2014 (10) TMI 537 - HC - Income Tax

Addition made on the basis of seized document Unexplained advances addition on the basis of entries in diary - Held that - When all the additions were considered by the ITAT and have been confirmed or considered in the case of firm M/s Ghindmal Kauromal or/and in the case of Roop Chand or/and in the case of Nanak Ram (Dropadi Devi), then the addition cannot be made again in the hands of the assessee - Though the documents were found in the custody and control of the assessee but when the assessee conveyed that either it pertains to firm or to other persons namely Nanak Ram or Roop Chand - when the documents have already been considered by the ITAT, then certainly double addition, one in the hand of the person in whose custody the documents are found and secondly in the case of the other person where substantive addition is made, is not permitted under the IT Act, even the AO had considered all these documents and the addition ,if any, was made on protective basis merely because the documents were found in the custody and control of the assessee but once the addition has been sustained in the hands of the persons to whom the documents related/belonged, the addition again cannot be made on the same documents/loose papers in the hands of the assessee and the Tribunal rightly came to the conclusion. Same addition on the basis of same document cannot be made in the hands of two persons. Revenue does not deny that protective addition was made in the case of assessee whereas substantive addition was either made in the case of M/s Ghindmal Kauromal or/and in the case of Roop Chand or/and in the case of Nanak Ram (Dropadi Devi) and when the additions have finally been sustained, then it is a finding of fact and no question of law Tribunal had rightly deleted the addition as the same cannot be or could not have been made in two hand - no substantial question of law arise for consideration Decided against the revenue.

Issues:
1. Interpretation of additions made on protective basis in the assessment year 1986-87.
2. Justification of deletion of additions based on seized documents in the case of the firm but not in the case of the assessee.
3. Application of law regarding protective and substantive additions in income tax assessments.

Issue 1: Interpretation of additions made on protective basis in the assessment year 1986-87.

The judgment pertains to a reference application under section 256(2) of the Income Tax Act against an order of the Income Tax Appellate Tribunal (ITAT) relating to the assessment year 1986-87. A search and seizure operation was conducted in the case of a partnership firm, leading to the discovery of incriminating documents. The Assessing Officer (AO) made additions in the case of the firm on substantive basis and also in the hands of the respondent-assessee on a protective basis. The CIT(A) subsequently deleted these additions in the case of the assessee, citing that the same additions had been confirmed in the case of the firm. The ITAT, upon appeal by the revenue, examined the additions and concluded that since the additions had already been considered and confirmed in other related cases, they could not be made again in the hands of the assessee. The ITAT rejected the reference application, emphasizing that no question of law arose from the findings.

Issue 2: Justification of deletion of additions based on seized documents in the case of the firm but not in the case of the assessee.

The revenue raised questions challenging the deletion of various additions made on the basis of seized documents in the case of the firm, which were not upheld in the case of the assessee. The revenue argued that since the documents were found in the possession of the assessee, the additions were justified, and the burden lay on the assessee to explain the transactions. However, the respondent-assessee contended that when the additions had already been confirmed in other cases and the AO had acknowledged that the additions were made on a protective basis, they could not be reiterated in the case of the assessee. Both the CIT(A) and the ITAT accepted this argument, leading to the deletion of the additions in the case of the assessee. The court upheld this decision, emphasizing that the same addition based on the same documents could not be made in the hands of two different persons.

Issue 3: Application of law regarding protective and substantive additions in income tax assessments.

The court elaborated on the concept of protective and substantive additions in income tax assessments. It highlighted that while the IT Act does not explicitly use these terms, the authorities have the discretion to make assessments on multiple individuals for the same income or based on incriminating documents. However, to prevent double taxation, the Assessing Officer can choose to make protective or substantive additions in one case and vice versa in another. In this case, the additions made in the case of the assessee were considered protective, while the substantive additions were confirmed in other related cases. The court emphasized that the ultimate income or transaction could not be sustained in both hands and that the ITAT rightly rejected the reference application as it was based on factual findings and did not raise any legal questions.

In conclusion, the judgment clarifies the application of protective and substantive additions in income tax assessments, emphasizing that the same addition based on the same documents cannot be made in the hands of two individuals. The court upheld the decision to delete the additions in the case of the assessee, as they had already been confirmed in related cases. The judgment highlights the importance of avoiding double taxation and ensuring that assessments are made based on factual findings and legal principles.

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