ROHIT KUMAR YADAV,INDORE vs. INCOME TAX OFFICER 5(5), INDORE

This appeal by assessee is directed against the order dated 11.02.2017 of the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre, Delhi for A.Y.2013-14.

ITANo.442/Ind/2023 Rohit Kumar Yadav 3. In response to the objection of the Ld. DR, the Ld. AR has submitted that the impugned order was not served upon the assesse till the assesse has approached the department on CPGRAM vide letter dated 21.09.2023. He has filed a copy of letter dated 04.10.2023 of AO whereby the impugned order was supplied to the assessee. Thus, Ld. AR has submitted that the present appeal has been filed within the time from the date of receipt of the impugned order.

“1. On the facts and circumstances of the case and in law the learned Commissioner of Income tax (Appeals) erred in confirming the protective addition made in the hands of Appellant which is contrary to law and is prayed to be quashed.

2. On the facts and circumstances of the case and in law the learned Commissioner of Income tax (Appeals) erred in not appreciating that right income can be taxed in right hands and income of another person cannot be taxed in hands of Appellant. Accordingly the Appellant prays that the impugned protective addition be directed to be deleted.” 4.1. Ld. AR of the assessee has submitted that only grievance of the assessee is against the protective addition made by the AO in the hands of the assessee on account of short term capital gain arising from transfer of land jointly owned by the assessee and his mother. He has further submitted that the assessee has no objection to the extent of the assessment of 50% of the short term capital gain being the share of the ITANo.442/Ind/2023 Rohit Kumar Yadav assessee however, the AO has also made an addition of the 50% shares of the mother of the assessee in the hands of the assesse on protective basis. Ld. AR has contended that no addition on substantive basis has been made in the hands of the mother of the assessee within the protective addition is made by the AO is not sustainable and liable to be deleted. In support of his contention he has relied upon following decisions:

(i).ITO vs. Fussy Financial Services P. Ltd. in ITANo.4227/Del/2014 (ITAT- Delhi) (ii). MP Rameshchandran vs. DCIT, Central-8 32 SOT 592 (ITAT Mumbai) (iii).ITO vs. Keshava Nanda Kakati (ITAT-Gauhati) 133 taxmann.com 316

ITANo.442/Ind/2023 Rohit Kumar Yadav gain amounting to Rs.4,26,316/- was added to the income of the assessee on substantive basis and equal amount was also added on protective basis subject to the short term capital gain is offered to tax by the mother of the assessee. Thus, it is clear from the assessment order that at the time of making protective addition there was no addition made by the AO on substantive basis in the hands of the mother of the assessee. Ld. DR has not disputed the fact that only a protective addition was made by the assessee without any substantive addition made in the hands of the mother of the assessee. Thus, the question arises whether protective addition can be made without being a substantive addition made in the hands of the other person or other assessment year. The Mumbai Benches of the Tribunal in case of MP Rameshchandran vs. DCIT (supra) has considered an identical issue in para 22 as under:

“22. Coming back to our point we have to examine whether protective assessment/addition is possible under section 147 in respect of the same person and for the same period. When a regular assessment is made and later on it comes to the notice of the Assessing Officer that some income chargeable to tax has escaped assessment, he can resort to these provisions for reassessment. But if, as is the case under consideration, after the passing of the regular assessment order, the Assessing Officer has passed a block assessment order under section 158BC pursuant to search and seizure proceedings under section 132 and included one income in the block assessment, is he empowered to include the same income, on protective basis, in the reassessment of the original regular assessment for the year, which is included in the block period? Before answering this question, it will be relevant to see the effect of the answer in positive or negative. If the answer is given in affirmative it will mean that the Assessing Officer is empowered to include it in the reassessment on the protective basis. Thus there will be presumption that though the Assessing Officer had included such income in the block assessment,

ITANo.442/Ind/2023 Rohit Kumar Yadav but he still has the reason to believe that this income is also taxable in the regular assessment. This presumption will belie the concept of reassessment which is always there to tax an income which is chargeable to tax but has escaped assessment. In order to give a different colour, the ld. DR. contended that this disallowance was made on protective basis only and hence cannot be equated with the substantive disallowance. We have noted above about the validity and presumption of the protective assessment in general. 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 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 Assessing Officer 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 Assessing Officer 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 Assessing Officer about the escapement of income, which is the foundation for assessment or reassessment under section 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 Page 5 of 9

ITANo.442/Ind/2023 Rohit Kumar Yadav basis, that the same income has escaped assessment in the instant year. In Wipro Finance Ltd.’s case (supra) there was search action on the assessee. Some income was assessed as undisclosed income for the block period. The Assessing Officer made addition for the same in regular assessment on protective basis. When the matter came up before the Hon’ble High Court, it was held that the same income which was assessed as the undisclosed income for the block period, could not have been assessed even on protective basis in regular assessments under section 143 for those years. In the instant case we are concerned with the reassessment, in which there are more restraints on the power of the Assessing Officer. We, therefore, hold that the initiation of reassessment proceedings on this count cannot be upheld.” 6.1 Thus, the protective assessment cannot be independent of substantive assessment as protective assessment is always successive to the substantive assessment. Similarly the Gauhati Bench of the Tribunal in case of ITO vs. Keshava Nanda Kakati (supra) has again considered this issue in para 8 &9 as under:

“8. We have heard both the parties and perused the records. We note that the Ld. CIT(A) has made a categorical finding of fact that there was no substantial addition of such an amount (Rs. 1,51,56,830/-) made prior in the case of M/s. Society of Education and this finding of fact has not been rebutted/controverted or assailed by the revenue before us by filing specific ground to this effect in this appeal. From a perusal of the grounds of appeal raised by the revenue (supra), it is clear that the revenue has only assailed the decision of the Ld. CIT(A) in deleting the protective addition made by the AO to the tune of Rs. 1,51,56,830/-. And it can be very well seen that the basis for deletion resorted by Ld CIT(A) to delete the protective assessment in the hands of assessee was because there was no substantial addition in the hands of M/s. Society of Education. This crucial fact has not been rebutted/controvered/assailed before us. Therefore, this finding of fact of Ld CIT(A) crystallizes (i.e. no substantive addition in the hands of M/s. Society of Education) and, therefore, we do not find any infirmity in the order passed by the Ld. CIT(A) on this issue on deletion of protective addition without substantial addition. We also take note that the Ld. CIT(A) to come to such a decision has taken note of relevant decisions of this Tribunal which reads as under:

ITANo.442/Ind/2023 Rohit Kumar Yadav “In the case of ITO vs. Fussy Financial Services Private Limited [I.T.A. No.44/DEL/2014 dated 05/06/2017, it was held/averred, as follows, by the Hon’ble ITAT-Delhi: We further note that the analysis of the investment account reveal that the company has made investment of Rs.5,04,01,000/. The statement given by Sh. PN Jha assumes importance wherein he categorically admitted that the company was doing the business of investment and finance and during the year the bank accounts of the company have been used to provide the accommodation entries. The addition of Rs.3,17,67,951/- made by the Assessing Officer on protective basis, which is not sustainable in the eyes of law, because in this case the AO himself stated in the assessment order that the Department is looking after the cases of beneficiaries and the amounts channelized through this group would be taxed in the hands of the beneficiaries, the amount of total credits of Rs.3,17,67,951/- made in its bank account with Kotak Mahindra Bank, KG Marg, New Delhi, during the year is added to the income of the assessee on protective basis. In this case we find that AO has not made any substantive assessment. There may be Substantive assessment without any protective assessment, but there cannot be any protective assessment without there being a substantive assessment. In the case of M.P. Ramchandran vs. DCIT [129 TTJ 190 at page 195], it was held/averred, as follows, by the Hon’ble ITAT: “In order to give a different colour, the ld. DR contended that this disallowance was made on protective basis only and hence cannot be equated with the substantive disallowance. We have noted above about the validity and presumption of the protective assessment in general. 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.” In the case of Gregory & Nicholas vs. ACIT [I.T.A. No.5102/Mum/2006 &IT(SS)A No.24/Mum/2009 dated 01/03/2007], it was held/averred, as follows, by the Hon'ble ITAT (Mumbai): “

ITANo.442/Ind/2023 Rohit Kumar Yadav 21. In the case of Suresh K. Jaju (2010) 39 SOT 414(Mum), E-Bench of the Tribunal at page 532 to 533 held as follows: “The AO made the following observations: "As the assessee has already offered this income in assessment year 2001-02, the same is assessed in this year to protect the interest of the revenue" Whether the above observations are enough to conclude that the assessment of the capital gains as long-term capital gain in assessment year 2001-02 by the Assessing Officer was only a protective assessment? We have already seen the ratio laid down by the Hon'ble Supreme Court in the case of Lalji Haridas (supra) wherein the Hon'ble Supreme Court while recognizing the concept of protective assessment has very clearly laid down that there must be an exhaustive enquiry and the question as to who is liable to pay (in this case which year the capital gain is to be assessed and whether as long-term capital gain in assessment year 2001- 02 or short term capital gain in assessment year 2000-01) should be determined after hearing objections. He should determine the question in the case of one person (in this case of the other person (in this case in other year) in whose case assessment has to be made protectively. Thus, 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. Thus, substantive assessment has to precede protective assessment." In the case of G.K. Consultants Ltd. vs. ITO [ITA No.1502/Del/2013 dated 27/06/2014], [upheld in CIT vs. G.K. Consultants Ltd., 2016 (6) TMI 136 Delhi High Court], it was held/averred, as follows, by the Hon'ble ITAT Delhi: “19. On careful consideration of above contention, we are of the view that there may be a substantive assessment without any protective assessment but there cannot be any protective assessment/addition without substantive assessment/addition, meaning thereby there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition. In the present case, the AO proceeded to make protective assessment by way of reopening of assessment of the assessee appellant company without being a substantive assessment on the date of assumption of jurisdiction u/s 147 of the Act which is not permissible as per decision of ITAT, Mumbai in the case of M.P. Ramachandaran vs. DCIT (supra) and Suresh K Jajo vs ACIT (supra)." [Emphasis given by us] 9. In the light of the aforesaid decision of the Tribunal and based on the discussion, we do not find any infirmity in the action of Ld. CIT(A) to have deleted the protective assessment in the hands of the assessee when the fact was that there was no substantive addition in the hands of M/s. Society of Education or other assessee’s and ergo the same is confirmed.”

ITANo.442/Ind/2023 Rohit Kumar Yadav 6.2 Accordingly in view of the facts and circumstances as discussed above as well as by following decisions cited (supra) we hold that the protective addition made in the hands of the assessee without making any substantive addition is not sustainable in law, the same is deleted.