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2014 (10) TMI 621 - HC - Income TaxLevy of penalty u/s 271(1)(c) - Unexplained investment in promissory notes treated as income u/s 69 – Whether the assessment order was protective assessment order or substantive assessment order - Held that:- Assessee contended that the assessment order passed by the AO was a protective assessment order and the AO as such could not have passed an order to initiate the penalty proceedings u/s 271(1)(c) of the Act - while passing the order to initiate the penalty proceedings u/s 271(1)(c) of the Act the AO specifically observed that the penalty u/s 271(1)(c) of the Act be initiated in respect of income of ₹ 5 lakhs, which has been assessed as protective measure – the protective assessment shall be treated as substantive assessment if and when income by way of unexplained investment in promissory note worth ₹ 37,65,000/- is finally excluded from the income of Shri Jitendra R., Patel and vice versa makes it very much clear that the assessment order passed by the AO was a protective assessment order and it cannot be termed and/or treated as substantive assessment order as observed by the tribunal – thus, the tribunal has materially erred in treating the assessment order as substantive assessment order without properly appreciating the order passed by the AO and it is to be held that the assessment order as such was a protective assessment order. Where there is dispute as to whether income concealed would be assessed in the hands of the assessee, unless the determination is made by the AO, no charge of concealment can be made against the person in whose hands income is added on protective basis and the assessee is liable only if it is his income, which has been concealed - the only person upon whom the substantive assessment is made would be liable for penalty, provided the conditions precedent for the imposition of the penalty are satisfied. Unless and until the substantive assessment is made and final assessment order is passed in case of the assessee adding the income in the hands of the assessee, even the initiation of the penalty proceedings are not permissible - There cannot be any initiation of the penalty proceedings with respect to the protective assessment order – relying upon Bankim J. Shah Versus Commissioner Of Income-Tax [1991 (7) TMI 59 - GUJARAT High Court] - there cannot be any protective initiation of the penalty proceedings - as such the basis or foundation for initiation of the penalty proceedings is the requisite satisfaction as provided in Section 271(1) of the Act and as such satisfaction could not be reached when the Income Tax Officer himself believes that the income for which the assessee is charged for concealment or furnishing of inaccurate particulars does not belong to him and he is assessed only as a protective measure - the tribunal has materially erred in treating the order passed by the AO as substantive assessment order – Decided in favour of assessee.
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