DEV DARSHAN DESIGNS PVT. LTD.,KOLKATA vs ITO, WARD 14(1), KOLKATA

Income Tax Appellate Tribunal, “B” BENCH KOLKATA

Before: Shri Sanjay Garg & Dr. Manish Borad

order : May 15, 2024 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 07.11.2023 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).

The assessee in this appeal has agitated against the confirmation of addition of Rs.2,67,60,000/- made by the Assessing Officer on protective basis in respect of the loan amount received by the assessee from one of its director and his relatives.

The brief facts of the case are that the assessee filed its return of income for the assessment year under consideration declaring a total Assessment Year: 2014-15 Dev Darshan Designs Pvt. Ltd income of Rs.24,07,054/-. The return was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued to the assessee. The ld. Counsel for the assessee had submitted documents in compliance of the notices issued by the Assessing Officer. The Assessing Officer noted that during the financial year 2013-14, the assessee company had taken a loan of Rs.2,67,60,000/- from 7 loan creditors, who were family members and one of them was the director of the assessee company. The Assessing Officer noted that the source of funds of the creditors, out of which loan was given to the assessee company, was from LTCG earned from sale of shares during the financial year 2013-14 relevant to assessment year under consideration. The Assessing Officer further noted that the LTCG earned by the said loan creditors were out of share transactions done in penny stock companies. He reached to the conclusion that the aforesaid LTCG earned by the loan creditors were bogus, which was the source of the loan to the assessee company. He observed that since the source of the funds of the loan creditors ,prior to forwarding of the loans to the assessee company, was out of bogus LTCG, therefore, source of the loan in the hands of the assessee company remained unexplained. He accordingly treated the entire loan credit from the aforesaid 7 loan creditors amounting to Rs.2,67,60,000/- as unexplained cash credit and added back the same to the total income of the assessee invoking the provisions of section 68 of the Act on protective basis.

The ld. CIT(A) confirmed the additions so made by the Assessing Officer on protective basis.

Before us, the ld. counsel for the assessee, at the outset, has made the submission that the assessee had provided loan confirmation letters Assessment Year: 2014-15 Dev Darshan Designs Pvt. Ltd from 7 loan creditors. That all the loan creditors were assessed to tax. Their PAN was also given. The amount was received by the assessee through account payee cheque. That the creditors had duly disclosed their income from LTCG in their return of income. That the identity, creditworthiness and genuineness of the transaction was not disputed. That the Assessing Officer has made the addition only on protective basis which means that even the Assessing Officer was convinced that the additions in relation to the LTCG were to be made in the hands of the respective creditors and not in the hands of the assessee. That the source of the loan amount in the hands of the assessee was duly proved. The ld. counsel has also made the following written submissions:

“It is submitted that the assessee filed loan confirmation letters. All the loan provider parties being shareholders and their relatives are assessed to tax. Their PAN was given. The amount was received by account payee cheques. They have duly disclosed their income as well as long term capital gain in their return of income. The identity, creditworthiness and genuinity of the transactions is not disputed. The Ld. AO has made addition on protective basis only on the ground that the source of the loan was earning of long-term capital gain by the loan providing shareholders and their relatives. It is submitted that the law required that the asseesse to prove the identity of the loan creditors, genuinity of the transaction and Creditworthiness of the parties. The same has not been disputed. The Ld AO has doubted the source of source, It is submitted that the assessee is not required to prove the source of source in case of loans as the necessary amendment in section 68 has been brought in the Act only w.e.f Asst Year 2023-24 which is applicable prospectively. Reference in this connection is invited to the judgement of Hon'ble Delhi Bench of ITAT in the case of Sh. Balwan Singh in Del/2019, dated 07.08.2023, copy of which is being filed herewith. Hence the addition may please be directed to be deleted. On merits also it is submitted that the Ld AO has added back the loan on protective basis. That means that there has to be substantive addition in the hands of some person. Out of the seven loan creditors, addition was duly made in substantive manner in the hands of three parties. They also paid tax on the same by opting for Vivad se Vishwas Scheme. Necessary evidences have been filed in the paper book page No.32-62.

Assessment Year: 2014-15 Dev Darshan Designs Pvt. Ltd Therefore when three persons have already paid the tax and substantive assessment has been made by adding back the amount in their hands, the addition in respect of the said three parties is required to be deleted. Hence it is submitted that in case where the substantial addition has been made and the parties have opted for VSV Scheme and paid their taxes, the protective assessment is liable to be deleted since the same would tantamount to making double addition. Reference in this connection is invited to the judgement of  Hon'ble Allahabad High Court in the case of CIT v Smt Durgawanti Singh reported in 234 ITR 249 which held as under: "It is settled law that when there is a doubt as to which person amongst the two was liable to be assessed, parallel proceedings may be taken against both and alternative assessments may also be framed. It is also equally true that while a protective is permissible, it is not open to the income tax appellate authorities under the Act to make a protective order. The law does not permit assessment of the same income successively in different hands. The tax can only be levied and collected in the hands of the person who has really earned the income and is liable to pay tax thereon"  Prakash Wine Agencies Vs ITO (1990) 38 TTJ (AII) 39  Saipem UK Ltd. Vs. Dy. Director of Income-tax (International Taxation) Range 2(1) Mumbai (2007) 108 ITD 545 (MUM)  Hon'ble Pune Bench of ITAT in the case of Natwarlal Radheshyamn Bagadiya in 1.T.A. No. 715 to 719/PN/2007 dated 13.04.2011 The assessment of another party has been reopened u/s 148. The creditor has filed writ petition before the Hon'ble Calcutta High Court on the ground that the assessment was reopened after six years from the end of the assessment yar and hence the same was barred by limitation and the wherein the proceedings u/s 148 has been quashed. The assessments for the remaining 3 parties have been made u/s 143(1) and no substantial addition have been made in their hands. Therefore when no substantive assessment is made in the hands of these parties' protective addition cannot survive. The assessment proceedings have already been barred by limitation in respect of the above four parties. When proceedings are barred by limitation, the protective addition cannot stand. Reference is invited to the decision of ITAT in the case of Kanav Metals a copy of which is enclosed herewith.

Assessment Year: 2014-15 Dev Darshan Designs Pvt. Ltd Further in cases where no substantial addition has been made, no protective assessment is permissible. Reference in this connection is invited to the judgement of  Hon’ble Ahmedabad Bench in the case of Kunj Malls in dated 17.04.2023.  Hon'ble Gauhati Bench in the case of Keshava Nanda Kakati in I.T.A. No. 460/ GAU/2019 dated 28.10.2021,  Hon’ble Delhi Bench in the case of ITO vs. Fussy Financial Services Private Limited in I.T.A. No.44/DEL/2014 dated 05.06.2017,  M.P. Ramchandran vs. DCIT reported in 129 TTJ 190 at page 195],  Hon'ble Delhì Bench in the case of G.K. Consultants Ltd. vs. ITO in ITA No.l502/ Del/2013 dated 27.06.2014, which was 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 supplied] Further, the loans were repaid in case of all parties for which evidences have been filed in paper-book.” 5.1 A perusal of the aforesaid written submissions made by the ld. counsel for the assessee would reveal that apart from pleading that the identity, creditworthiness and genuineness of the transactions relating to the aforesaid loan creditors were duly proved on the file, the ld. counsel has further taken legal plea that protective additions cannot be made in the hands of the assessee without their being substantive additions made in the hands of the loan creditors. It has been further pleaded that out of 7 loan creditors, in effect, the additions were made in substantive manner in the hands of 3 parties, however, all the said 3 parties opted Assessment Year: 2014-15 Dev Darshan Designs Pvt. Ltd for Vivad Se Viswas Scheme and paid the due taxes. It has been further pleaded that assessment in case of another party was reopened u/s 148 of the Act. The said creditor challenged the reopening of the assessment before the Hon’ble High Court pleading that the reopening was barred by limitation, wherein, the proceedings u/s 148 have been quashed. It has been further pleaded that the assessments of the remaining 3 parties have been made u/s 143(1) and no substantive additions have been made in their hands. Reliance has also been placed on various case laws, wherein, it has been held that protective assessment cannot be made in the hands of a party without being a substantive addition made in the hands of other party.

The ld. DR, on the other hand, has relied the findings of the lower authorities.

We have considered the rival submissions and gone through the record. Admittedly, in this case, the additions have been made in the hands of the assessee on protective basis only. This fact itself shows that the Assessing Officer, himself, was convinced that the substantive additions were warranted in case of respective loan creditors and not in case of the assessee. All the loan creditors are Income Tax assessees. The ld. counsel for the assessee has placed on file the assessment orders as well as documents relating to the Vivad Se Viswas Scheme opted by 3 loan creditors namely Smt. Santoshi Devi Jain, Sailendra Kumar Jain & Smt. Raju Devi Jain. The ld. counsel has also placed on file the order of the Hon’ble Calcutta High Court in the case of Deepak Kumar Jain vs. ITO in WPO/2841/2022 order dated 22.11.2022, whereby, the reassessment proceedings in case of Shri Deepak Kumar Jain have been stayed till the disposal of the writ petition. The aforesaid facts show that

DEV DARSHAN DESIGNS PVT. LTD.,KOLKATA vs. ITO, WARD 14(1), KOLKATA