2016 (12) TMI 1605 - AT - Income Tax

Revision u/s 263 - peak value of the amount lying in the undisclosed bank account not added to the assessee s income for assessment year 2006-07 on protective basis - entire peak of US 21, 51, 725 (INR 9, 57, 07, 316) was added on protective basis in assessment year 2007-08 - A.R. has stated that the addition on substantive basis has been admitted by the legal heirs/executors of the estate of late Shri V.C. Mehta whereas the addition in question has been made in the case of the assessee only on protective basis Held that - Since the executors of estate of late Shri V.C. Mehta have owned up the amount lying in the HSBC Bank and have paid the taxes thereupon and they have also given an undertaking to the Commissioner of Income Tax (Appeals) that they owned up the bank balances lying in the bank account of late Shri V.C. Mehta hence under such circumstances the addition if any made on protective basis in the hands of assessee will not have any tax effect. Thus when the estate of late Shri V.C. Mehta in whose case the additions have been made on protective basis have owned up the amount lying in the bank account and have also given an undertaking to the Commissioner of Income Tax (Appeals) that they stand by the disclosure made by them in relation to the above said bank account and will not be claiming any refund of the taxes already paid except the inter-se adjustment of taxes paid amongst various assessment years no useful purpose will be served in making a fresh assessment on protective basis in the hands of the assessee merely because that some of the income was to be added in assessment year 2006-07 instead of the entire addition made in assessment year 2007-08 on protective basis. Thus ustification in invoking the provisions of section 263 of the Act for passing the above said revision order by Ld. PCIT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the revision order under Section 263 of the Income Tax Act.
2. Protective vs. substantive assessment of undisclosed income.
3. Ownership and tax liability of the undisclosed foreign bank account.
4. Harassment and multiplicity of proceedings for the assessee.
5. Conditions for invoking Section 263 of the Income Tax Act.

Detailed Analysis:

1. Validity of the Revision Order under Section 263 of the Income Tax Act:
The appeal was preferred by the assessee against the revision order dated 22.03.2016 passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, relevant to the assessment year 2006-07. The PCIT noticed that the peak value of the amount lying in an undisclosed HSBC Bank account should have been added to the assessee's income for the assessment year 2006-07 on a protective basis, which was not done by the Assessing Officer (AO). Instead, the entire peak value was added on a protective basis in the assessment year 2007-08. The PCIT held that this omission made the assessment order erroneous and prejudicial to the interest of Revenue and directed the AO to make a fresh assessment.

2. Protective vs. Substantive Assessment of Undisclosed Income:
The scrutiny assessment was completed under Section 143(3) read with Section 153A. It was found that the assessee had a connection with an HSBC Bank account in Geneva. The amount in this account was declared as undisclosed income in the hands of the estate of late Shri V.C. Mehta, and taxes were paid. The assessment was made substantively in the hands of the estate of late Shri V.C. Mehta for the assessment years 2006-07 and 2007-08. However, a protective assessment was made in the assessee's case for the assessment year 2007-08. The PCIT noted that the amount for the assessment year 2006-07 should have been added on a protective basis, which was not done, making the assessment order erroneous and prejudicial to the Revenue.

3. Ownership and Tax Liability of the Undisclosed Foreign Bank Account:
The assessee contended that the foreign bank account belonged to the father-in-law of the assessee, late Shri V.C. Mehta, and that several family members, including the assessee, were beneficiaries. The legal heirs/executors of the estate of late Shri V.C. Mehta admitted the substantive addition and paid the taxes. The assessee argued that since the substantive addition was admitted and taxes paid, there was no justification for the PCIT to set aside the assessment order related to the protective addition.

4. Harassment and Multiplicity of Proceedings for the Assessee:
The assessee argued that setting aside the assessment proceedings related to the protective basis would subject them to multiple proceedings and harassment, with no bearing on the tax effect since the amount was already admitted and taxes paid by the estate of late Shri V.C. Mehta. The executors of the estate provided an undertaking to the Commissioner of Income Tax (Appeals) that they owned up the balances and paid the taxes, and would not seek any reduction in the disclosed income.

5. Conditions for Invoking Section 263 of the Income Tax Act:
The Tribunal observed that the powers under Section 263 can be exercised by the PCIT only if the assessment order is both erroneous and prejudicial to the Revenue. Since the executors of the estate of late Shri V.C. Mehta owned up the amount and paid the taxes, the protective addition in the hands of the assessee would not have any tax effect. Therefore, the assessment order could not be held as prejudicial to the interest of the Revenue. The Tribunal found no justification for invoking Section 263 and set aside the revision order by the PCIT.

Conclusion:
The appeal of the assessee was allowed, and the revision order under Section 263 of the Income Tax Act was set aside. The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue, given the substantive addition and tax payment by the estate of late Shri V.C. Mehta. The order was pronounced in the open court on 14.12.2016.