2011 (1) TMI 100 - HC - Income Tax

Block period assessment - Question of Law - Whether the protective assessment can be framed in the proceedings under Section 158BC/158BD - A search and seizure operation under Section 132 of the Income Tax Act (hereinafter referred to as the Act ) was conducted on 20.06.2000 at the residential and business premises of Shri P.K. Sood who is the Director in the assessee companies - During the block assessment period in the case of Shri P.K. Sood he could not explain the source of aforesaid income and the amount of Rs. 66 lacs was added back to his income as undisclosed income by the Assessing Officer (AO) - Coming to the powers of the AO to make addition on protective basis the learned counsel referred to the judgment of the Supreme Court in the case of Lalji Haridas Vs. Income Tax Officer Another 1961 -TMI - 49482 - SUPREME Court and Chhotalal Haridas Vs. M.D. Karnik and Another 1961 -TMI - 49482 - SUPREME Court wherein the Court delineated the following principle justifying the reason for making protective addition Held that even when there is no specific provision in the Income Tax Act for protective assessment power lies with the AO to make such an assessment on protective basis under certain circumstances. When there is such a power to make the protective assessment while carrying out the normal assessment proceedings even in the absence of specific provision we fail to understand how the absence of provision should be a ground to preclude the AO for making protective assessment in block assessment proceedings under Section 158BC/BD of the Act.

Summary

Issues:
Whether protective assessment can be framed in proceedings under Section 158BC/158BD?

Analysis:
Issue 1: Protective Assessment under Section 158BC/158BD
The case involved a search and seizure operation under Section 132 of the Income Tax Act, where documents revealed accommodation entries provided by an individual. The Assessing Officer (AO) made additions to the individual's income under Section 68 of the Act and issued notices under Section 158BD to three companies connected to the individual. The AO completed assessments for the companies on a protective basis due to the individual's involvement in accommodation entries. The CIT (A) deleted the additions, which the Tribunal upheld, stating that protective assessment under Section 158BD was not permissible based on precedents from other cases.

Issue 2: Powers of AO to Make Protective Assessments
The Revenue argued for protective assessments, citing ambiguity on where additions should be made. Referring to Supreme Court and Gauhati High Court judgments, the concept of protective assessments was explained as a measure to safeguard revenue interests when ambiguity exists regarding income recipients. The Court held that even in the absence of a specific provision for protective assessments in the Income Tax Act, the AO has the authority to conduct such assessments under certain circumstances. The Court disagreed with the Tribunal's view, stating that the power to make protective assessments extends to block assessment proceedings under Section 158BC/BD.

In conclusion, the Court answered the question affirmatively in favor of the Revenue, allowing the appeals and remitting the matters back to the Tribunal for further consideration on merits. The judgment emphasized the AO's authority to conduct protective assessments even in the absence of a specific provision, ensuring revenue protection in cases of ambiguity regarding income recipients.