TMI Blog2014 (7) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction to initiate and reopen reassessment u/s 147 of the Act on the basis of retracted statement of Shri Subodh Gupta which was recorded during the survey on Shri Subodh Gupta in his individual capacity and the AO also proceeded to make a protective assessment/addition without any substantive assessment/addition and without making any further investigation and inquiry about the material and information before him at the time of recording reasons. The AO assumed jurisdiction for reopening of assessment u/s 147 of the Act and for issuing notice u/s 148 of the Act on wrong premise and without any justified, cogent and legal reason - there existed no good or sufficient ground or reason for reopening of the case and issuance of notices u/s 148 of the Act against the assessee company - the condition precedent for valid initiation of reassessment is not being satisfied as the belief that income chargeable to tax has escaped assessment does not exist on the date of assuming jurisdiction u/s 147 of the Act – thus, all subsequent proceedings including issuance of notice u/s 148 of the Act were illegal and bad in law – Decided in favour of Assessee. - ITA No. 1502/Del/2013 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue authorities i.e. DDIT that the statement was recorded under coercion and threat which is contrary to the record seized during the course of survey proceedings. 4. The AO vide notice dated 10.12.2007 assumed jurisdiction reassessment u/s 147, 148 of the Act alleging that the assessee is providing accommodation entries to various concerns. In response to the above notice, the assessee vide its letter dated 9.1.2008 informed that the original return filed on 31.10.2004 may be considered as a return filed in pursuance to notice u/s 148 of the Act. In response to the reasons recorded, the assessee company filed its objections contending that the assessment is reopened without application of mind on the basis of surmises and conjectures. The AO dismissed the objections of the assessee. Aggrieved with the order of the AO, the assessee preferred an appeal before the CIT(A) challenging the reassessment on various grounds which was also dismissed by the CIT(A) vide his order dated 9.1.2013. Aggrieved with the order of the CIT(A), the assessee company has preferred this appeal. Ground no. 2, 3 4 5.Apropos these grounds, we have heard argument of both the parties and carefully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed reliance on the decision of ITAT, Mumbai in the case of M.P. Ramachandaran vs DCIT 129 TTJ 190 (Mumbai). 7. Replying to the above, ld. Departmental Representative (DR) supported the orders of the authorities below and submitted that there exists link between the material which was before the AO at the time when reasons for reopening of assessment were recorded and when the reassessment proceeding was made. Ld. DR further submitted that the link between the material gathered by the investigation wing and the assessee company not only established at the stage on which notice u/s 148 of the Act was issued but also in the course of reassessment proceedings. Ld. DR also pointed out that the information received from the investigation wing of the department was not general and vague but the same was very specific and pertained to the transaction with the assessee company. The DR supported the action of the AO for initiation of proceedings u/s 147 and 148 of the Act and submitted that the AO was justified in forming a prima facie belief that the income chargeable to tax had escaped assessment on the basis of information received from Investigation wing of the Department and, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 of the Act, we clearly observe that the AO proceeded on the basis of statement of Shri Subodh Gupta recorded during the course of search proceedings on 30.10.2003 which was retracted on 4.11.2013 by a letter submitted to the department. From the reason recorded, we also observe that the AO proceeded to make protective addition on the basis of retracted statement of Shri Subodh Gupta. We also observe that the AO proceeded to make protective addition on the basis of retracted statement of Shri Subodh Gupta and at the same time, we also observe that at the time of recording reasons, no substantive assessment or addition was made, neither in the case of Shri Subodh Gupta nor in any other case, till and on the date of assumption of jurisdiction u/s 147 of the Act. 10. The main facts recorded in the reasons indicate that all allegations have been made against Shri Subodh Gupta in the second part of reasons recorded without assigning any specific allegation and quantifying the quantum of transactions, the AO has simply mentioned that the assessee had not disclosed any income from the accommodation entries, therefore, this is a clear cut escapement of income. In this situation, we cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this count for the purpose of making the disallowance of advertisement expenses on protective basis. 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. Obviously there is no place for doubt' in the scheme of reassessment, as it has to be belief of the AO about the escapement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of reasons recorded, we also observe that the AO went on to reopen the assessment with a genuine intention to make protective addition pertaining to the accommodation entries alleged to be provided by the appellant company and at the same time, we notice that on a specific query from the Bench, ld. DR was unable to show us that there was a substantive assessment/addition either in the case of Shri Subodh Gupta or in the case of anybody else on the date of assumption of jurisdiction u/s 147 of the Act. 15. In view of above, we clearly hold that the AO had to initiate reassessment proceedings u/s 147 and 148 of the Act only on the basis of retracted statement of Shri Subodh Gupta, CA without making any further inquiry or investigation. We also hold that the AO proceeded to reopen the assessment of the assessee company for making protective assessment/addition but no substantive assessment existed on the date of assumption of jurisdiction u/s 147 of the Act neither in the case of Shri Subodh Gupta nor in the case of anybody else. 16. Ld. Counsel of the assessee placing reliance on the decision of Hon ble Jurisdictional High Court of Delhi in the case of CIT vs Dhingra Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he provided accommodation entries to the various entities through an assessee and other companies managed and controlled by him, therefore, the AO rightly assumed jurisdiction u/s 147 of the Act for issuing notice u/s 148 of the Act. 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 a 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). 20. On the basis of following discussion and submissions and contention of both the parties, we also observe that the statement of Shri Subodh Gupta CA was recorded during the course of survey in hi ..... 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