TMI Blog2023 (2) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of substantive addition made in hands of M/s Bhushan Power Steel Ltd or any other person, protective addition cannot be sustained in the hands of the assessee. Accordingly, the protective addition so made by the AO and confirmed by the ld CIT(A) is hereby directed to be deleted. The enhancement done by the ld CIT(A) by an amount under section 69C of the Act, the same being consequential in nature is also directed to be deleted. Appeal of assessee allowed. - ITA NOS. 685 To 687/Chd/ 2019 And STAY APPLICATION NOS. 17 & 18/Chd/2022 In/ ITA NOS. 685 & 687/Chd/ 2019), ITA NOS. 688 To 690/Chd/ 2019, STAY APPLICATION NOS. 19 TO 21/Chd/2022 In/ITA NOS. 688 To 690/Chd/ 2019) - - - Dated:- 16-2-2023 - ITA NOS. 691 To 693/Chd/ 2019, STAY APPLICATION NOS. 22 TO 24/Chd/2022 In /ITA NOS. 691 To 693/Chd/ 2019), ITA NOS. 694 To 696/Chd/ 2019, STAY APPLICATION NOS. 25 TO 27/Chd/2022 In ITA NOS. 694 To 696/Chd/ 2019) Shri. Aakash Deep Jain, VP And Shri. Vikram Singh Yadav, AM For the Assessee : Shri Ashwani Kumar, CA, Shri Aditya Kumar, CA And Shri Bhavesh Jindal, CA For the Revenue : Shri Vivek Nangia, CIT D.R And Smt. Amanpreet Kaur, Sr DR ORDER PER VIKRAM S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to notices/summons issued by the Ld. A.O. in the course of the assessment proceedings, to duly discharge the onus cast u/s 68 of establishing the identity and creditworthiness of the investors and the genuineness of the impugned credits. 2. That the order dated 28-02-2019 passed u/s 250(6) of the Act by the Ld. Commissioner of Income-Tax (Appeals)-2, Gurgaon is against law and facts on the file in as much as she was not justified in not dealing with the ground raised on behalf of the Appellant Company that the assessment has been framed by ignoring principles of natural justice by relying solely on certain pre-search enquiries and investigations carried out by the Investigation Wing, New Delhi. 3. That the Ld. C.I.T.(A)-2, Gurgaon has erred in acting beyond jurisdiction in enhancing income of the Appellant u/s 251 (1 )(a) of the Income-tax Act, 1961 (the 'Act') by Rs.37,31,000/- being the alleged commission expenses u/s 69C on a sheer presumptive basis by introducing and assessing a new source of income beyond the record (i.e., the return of income and assessment order) and outside the subject matter of assessment appealed against. Additional Grounds of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year. 9. That the Ld. CIT(A) has erred in holding that the proceedings for A.Y. 2008- 09 had abated, on the fallacious reasoning that the intimation issued u/s 143(1) for the said AY could not be construed as an assessment. The CIT(A) has therefore erred in ignoring that as on the date of the search, i.e., 03.03.2010, there was no pendency of proceedings for A.Y. 2008-09 since the statutory period for issuance of notice u/s 143(2) for the said year had already elapsed resulting in no abatement of proceedings for the purpose of section 153A. 7. At the outset, the Ld. AR submitted that the assessee has taken additional grounds of appeal and has moved a specific application for admittance of the same before the Tribunal. It was submitted that these are legal grounds of appeal as to whether protective additions can be made by the Assessing officer where there is no corresponding substantive assessment made in hands of any other person and whether the protective assessment so made can be confirmed and enhanced by the ld CIT(A). It was submitted that the relevant facts leading up to the aforesaid additional grounds of appeal are already on record and require no further factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned assessment year and in response to the notice, the assessee company filed its return of income on 22/09/2010 declaring total income of Rs. 5,14,769/-. Thereafter notice under section 143(2) and 142(1) alongwith detailed questionnaire and show cause were issued. After taking into consideration the submissions and the explanations filed by the assessee, the assessment proceedings were completed under section 153A(1)(b) r.w.s 143(3) vide order dt. 23/12/2011 wherein the AO made an addition of Rs. 37,31,00,000/- in the hands of the assessee company on protective basis and as against the returned income of Rs. 5,14,769/-, the assessed income was determined at Rs. 37,36,14,770/-. 11. Being aggrieved, the assessee company carried the matter in appeal before the Ld. CIT(A) who has disposed off the assessee company s appeal vide impugned order dt. 25/03/2013 wherein protective additions of Rs. 37,31,00,000/- made by the AO were confirmed. Further, the Ld. CIT(A) has enhanced the income in the hands of the assessee company by an amount of Rs. 37,31,000/- being addition under section 69C of the Act. 12. Against the said findings and the direction of the Ld. CIT(A), the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade an arbitrary addition of commission @1% on the sum of share capital received. 16. It was submitted that with respect to action of the Ld. AO in converting protective addition into substantive addition, the entire additions made are highly disputed and fact of the matter is that as per own stand of the Department, the additions on account of share capital is to be made on substantive basis in the case of M/s Bhushan Power and Steels Limited and not in the case of the appellant company. In this regard, reference was drawn to para 24 of the impugned assessment order, wherein the Ld. AO has stated as under: 24. In view of above, the entire amount of Rs. 153,99,00,000/- taken as share application money by M/s Bhushan Power Steel Ltd. through the process of accommodation entries is treated as income of the company M/s Bhushan Power Steel Ltd. u/s 68 of the I.T. Act. Since M/s Bhushan Power Steel ltd. has preferred an application before the Hon ble Settlement Commission our findings so arrived will obliviously from part of our reports to be made to the Settlement Commission. The assessee M/s Vision Steel Pvt. Ltd. filed a reply on 14.12.2011 in continuation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made in the case of M/s Bhushan Power and Steels Limited have already been upheld by the ld CIT(A) -2, Gurgaon and those appeals are also pending for adjudication before the Tribunal. Similarly, in case of the appellant company, the ld CIT(A)-2, Gurgaon has allowed its appeal against which the Department is in appeal before the Tribunal. It was submitted that the said action of the Department (though in subsequent years) infact supports the assessee s contention that only where there is a substantive addition, protective addition can be made. In the instant case, it was accordingly submitted that the ld CIT(A) has erred in confirming the protective assessment framed by the AO although no corresponding substantive assessment with respect to the impugned issue were made and existed in the case of M/s Bhushan Power and Steels Limited. It was submitted that the said action is against the judicially established principle that there cannot be a protective assessment/addition without there being a substantive assessment/addition. 18. In this regard, reference was drawn to the decision of the Coordinate Mumbai Benches in the case of Suresh K. Jajoo Vs. ACIT 39 SOT 514, wherein while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Settlement Commission, New Delhi and thus, neither any clear finding could have been given nor the same was given in the order passed by Income Tax Settlement Commission with respect to the appellant companies. Thus, it can clearly be said that the action of the Ld. AO in converting protective additions into substantive pursuant to the aforesaid order is an afterthought and ultravires, in as much as he had no jurisdiction in the captioned matters to pass such order and that too, during the pendency of appellate proceedings before the ld CIT(A). In this regard, reliance was placed on decision of the Coordinate Jaipur Benches in case of DCIT Vs. Pallavi Mishra reported in 191 ITD 13 (Jaipur - Trib.). 22. It was submitted that in the instant case, the Ld. AO had no jurisdiction to arbitrarily convert protective additions into substantive, as once he framed the assessment originally, he had become functus officio and could have resumed jurisdiction only u/s 154/147 of the Act. In light of aforesaid, it was submitted that the addition so made in the hands of the assessee company on protective basis subsequently converted on substantive basis be directed to be deleted. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken as share application money by M/s Bhushan Power and Steel Ltd through the process of accommodation entries is treated as income of the company M/s Bhushan Power Steel Ltd and since M/s Bhushan Power Steel Ltd has preferred an application before the Settlement Commission, the findings shall form part of report to be made/sent to the Settlement Commission. It has been further held by the Assessing officer that notwithstanding the same, as the share application money/share capital amounting to Rs 37,31,00,000/- has been received by the assessee company M/s Vision Steel Limited during the financial year 2007-08 relevant to impugned assessment year, to keep the issue alive and to protect the interest of the Revenue, the amount of Rs 37,31,00,000/- was added to the income of the assessee on protective basis as there is no bar under the Income tax Act to make protective addition and the assessment order was passed on 23/12/2011. 26. As regards the status of application filed by M/s Bhushan Power Steel Ltd before the Settlement Commission and the order of Settlement Commission disposing off the said petition, it is noted from the report of the DCIT, Central Circle-1, Chandiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.2011 for Assessment Years 2004-05 to 2011-12. Since, the final beneficiary of the accommodation entries, received from Sh. S M Nahata was the assessee M/s Bhushan Power and Steel Ltd., therefore, in the Rule 9 report, substantive additions were proposed in the hands of the assessee M/s BPSL. Accordingly, protective additions were made in the assessment orders dated 23.12.2011 u/s 153B (l)(b) r.w.s. 143(3) of Act, in the hand of four front companies of the BPSL group i.e. M/s Diyajyoti Steel Ltd., M/s Jasmine Steel Trading Ltd., M/s Marsh Steel Ltd. and M/s Vision Steel Trading Ltd. However, the Hon'ble ITSC in order u/s 245D(4) dated 30.06.2013 for the A.Y. 2004- 05 to 2011-12 did not make the substantive additions of share application money in the hands of M/s BPSL. Keeping in view the order of the Hon'ble ITSC, the protective addition made in the hands of these 4 companies was confirmed by the Ld. CIT(A) in their respective hands. 27. Admittedly and undisputedly, at the time of passing of the assessment order where the protective addition was made in the hands of the assessee company, there was no order passed in case of M/s Bhushan Power Steel Ltd much les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous other decisions of the Coordinate Benches quoted at the Bar. 30. In the said case, there were two writ petitions before the Hon ble Supreme Court which were filed by two brothers, namely, Lalji Haridas who was resident of Jamnagar and Chotalal Haridas, who was resident of Bombay. In the notices issued by the respective Income-tax Officers against the two brothers, an enquiry was proposed to be held in regard to the liability to pay tax on the alleged total income of Rs. 97,00,000 received by either or both of the two brothers. This income represented the remittances of monies through the Indian Overseas Bank Ltd., Pondicherry, and the United Commercial Bank Ltd. Pondicherry, and had accrued during the assessment year 1952-53 respectively. The Hon ble Supreme Court took note of the contention advanced by the ld Counsel on behalf of Chotalal Haridas wherein it was contended that the proposed assessment in his hands would be in nature of precautionary or protective assessment which is not recognized in the Act and any attempt to levy tax on completion of assessment would be illegal. The Hon ble Supreme Court also took note of the statement of the case filed by the Department wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income in question it may not become necessary to make any order against Chhotalal. If, however, in the said proceedings, Lalji is not held to be liable to pay tax or it is found that Lalji is liable to pay tax along with Chhotalal it may become necessary to pass appropriate orders against Chhotalal. When we suggested to the learned counsel that we propose to make an order on these lines they all agreed that this would be a fair and reasonable order to make in the present proceedings. 31. The legal proposition so laid down by the Hon ble Supreme Court in the aforesaid case has since been discussed and being subject matter of decisions by Hon ble Courts and it would be useful to refer to a decision of the Hon ble Mumbai High Court in case of DHFL Venture Capital Fund Vs. ITO [2013] 34 Taxmann.com 300 wherein the relevant findings read as under: 17. Undoubtedly as counsel appearing on behalf of the Revenue submits the concept of a protective assessment is well known to the law of income tax in India. The basis on which a protective assessment is carried out is summed up succinctly in Sampath Ayengar's Law of Income Tax (11th edition, Vol. VI, page 9724) : Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t equally while a protective assessment is permissible a protective recovery is not allowed. However, such an exercise which is permissible in the case of a regular assessment must necessarily yield to the discipline of the statute where recourse is sought to be taken to the provisions of Section 148. Protective assessments have emerged as a matter of departmental practice which has found judicial recognition. Any practice has to necessarily yield to the rigour of a statutory provision. Hence, when recourse is sought to be taken to the provisions of Section 148, there has necessarily to be the fulfillment of the jurisdictional requirement that the Assessing Officer must have reason to believe that income has escaped assessment. To accept the contention of the Revenue in the present case would be to allow a reopening of an assessment under Section 148 on the ground that the Assessing Officer is of the opinion that a contingency may arise in future resulting an escapement of income. That would, in our view, be wholly impermissible and would amount to a rewriting of the statutory provision. Moreover, the reliance which is sought to be placed on the provisions of Explanation 2(a) to Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 143(3), there was no disallowance made by the AO in respect of such expenses. Thereafter, a search action was taken up on the assessee and M/s Jyoti Laboratories Ltd. on 03/11/2000 and the AO during the block assessment proceedings came to the conclusion that the entire advertisement expenses could not be allowed as deduction in as much as part of this expenses was towards M/s Jyoti Laboratories Limited for which the assessee was to get the reimbursement. As per the AO, since the assessee had not got the reimbursement of expenses amounting to Rs. 583.71 lacs having been incurred by the assessee towards M/s Jyoti Laboratories Limited and has only got the reimbursement of Rs. 55.86 lacs, in respect of the balance amounting to Rs. 527.85 Lacs which was not reimbursed to the assessee, the addition was made by the AO in the block assessment order dt. 30/11/2002 passed for the block period 01/04/1992 to 03/11/2000. On appeal, the said addition was deleted by the Ld. CIT(A) on the ground that such disallowance of expenditure was not covered with in the ambit of Chapter XIV- B of the Act which on further appeal was confirmed by the Tribunal and thereafter the Department went in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings on the basis of an item of income or disallowance which has been made in another proceeding of the same assessee for the same year. 34. Further, referring to the pleading of the Ld. DR that there is a crucial difference in the present case in as much as the initiation of reassessment proceedings was done by the AO by way of abundant caution as it was a case of protective addition and not substantive addition and thus, there cannot be any embargo on the power of the AO to initiate reassessment proceedings on a protective basis, the Coordinate Bench referred to the decision of Hon ble Supreme Court in case of Lalji Haridas Vs. ITO (Supra) wherein it was held that where the AO is not fully satisfied about the correct person to be taxed in respect of income, he is competent to proceed against the other possible person(s) by way of protective measures, who in his opinion might have earned that income. It was held by the Coordinate Bench that it was thus the case of an alternative assessment of another person subject to the finality of the decision in whose hands the assessment is substantially made. It was held by the Coordinate Bench that the scope of the protec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings on this count was set aside. 35. In case of Suresh K Jajoo vs ACIT (Supra), the issue for consideration before the Coordinate Mumbai Benches was again the validity of reassessment proceedings for A.Y 2000-2001 and for the purposes, it held that it was necessary to examine as to whether the assessment for the assessment year 2001-02 could be said to be a protective assessment and it went on to examine the inter-play between the substantive and protective assessment. The relevant facts of the case were that the assessee was in the business of dealing in shares and investments. She had purchased 1,00,000 equity shares during the assessment year 2000-01, of DSQ Software on 9-4-1999 on spot delivery basis. Out of the above, 63,000 shares were sold on 24-3-2000 and balance 37,000 were sold on 30-3-2000 as per the broker s contract note dated 30-3-2000. She claimed that the sale of 63,000 shares was made on 8-4-2000 as per broker s bill No. 01. She offered for tax as short-term capital gains the capital gain on sale of 63,000 shares in the assessment year 2001-02. The sale in respect of 37,000 shares was claimed as long-term gain and offered to tax in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to protect the interest of the revenue and raised a question as to whether the said observations were enough to conclude that the assessment of the capital gain as long-term capital gain in the assessment year 2001-02 by the Assessing Officer was only a protective assessment. The Coordinate Bench held that the Hon ble Supreme Court in the case of Lalji Haridas v. ITO (supra) 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 instant case which year the capital gain was to be assessed and whether as long-term capital gain in the assessment year 2001-02 or short-term capital gain in the assessment year 2000-01) should be determined after hearing objections. He should determine the question in the case of one person (in this case in one assessment year) and then conclude the proceedings in the case of the other person (in this case in other year) in whose case assessment has to be made protectively. The Coordinate Bench thus held that the protective assessment has to be done only after substantive assessment is done, an assessment can be considered as protective onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ensure that there is no arbitrary exercise of power to reopen a concluded assessment. Therefore, the existence of conditions precedent for reopening has to be satisfied before the Assessing Officer can proceed to assume jurisdiction to pass an order of reassessment. In the instant case, the condition precedent for valid initiation of reassessment proceedings had not been satisfied inasmuch as the belief that income chargeable to tax had escaped assessment did not exist. In the circumstances, initiation of reassessment was held as bad in law, and set-aside. 38. In case of Pegasus Properties (P) Ltd vs DCIT (Supra), the issue for consideration before the Coordinate Mumbai Benches was whether any protective addition could be made when no substantive addition were made in the hands of any other person. In the said case, the relevant facts were that during the course of search proceedings, certain cash was recovered from the premises of the assessee. It was explained by the assessee that the said cash belongs to Fisher Health Resorts Private Limited. It was also submitted that in view of the common directors of the assessee company and Fisher Health Resorts Private Limited, the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otective addition made in the hands of the assessee company doesn t survive and the addition made on protective basis under section 69A was deleted. 39. We find that similar issue came up for consideration before the Coordinate Gauhati Benches in case of Income-tax Officer, Ward-1, Nagaon Versus Keshava Nanda Kakati [2021] 133 taxmann.com 316 (Gauhati - Trib.). In the said case, briefly the facts of the case were that there were certain deposits found deposited in the savings bank account in the name of the assessee. The assessee explained that the said account was opened for the purpose of Junior College and duly reflected about the same in the return of income of the Society of Education (Alpha Beta College) which runs the Junior College ; and the sums deposited/withdrawn in the bank account are not pertaining to him and so he is not maintaining any details of the cash deposits or withdrawals in the said bank account. It was brought to the notice of AO that the deposit/withdrawal of sums are reflected in the books of Junior College and he was not in a position to produce the books of the Junior College during his assessment proceedings because the Junior College is managed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: In the case of ITO v. Fussy Financial Services Private Limited [I.T.A. No. 44/DEL/2014 dated 5-6-2017, 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 investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld/averred, as follows, by the Hon'ble ITAT (Mumbai) : 21. In the case of Suresh K. Jaju (2010) 39 SOT 414(Mum), E-Bench of the Tribunal at pages 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer interalia made protective addition of Rs. 3,27,83,846/- in the hands of the assessee as undisclosed investment in certain land situated at village Jugalpura wherein substantive addition was proposed in the hands of the M/s Indian Medical Trust. Being aggrieved, the assessee challenged the order and the findings of the Assessing Officer before the ld. CIT(A). During the pendency of the appellate proceedings, the Assessing Officer passed another order to give effect to the order of Settlement Commission u/s 245D(4) of the Act, wherein the Assessing officer converted the earlier protective addition into substantive addition. On appeal, the said order was set-aside by the ld CIT(A) and on further appeal by Revenue, the Coordinate Bench has upheld the order of the ld CIT(A). 41. The Coordinate Bench referred to the assessment order and from the contents thereof noted that the Department has claimed the undisclosed investment in impugned land purchase in the hands of Indian Medical Trust and substantive addition was thus proposed by the Department before the Income Tax Settlement Commission in the hands of Indian Medical Trust and thereafter, held that there was a proposal to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order dated 15.09.2017 and the relevant findings read as under: 21. The concept of substantive and protective assessment though not defined in the Income Tax Act has the necessary legal recognition by the Courts. It has been held by the Courts that in cases where it appears to the income tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie, it appears that the income may have been received either by A or by B, it would be open to the relevant income tax authorities to determine the said question by taking appropriate proceedings both against A and B by way of substantive and protective assessment. Once an assessment has been made, the veracity of the additions are to be adjudicated by the appellate authorities in both the cases and the appellate authority has to give a specific finding in whose hands the income on account of impugned addition is to be finally assessed. Therefore, to safeguard the interest of Revenue, the AO can assess the income in more than one hand but this procedure can be permitted at the stage of assessment and once the assessment is done, the taxabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order to give effect to the directions contained in any order passed u/s 250/254/263/264 of the Act, thus, the action of the AO doesn t have the necessary sanction of the relevant provisions and the order so passed has been rightly set-aside by the ld CIT(A) for want of jurisdiction and requisite sanction under law. 42. Applying the aforesaid legal proposition in the instant case, at the time of passing of the assessment order where the protective addition was made in the case of the assessee, no substantive additions were made in the hands of M/s Bhushan Power Steel Ltd and thus, no substantive additions were in existence. Even in the order so passed by the Settlement Commission u/s 245D(4) dated 30/06/2013 subsequent to passing of the impugned assessment order), no substantive additions were made in the hands of M/s Bhushan Power Steel Ltd. It is therefore a case where no substantive additions have been made in hands of M/s Bhushan Power Steel Ltd and at the same time, only protective assessment has been made in the hands of the assessee. In light of aforesaid legal proposition and respectfully following the decisions cited supra, in absence of substantive addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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