TMI Blog2023 (7) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... me substantive, however, it had neither declared the impugned assessment as substantive assessment nor gave any direction to the assessing authorities to frame the same qua the petitioner assessee. It is also not the case of the respondents that at any stage thereafter, the authorities had framed substantive assessment in respect of the additions made in the income of the petitioner against him. When without framing any substantive assessment, the respondents sought to recover the amount assessed protectively rather recovered the same by issuing the impugned demand notice and recovery certificate, their action cannot be stated to be sustainable in law. Accordingly, the impugned demand notice and recovery certificate have become liable to be set aside and it is ordered accordingly. Recovery pursuant to the impugned notice and certificate has already been effected from the petitioner by the respondents and further keeping in view the interest of the revenue who might be entitled to recover the amount protected by way of protective assessment as made against the petitioner from him or from the firm or any other person, by making substantive assessment, we consider it proper t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No.2 assessing officer passed an order on 25.09.1998 observing that since the building belonged to the firm who was claiming depreciation, therefore, the excess amount received by the assessee was to be deemed as capital gain. Addition of amount of Rs.5,50,290/- was made as capital gain against the petitioner on protective basis. 2. It was further submitted by the petitioner that the Commissioner of Income Tax (for short CIT ) by invoking his revisional jurisdiction under Section 263 of the Act, set aside the order dated 25.09.1998 passed by respondent No.2 under Section 143 (3) of the Act by passing an order dated 19.03.2001 (Annexure P-2) and remanded the case with direction to pass a fresh order. The petitioner challenged the said order by filing an appeal before the Appellate Tribunal (hereinafter to be referred as the Tribunal ) who vide order dated 24.03.2006 (Annexure P-3) had upheld the order of the CIT by holding that the CIT was justified in revising the assessment. However, simultaneously it was reiterated by the Tribunal that the nature of the addition as per revised order was to be continued only on protective basis and not on substantive basis as the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made in case of the firm. The petitioner had also not been able to show the existence of the firm and to confirm the fact of filing return by the firm. His entire case was built on the basis of existence of the firm but he failed to prove the same and, therefore, there was no question of capital gain being assessed in the hands of the firm which has been claimed by the petitioner. It was submitted that even the protective assessment became substantive if the addition continued to be only on protective basis. While asserting that the respondents had claimed the recovery of the amount in question which rightly so was assessed as protective amount by treating it as substantive amount and the interest accrued thereon and while controverting the remaining pleas and asserting that the notices were legally issued, dismissal of the petition had been prayed for. 6. Learned counsel for the petitioners argued that the assessment against the petitioner had been made on protective basis and at no point of time any substantive assessment had been made by respondent No.1. He argued that since no substantive addition had been made till date, therefore, the protective addition was liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Tribunal while dismissing the appeals of the petitioner vide order dated 24.03.2006 and 08.09.2006 respectively had reiterated that the assessment was made on protective basis. It is clear from the above that the assessment of the amount of short term capital gain had been made by the assessing authority on protective basis and the same had not been made at substantive basis. 10. Now let us consider the position of law with regard to protective assessments. The concept of protective assessment has not been defined in the Income Tax Act and there are no specific provisions governing the same. However, it is well settled by judicial precedents and it is an established departmental practice which has gained judicial recognition by the Courts over the years that in the interest of revenue, protective assessment can be framed in a situation where the revenue during the proceedings finds that a particular amount of income can be taxed in the hands of different persons/assessee but the assessing officer is not sure enough about such person in whose hands the income is chargeable to tax. A protective assessment is regarded as being protective because it is an assessment which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a doubt as to which person amongst two was liable to be assessed, parallel proceedings might be started against both. In view of the above discussed position of law, it is clear that an assessing officer can certainly make a protective assessment of income at the hands of one person if it appears to him that such income can be assessed in the hands of firm and not in the hands of the person who returned it. Therefore, the protective assessment as made by the assessing officer in this case on the basis that the firm was in existence and such income could be assessed at the hand of firm cannot be found any fault with nor the same has been disputed by either of the parties. 12. However, now the question that arises for consideration is as to whether the revenue was justified in recovering the amount of Rs.15,27,302/- from the petitioner, a part of which was assessed by way of protective assessment by adding interest on the same and by issuing recovery certificate and passing impugned order dated 31.03.2016. The position of law with regard to recovery in such cases is also well settled which is to the effect that while a protective assessment is permissible, a protective recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws:- In certain cases, where no substantive assessment is made, even the protective assessment made becomes substantive. In the present case, in the return of the income filed, the assessee had himself shown the capital gains in his own hands like other partners of the firm. It appears that firm had neither filed the return within the meaning of Section 45 (4) read with Section 50 (1) of the Act nor any assessment had been made in case of firm because despite repeated opportunities allowed, the assessee had not been able to confirm this fact. In this case, the assessing officer in order to protect the interest of the revenue, completed the protective assessment in the hands of the assessee. But while making the protective assessment, the AO was required to apply her mind with regard to computation of capital gain. 13. On going through the above, it clearly appears that though the Tribunal had made observation that protective assessment may become substantive, however, it had neither declared the impugned assessment as substantive assessment nor gave any direction to the assessing authorities to frame the same qua the petitioner assessee. It is also not the case of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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