent of 4.56 acres in Survey No.411/4 to 7 (Old Survey No.411/3) as a power agent of one Mr. R. Thangarajan Nadar to Mr. Sethupathy The purchaser Mr. Sethupathy was summoned and a statement was recorded u/s 131. In his statement Mr. Sethupathy admitted that he had purchased the land from Mr. Thangarajan Nadar, whereas a dispute has happened between Mr. Thangarajan Nadar and Mr. Sethupathy. He had paid some advance earlier to Mr. Thangarajan Nadar. But Mr. Thangarajan had refused to register the property. Hence, a common friend Mr. Eraavanan was engaged and Mr. Thangarajan Nadar accepted to register the said property. For that Mr. Thangarajan Nadar had gave a power to Mr. Eraavanan to sell the said property and also he stated that the amount was given only to Mr. Thangarajan Nadar. Hence, no amount was given to Mr Eraavanan. As a friend of Mr. Sethupathy, the assessee Mr. Eravanan was engaged in this activity and hence no amount was paid by way of commission/brokerage to Mr. Eravanan." 6.10 From the above observation made by the AO in the assessment order it is clear that the buyer of the land has paid the consideration to the owner of the property i.e. Shri. R. Thangarajan Nadar. The AO after having consciously observed that the Appellant has not received the sale consideration has chosen to make the addition in the hands of the Appellant by observing as under- "The assessee Shri Eravanan was asked to produce Mr. Thangarajan Nadar for verifying the statement given by Mr. Sethupathy. The assessee stated that due to old age and illness of Mr. Thangarajan & C.O. No. 74/Chny/24 Nadar, he was at present not able to produce him before the Department, but will be produced before the completion of the assessment. Upto 30.12.2011, no statement or letter or personal appearance of Mr. Thangarajan Nadar was effected by Mr. Eravanan. As no details of purchase deed and other details were furnished by the assessee, the benefit of Cost Inflation Index is not provided. Hence, Long Term Capital Gains arising out of the sale proceeds of Rs. 9,58,38,600/- in the hands of Mr. Thangarajan Nadar was assessed protectively in the hands of the assessee Mr. P. Eraavanan 6.11 From the above observation of the AO it can be seen that the AO has attempted to make the addition in the hands of the Appellant protectively but failed to make any substantive addition in the hands of Shri. R. Thangarajan Nadar who is the owner of the property and the person who received the sale consideration. 6.12 It may be appreciated that a Protective assessment is a precautionary assessment and there exists no specific provision in the Act for the purpose of making a protective assessment. However, now it is well-settled by judicial precedent that in order to protect the interest of the revenue, protective assessment can be made. The concept of protective assessment', was explained by the Hon'ble Apex Court in the case of Lalji Haridas v. ITO [1961] 43 ITR 387, while dealing with this issue, their Lordships have observed as follows: “................In cases where it appears to the IT 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 IT authorities to determine the said question by taking appropriate proceedings both against A and B." 6.13 From the above decision, it can be stated that the AO can make protective assessment, Now the issue before the undersigned is that whether a protective assessment can be made without there being the corresponding substantive assessment or not. 6.14 The Hon'ble ITAT Delhi Bench had an occasion to adjudicate this issue in the case of ITO VS M/s Fussy Financial Services Pvt ltd vide its order in dated 05.06.2017 wherein the Hon'ble tribunal has held that there may be a substantive assessment without any protective assessment but there cannot be any protective assessment without there being a substantive assessment. 6.15 Further in the case of Shri. Pravinkumar Valjibhai vs ITO ward 2 (ITA no. 142/2016.), Hon'ble ITAT Ahmedabad Bench has held that "in the absence of substantive assessment the protective assessment cannot survive and the protective assessment framed by AO without making the substantive assessment is not sustainable." 6.16 A similar view was taken by Mumbai Tribunal in the case of Suresh. K. Jajoe vs ACIT (39 SOT 514) as under: - & C.O. No. 74/Chny/24 "Protective assessment has to be done only after substantive assessment is done. An assessment can be considered as protective only when there is substantive assessment. The substantive assessment has to precede protective assessment" 6.17 In the case of Pegasus Property (Pvt) Ltd vs DCIT (193 ITD 514), Hon'ble ITAT Mumbai Bench has held as under "since no substantiate addition was made, the protective addition made in the hands of the assessee does not survive". 6.18 In the case of ITO, ward 1/Nagaon vs Keshava Nanda Kabti(2021) 133 taxmann.com.316, Hon'ble ITAT Guwahati Bench has held as under In the absence of substantive addition made in the hands of any other person protective assessment cannot be sustained in the hands of the assessee" 6.19 From the above judicial precedents, it can be seen that it is well settled in law that there cannot be a protective assessment without any substantive assessment. In the instant case the AO has not brought on record about the corresponding substantive addition made. Thus it is understood that as per records no corresponding substantive addition was made. 6.20 It is appropriate to bring on record that the AO after having summoned the buyer and ascertained the details of transaction, more particularly the payment of sale consideration that was made by the buyer to the owner of the property i.e. Shri. R. Thangarajan Nadar, the AO did not make any effort to tax the Capital Gains arising out of the sale transaction in the hands of the seller i.e. Shri. R. Thangarajan Nadar. Further the AO has not brought on record of any corroborative and cogent evidence to prove that the assessee was in receipt of the sale consideration to substantiate the information already held with the department. 6.21 The AO in the order passed has simply narrated that the assessee could not produce Shri. R. Thangarajan Nadar before the AO. Even though there are multiple avenues available before the AO to ascertain the particulars of the person who has actually received the sale consideration and tax the corresponding capital gains substantively has failed to do so. On account of this failure on the part of the AO, to make efforts in bringing to tax the Capital gains arising out of the transaction relating to sale of the said property substantively in the hands of Shri. R. Thangarajan Nadar, the undersigned is not inclined to sustain the addition made protectively without their being any corresponding substantive addition, Further, the Appellant is not the owner of the Capital Asset, he was just the power holder only, more particularly, even the sale consideration for the transfer of the capital asset was not received by the Appellant, thus tax on the capital gains arising out of transfer of the said capital asset cannot be levied upon the Appellant. Accordingly all the grounds raised by the Appellant are hereby treated as allowed and the AO is directed to delete the protective addition of Rs. 9,58,38,600/-made for the AY 2009- 10.

7. In the result the appeal is treated as allowed.

& C.O. No. 74/Chny/24 9. We note that on an information regarding sale of immovable property of the assessee, the Assessing Officer issued notice under section 142(1) of the Act seeking the details. The assessee appeared and stated that he is a power agent of one Mr. Thangarajan Nadar sold the property to one Mr. Sethupathy. The Assessing Officer recorded statement under section 131 of the Act of Mr. Sethupathy, wherein, it was stated that he purchased land from Mr. Thangarajan Nadar and paid sale consideration also to Mr. Thangarajan Nadar, which is evident from para 3 of the assessment order. Further, the Assessing Officer asked the assessee to produce Mr. Thangarajan Nadar to verify the statement of Mr. Sethupathy. The assessee stated his inability to produce Mr. Thangarajan Nadar because of old age and illness. For having no appearance of Mr. Thangarajan Nadar, the Assessing Officer assessed capital gains in the hands of the assessee protectively on behalf of Mr. Thangarajan Nadar. The ld. CIT(A), by placing reliance on the orders of the Tribunal, held no protective assessment is maintainable in the absence of substantive assessment in the hands of Mr. Thangarajan Nadar. When confronted, the ld. DR reported that no substantive assessment was made, but, however, referred to letter dated 27.01.2022 addressed to the ld. CIT(A) by the DCIT, Central Circle 2(2), Chennai requesting the ld. CIT(A) to consider the said impugned protective & C.O. No. 74/Chny/24 assessment as substantive assessment. Thy ld. DR argued that this Tribunal may consider the said letter in treating the protective assessment in the hands of the assessee as substantive assessment. The ld. AR vehemently opposed the same contending that the Assessing Officer has no jurisdiction to issue such letter requesting the ld. CIT(A) to consider the protective assessment as substantive assessment and there is no provision exist in the Act enabling the Assessing Officer to write such letter to the first appellate authority. We find force in the arguments of the ld. AR and of the considered opinion that no provision exists in the Income Tax Act giving power to the Assessing Officer to write letter to the first appellate authority. Therefore, the argument of the ld. DR regarding the request of the Assessing Officer to the ld. CIT(A) to consider and treat the protective assessment as substantive assessment is rejected.

by the Appellant – Revenue are dismissed. C.O. No. 74/Chny/2024

11. In view of our decision in Revenue’s appeal, wherein, we confirmed the order of the ld. CIT(A) in holding that the protective assessment is bad in law, consequently, the Cross Objection arising out of the said Revenue’s appeal in becomes academic and dismissed accordingly.

Order pronounced on 26th February, 2025 at Chennai.