2023 (5) TMI 634 - AT - Income Tax

Protective assessment - Addition u/s 68 - bogus share capital and premium credited in the companies controlled by the assessee - addition commission expenses on such bogus transaction - AR submitted that the source of share capital has already been suffered to tax in the hands of the other parties in the VSV Scheme, thus, the addition based on protective basis does not survive - CIT(A) deleting the impugned protective addition - HELD THAT:- The concept of protective assessment is not defined in the provisions of the Act. However, the same has been used by the revenue authority as a precautionary tool where there is some income accrued or arise, but the AO is not sure who is liable to pay tax on such income, the AO may proceed to assess such income on protective and substantive basis.

The concept of protective or substantive assessment only be applied where it is established beyond doubt that some income has been accrued or arisen in a particular assessment year but there is some uncertainty about the person who is liable to tax. It cannot be applied in cases where it cannot be established beyond that the income has accrued or arises. In holding so, we draw support and guidance from the order of coordinate bench of this tribunal in case of ITO ward 10(1) Ahmedabad vs. Ketan B Thakkar HUF [2015 (5) TMI 711 - ITAT AHMEDABAD]

As under the provision of section 68 of the Act, it is not the case that it has been established beyond that the certain income accrued or arisen in a particular assessment year but there is uncertainty regarding the person liable to tax. Indeed, the provision of section 68 of the Act triggered when any sum credited in the books of an assessee and that assessee fails explain the nature and source of such credit then same can be deemed to be the income of that assessee in whose books the sum was credited. Thus, to assess deemed income under section 68 of the Act, there is no ambiguity regarding who should be liable to pay tax. Therefore, in our considered opinion the concept of protective assessment cannot be applied in the given facts and circumstances.

CIT(A) during the appellate proceedings found that the substantive addition made in the hands of M/s GTC Oilfield Services Pvt. Ltd. was deleted since the investor party has surrendered the income under VSV Scheme. Thus, once the amount has been taxed in the hands of the investing party, the same should not brought to tax again tax in the hands of receiving party in the form of share capital and premium.

No infirmity in the order of the learned CIT(A) regarding the issue of deleting the protective assessment.

Assessment u/s 153A - Claim of exempted long-term capital - AO held the entire claim of exempted capital gain by the assessee on account of sale of impugned share as fictitious and added the same to the total income of the assessee as income from unexplained sources - HELD THAT:- The word 'assess' in Section 153A/153C of the Act is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to the completed assessment proceedings.

The Hon’ble Gujarat High Court in the case of Saumya Construction Pvt. Ltd [2016 (7) TMI 911 - GUJARAT HIGH COURT] held there cannot be any addition of regular items shown in the books of accounts until and unless there were certain materials of incriminating nature found during search. The word incriminating has not been defined under the Act, but it refers to that materials/ documents/ information which were collected during the search proceedings and not produced in the original assessment proceeding. Simultaneously, these documents had bearing on the total income of the assessee. Now coming to the case, we note that addition was made based statement of some unconnected person and action of the SEBI on the group concern of the company the shares of which has been sold by the assessee without referring to incriminating document found from the premises of the assessee.

DR has not brought anything on record contrary to the finding of the learned CIT (A). Accordingly, we hold that there cannot be any addition of the regular items which were disclosed by the assessee in the regular books of accounts. Thus we hold that there cannot be any addition to the total income of the assessee of the regular items as made by the AO in the present case. Accordingly, we do not find any infirmity in the order of the learned CIT (A). Hence, we uphold the same. Decided against revenue.

Addition u/s 68 - The income generated by the assessee cannot be held bogus only based on the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation.

As relying on Smt. Krishna Devi case [2021 (1) TMI 1008 - DELHI HIGH COURT] we hold that in absence of any specific finding against the assessee, the assessee cannot be held to be guilty. Hence, we don’t find any reason to interfere in the order of the Ld. CIT-A. Hence, the ground of appeal of the Revenue is hereby dismissed.