D.C.I.T CC - 1,KOLKATA, KOLKATA vs. M/S STAR TRAFFIN (P) LTD, KOLKATA

The one common issue to be decided in all these appeals is as to whether the ld. CIT(A) was justified in deleting the addition made towards unexplained income on protective basis. The interconnected issue involved therein is as to whether the ld. CIT(A) was justified in deleting the addition towards commission income in the hands of the respective assessees.

The appeal in in the case of M/s Iris Commercial Pvt. Ltd. is taken as the lead case and the decision rendered thereon would apply with the equal force on other assessees also herein except with variance in figures.

The brief facts of this issue are that pursuant to the investigation carried out by Directorate of Income Tax (Investigations), Kolkata [‘DDIT(Inv.), Kolkata’], it revealed that some entities were involved in providing accommodation entries to various companies based in Mumbai, which in turn had used the said funds for payments to Madhepura Mercantile Co-operative Bank at Mumbai, which was said to be controlled by Shri Ketan Parekh. Since the assessee company was one of such entities, the statement of its director, Shri Kalikant Choudhury was recorded u/s 131 of the Act by DDIT(Inv.), Kolkata on 24.11.2006. In the said statement given on oath, Shri Kalikant Choudhury accepted that he had got cash of equivalent amount from the Mumbai based companies belonging to Shri Ketan Parekh and thereafter deposited the said cash into bank account of the assessee company and cheques were issued to the said companies. He also furnished the list of cheques so issued against cash that had been received by him. Although, Shri Kalikant Choudhury subsequently filed an affidavit retracting his statement, the ld. Assessing Officer did not accept the same on the basis of the enquiries conducted by the investigation wing on a test check basis, which revealed that cash was deposited in various bank accounts in different stages. According to Assessing Officer, this factual position substantiated the statement of Shri Kalikant Choudhury, Director of the assessee company, that cash was indeed received by the assessee company in lieu of cheques given to various companies belonging to Ketan Parekh Group. The ld. Assessing Officer accordingly held that accommodation entries were given by the assessee company to various Mumbai based companies belonging to Ketan Parekh Group and since the accommodation entries so given during the previous year relevant to assessment year 2008-09 aggregated to Rs.6,78,91,341/-, he added the commission income @2% amounting to Rs.13,57,826/- to the total income of the assessee in the assessment completed for Assessment Year 2008-09 u/s 143(3) of the Act on 28.12.2010. In the assessment so made, the Assessing Officer also made an addition of Rs.6,78,91,341/- in the hands of the assessee company on protective basis observing that the unexplained income to that extent of cash given by the Mumbai based companies was assessable on substantive basis in the hands of the said companies for the cash given to the assessee company.

Against the order passed by the ld. Assessing Officer, appeal was preferred by the assessee company before the ld. CIT(A) and after considering the submissions made by the assessee as well as materials available on record, the ld. CIT(A) deleted the addition made by the ld. Assessing Officer to the total income of the assessee for Assessment Year 2008-09 on account of alleged accommodation entries given to the Mumbai based companies in the form of commission income @2% as well as further addition on account of protective basis for the following reasons given in Paragraphs 7 and 8 of his impugned order which are reproduced hereinbelow for the sake of convenience:

Aggrieved by the said order of the ld. CIT(A) giving relief to the assessee for the year under consideration, the Revenue has preferred an appeal before the Tribunal.

At the time of hearing of these appeals fixed on 25.03.2019, Shri Subash Agarwal, Advocate, appeared on behalf of the assessee. Shri A. K. Singh, CIT DR, appeared on behalf of the Revenue.

We have heard the rival submissions. The main issues involved in this appeal relate to the deletion by the ld. CIT(Appeals) of the additions made by the Assessing Officer on account of alleged accommodation entries given to the Mumbai based Companies on protective basis and the deletion by the ld. CIT(Appeals) of the addition made by the Assessing Officer on account of commission income allegedly received by the assessee for giving accommodation entries. It is observed that the similar issues were involved in some other cases and all these cases were adjourned in the past and also blocked for some period for getting the information about the status or outcome of the cases where the similar amounts were added on substantive basis. In spite of sufficient time given to both the parties, they have failed to furnish the said information. It is well settled that protective assessment is permissible in law and in case of a doubt or ambiguity about real entity in whose hands a particular income is to be assessed, the assessing authority is entitled to have recourse to make a protective assessment. As held by the Hon’ble Supreme Court in the case of Lalji Haridas –vs.- ITO (43 ITR 387), the Officer may, when in doubt, to safeguard the interest of the revenue can assess it in more than one hand but this procedure can be permitted only at the stage of assessment. Protective assessment becomes redundant when the substantive assessment becomes final and if the substantive assessment fails, it is protective assessment which is to be treated as substantive. Keeping in view this corollary between the substantive assessment and protective assessment, an appeal against the protective assessment should ordinarily await the outcome of the substantive assessment so that the protective assessment can be in conformity with the substantive assessment. In the case of CIT –vs.- Surendra Gulab Chand Modi (140 ITR 517), the appeal arising out of the protective assessment was disposed of by the appellate authority i.e. Tribunal vacating the protective assessment without waiting for the final outcome of the proceedings arising from the substantive assessment, which matter was pending in the Hon’ble Supreme Court. The Hon’ble Gujarat High Court held that the Tribunal was not justified in proceeding with the matter and in disposing off it instead of blocking it till the disposal of the matter pending in the Hon’ble Supreme Court in order to bring it inconformity with the view of the Hon’ble Supreme Court. The Hon’ble Gujarat High Court accordingly directed the Tribunal to keep the matter alive and pending awaiting the decision of the Hon’ble Supreme Court in the proceedings arising from the substantive assessment.

In the present case, the ld. CIT(Appeals) did not await the outcome of the proceedings arising from the substantive assessment and since the said information was not forthcoming even after a considerable period from the concerned assessing officer, he proceeded to dispose off the appeal arising from the protective assessments by his impugned order and deleted the addition made on protective basis without awaiting the final outcome of the proceedings arising from the substantive assessment. Keeping in view the decision of the Hon’ble Gujarat High Court in the case of CIT –vs.- Surendra Gulab Chand Modi (supra), we hold that the ld. CIT(Appeals) was not justified in deleting the addition made by the Assessing Officer on protective basis in the year under consideration without awaiting for the final outcome of the proceedings arising from this substantive assessment. We, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and remit the matter back to him for keeping it alive and pending till the outcome of the proceedings arising from the substantive assessment.

As regards the issue relating to the addition made on account of commission income allegedly received by the assessee for giving accommodation entries, we find that this issue is consequential to the issue relating to the addition made on protective basis on account of accommodation entries allegedly given by the assessee-company to the Mumbai based companies. Since the said issue is remitted back by us to the ld. CIT(Appeals), we also remit the consequential issue relating to addition on account of commission income back to the ld. CIT(Appeals) for deciding the same afresh. Grounds Nos. 1 to 5 of the Revenue’s appeals are accordingly treated as allowed for statistical purposes.

With regard to appeals of the Revenue in & 1198/Kol/2013 for Assessment Years 2005-06 & 2006-07, the ld. Assessing Officer had also made further addition of Rs.10,00,000/- and Rs.4,00,000/- respectively towards cash deposits treating it as unexplained cash and added the same to the total income of the assessee.

We find that the ld. CIT(A) had deleted this addition for the same reasoning given for additions made towards unexplained income added on protective basis and commission income @2% on the same unexplained income portion. Since, we have already remanded the issue towards unexplained money and commission income to the file of the ld. CIT(A) which was the basis for the ld. CIT(A) to delete the addition made towards cash deposits of Rs.10,00,000/- and Rs.4,00,000/- for Assessment Years 2005-06 & 2006-07 respectively, we deem it fit and appropriate in the interest of justice and fair play to remand this issue of addition towards cash deposits also to the file of ld. CIT(A) for fresh adjudication based on the final outcome of substantive appeal pending in Mumbai as directed hereinabove for the other grounds.

In the result, the appeals of the Revenue are allowed for statistical purposes.