M/S ADDISON & COMPANY LTD,CHENNAI vs. DCIT CORPORATE CIRCLE 1 (1), CHENNAI

The only effective ground raised by the assessee is that the Ld.CIT(A) erred in confirming the addition of Rs.86,63,68,651/- as Long Term Capital Gains on protective basis as compared to a sum of Rs.60,08,74,606/- applied to tax as Long Term Capital Gains by the assessee on substantive basis. Assessee company is in the business of manufacturing and trading of metal cutting tools. The assessee filed its return of income for the AY 13-14 on 22.11.2013 admitting total income of Rs.69,46,91,500/-. Subsequently, the assessee has filed its revised return of income on 29.09.2014 admitting total income of Rs.67,06,91,500/-. The return was selected for scrutiny and notices u/s.143(2) read with Sec.129 dated 04.01.2016 was issued. In response to the notices, assessee filed the details called for. After considering the details, the assessment was completed u/s.143(3) of the Act on 29.03.2016 determining the total income of Rs.93,68,79,935/-. While completing the assessment, the AO made addition towards Long Term Capital Gains on protective basis and disallowances of claim for additional depreciation and delayed payment of employee’s contribution to PF and ESI. Being aggrieved, the assessee preferred an appeal before the Ld.CIT(A). After considering the grounds raised by the assessee company and material on record, the Ld.CIT(A) partly allowed the appeal of the assessee. On being aggrieved, the assessee preferred an appeal before the Tribunal.

Now the issue before the Tribunal relates to the addition of Rs.86,63,68,651/- as Long Term Capital Gains on a protective basis as compared to a sum of Rs.60,08,74,606/- offered to tax as Long Term Capital Gains by the assessee company on substantive basis. In this connection, the counsel for the assessee submitted that the assessee had entered into a joint development agreement in respect of land owned by them at Chembarambakkam and in respect of the sale of Long Term Capital Gains was assessed in the AY 2010-11 at a sum of Rs.86,45,99,912/-. The assessee had offered the Capital Gains during the year on the basis that the planning permit was received during August, 2012 and thereafter possession had been handed over to the developer and construction activity commenced only during the relevant previous year. He further submitted that the AO in AY 2010-11 had brought the same to tax by holding that the development agreement and the power of attorney together constituted u/s.2(47) of the IT Act and the addition made by the AO in AY 2010-11 was upheld by the ITAT. However, the assessee has filed an appeal against the order of the ITAT before the Hon’ble High Court and has additionally offered the income to tax during the relevant previous year on the basis of the planning permit received during the year and possession being handed over to the developer. He further submitted that the ground is being taken is to keep the issue alive as the AO has taxed the said income on protective basis only. He further submitted that since the substantive assessment is pending before the Hon’ble High Court, the protective assessment should not survive.

The Ld.DR strongly supported the order passed by the Ld.CIT(A).

We have considered the rival contentions and perused the material placed on record. It is an admitted fact that the issue before us only protective assessment in the Assessment Year under consideration, for which, substantive assessment was done in the AY 2010-11 in the assessment proceedings. The Tribunal has sustained the substantive assessment against where the assessee filed appeal and the same is pending before the Hon’ble High Court. In this case, the substantive assessment was done in the assessment year 2010-11 and the Tribunal sustained the substantive assessment, against which, the assessee preferred further appeal before the Hon’ble Madras High Court, which is still pending for adjudication. Since no reassessment under section 147 of the Act was done and to protect the interest of the Revenue, the Assessing Officer done the assessment on protective basis. The 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 Assessing Officer to make a protective assessment/addition. Substantive addition/ assessment is made in the hands of the person in whose hands the Assessing Officer, 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 of the Act. If the substantive assessment is struck down at a place where it was made, in such a scenario the protective addition will get converted into substantive addition. Under the above facts and circumstances, we sustained the protective assessment made by the Assessing Officer and dismiss the ground raised by the assessee.

In the result, the appeal filed by the assessee is dismissed.