SMT. BHAGWATI DEVI MEEL, MOHAN KUNJ VEER TEJAJI COLONY, NAWALGARH ROAD, SIKAR C/O KALANI & CO. CHARTERED ACCOUNTANTS, 5TH FLOOR, KILESTONE BUILDING, GANDHINAGAR TURN, TONK ROAD, JAIPUR,SIKAR vs. INCOME TAX OFFICER WARD-3, SIKAR, WARD-3 SIKAR

5 SMT. BHAGWATI DEVI MEEL VS ITO, WARD 3, SIKAR ‘’1. It is submitted that the assessee along with Smt. Sumitra Devi and Shri Rameshwar Lal Chopra entered into a partnership by introducing capital of Rs.21,000/- each during the year under consideration under the name of M/s Shri Ram Borewell & Construction Co. During the year, the firm was engaged in pilling work of various structures on land at Paradeep, Cuttack. As the turnover of the firm exceeded the limits specified, audit u/s 44AB was conducted. However, due to the some miscommunication between the accountant and the partners, there remained certain discrepancies based on which incorrect financial statements and audit report was prepared and filed.

6 SMT. BHAGWATI DEVI MEEL VS ITO, WARD 3, SIKAR 4. Hon'ble ITAT Ahmedabad Bench in case of Prakash Wine Agencies vs. ITO 38 TTJ 39 has held that right to make protective assessment is given to ITO but the appellant authority cannot evade the issue brought before it by way of appeal either by an assessee who is substantially assessed or one who is protectively assessed. Again Hon'ble Allahabad High Court in case of Smt. Hemlata Agarwal vs. CIT 64 ITR 428 held that Tribunal as a fact finding body cannot confirm the protective assessment. Therefore, once the addition is confirmed in the hands of firm M/s Shri Ram Borewell & Construction Co. on substantive basis, the same addition cannot be confirmed in the hands of the assessee on protective basis. In view of above, protective addition made by the AO and confirmed by the Ld. CIT(A) cannot stand and the same be directed to be deleted.’’ 2.4 On the other hand, the ld. DR strongly relied on the orders of the lower authorities. 2.5 We have heard the counsel of both the parties and perused the materials placed on record including the decisions cited by the respective parties. From the records, we noticed that the assessee is a partner in M/s Shri Ram Borewell & Construction Co. and filed the return of income declaring income of Rs.1,89,250/-. However, the AO received information from ACIT, Circle, Sikar that during the assessment proceedings of M/s Shri Ram Borewell & Construction Co., it was noticed that during the year under consideration the assessee had introduced the capital in cash of Rs.32.00 lacs and received interest on partner’s capital of Rs.3,84,000/- and remuneration of Rs.9,09,520/-. Since according to the AO, the assessee could not establish the source of capital nor declared the interest and 7 SMT. BHAGWATI DEVI MEEL VS ITO, WARD 3, SIKAR remuneration received, therefore, the AO initiated the proceedings for reopening the assessment. The assessee submitted the affidavits of the partner and her reply dated 19-12-2016 explaining that during the year under consideration, neither any capital was introduced by her in the firm nor any remuneration and interest was received from the firm. It was also pointed out by the assessee that in the appeal filed before the ITAT, Jaipur Bench, by the firm, the partners stated in their affidavit that they have not introduced any capital in the firm nor any interest or remuneration but due to miscommunication/ misunderstanding between the tax auditor or Accountant, the incorrect financial statement and audit report was prepared. Therefore, the ITAT Jaipur Bench in the light of submissions made by the assessee , set aside the assessment order and directed the AO to frame de novo assessment after verifying the information / evidences so put forth by the assessee. The AO however, through reassessment proceedings again upheld the addition and made the addition in the hands of the firm and accordingly made the addition in the hands of the assesee on protective basis basis till the case of the firm is decided. It is important to mention here that set aside assessment of the firm was again completed on 28-12-2017 wherein after rejecting the fresh information / evidences the AO again made the addition of capital introduced by the firm in the hands of the firm and AO disallowed the interest and remuneration paid to the partners on substantive basis. As per the ld. AR, although the firm has challenged the order of 8 SMT. BHAGWATI DEVI MEEL VS ITO, WARD 3, SIKAR the AO wherein addition was again upheld, before the ld. CIT(A) and the matter is still pending before the ld. CIT(A). Thus, in this way, the addition made by the AO in the hands of the firm has not attained finality. Thus, the ld. CIT(A) while passing the impugned order had categorically held that he is also in agreement with the stand taken by the AO about the protective addition made in the hands of the assessee. It is an admitted fact that the assessee is a partner in the firm and in the case of the assessee protective addition has been made by the respective AO, however, substantive addition has already been made in the hands of the firm M/s Shri Ram Borewell & Construction Co. and the appeal of M/s Shri Ram Borewell & Construction Co. is still pending before the ld. CIT(A) and it has attained finality. We are cautious of the fact that there is no statutory provision in the Income Tax Act to make addition on protective basis. In fact, as per provision of the Income Tax Act, the income is to be assessed only in the hands of the person to whom it belongs and it cannot be assessed in the hands of other person. This is a very basis of levy of Income Tax. However, it may so happen in certain cases that Income Tax Authorities are not clear as to whom income belongs. Hence, in such cases, only option is left with the Income Tax Authorities in order to safeguard the Revenue is to make two assessments for the same income on two different persons i.e. one on substantive basis and other on protective basis. It is for these reasons that Courts have recognized the concept of protective assessment, although there 9 SMT. BHAGWATI DEVI MEEL VS ITO, WARD 3, SIKAR is no such provision in the Income Tax Act to make protective assessment. It is imperative to mention that Hon’ble Gauhati High Court in the case of Jagannath Bawri and Others vs CIT and Others, 234 ITR 464 has explained the concept of protective assessment in following manner. ‘’As regards the contention of Ms. Hazarika, ld. Counsel for the petitioners about the income tax returns, on perusal of annexure-A series it can only be said that those documents are only intimation which is sent to the assessee specifying the sum so payable u/s 143(1)(a). At any rate, the assessments made are only protective assessments. Under the law, it is open to the Department to make assessments on two persons in respect of the same income where there is some ambiguity as to the liability to charge. Such assessments are made to protect the interest of the Revenue so much so, unless such protective or alternate assessment is made, assessment proceedings against the party finally found to be liable may become barred by time. It has now become an established practice that in the case of a doubt as to the person who will be and deemed to be in receipt of the income, it is open to the Department to make protective or alternative assessment.’’’ After having meticulously gone through the facts and circumstances of the case, we are of the view that protective assessments are a particular type of assessment that focuses on those assessments which is made to protect the interest of the Revenue. Although, there is no provision in the Income Tax Act authorizing the levy of income tax on a person other than whom income tax is payable but the object of the protective assessment is that in case substantive addition is made in the hands of other person and in case assessment fails then in that eventuality the Department must get the tax from the person in whose hands protective assessment