2015 (7) TMI 1394 - AT - Income Tax

Reopening of assessment u/s 147 - protective addition - HELD THAT - Revenue has not initiated any substantive assessment or no addition has been made on substantive basis in any other hand, there is no question of any protective assessment in the present case from the reasons recorded by the AO as reproduced herein above. We are of the view that the AO has initiated re-assessment proceedings u/s 147/148 of the Act on the basis of the statement of one of the directors of the assessee company that the transactions in the hands of the other parties are not accounted for and this may be the income of the assessee. The revenue could not bring on record anything against the other parties or who are the other parties against whom substantive addition is to be made. There is no substantive addition made in any of the hand till date as conceded by the ld. Sr.DR before us now. In view of the above we are very clear that the re-assessment proceedings initiated u/s 147/148 of the Act is invalid and hence quashed. - Decided in favour of assessee.

Issues Involved:

1. Assumption of jurisdiction by AO under sections 147/145(3) or 143(3) of the Income Tax Act for making protective additions.
2. Validity of protective assessments without substantive additions.
3. Reassessment proceedings under section 147/148 based on the statement of a director.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction by AO under Sections 147/145(3) or 143(3) of the Income Tax Act for Making Protective Additions:

The first common issue pertains to the AO's assumption of jurisdiction under sections 147/145(3) or 143(3) of the Income Tax Act for making protective additions despite the absence of substantive additions. The assessee argued that the AO erred in making protective additions in an order under these sections as such an order cannot be based on suspicion or doubt, which is inherent in protective additions. The CIT(A) confirmed the AO's action, justifying that the protective addition was made to protect the revenue's interest based on information collected during the survey, enquiry, and investigation. The CIT(A) noted that the appellant's transactions required further probe due to the lack of corroboration from related persons.

2. Validity of Protective Assessments Without Substantive Additions:

The assessee's counsel cited the Mumbai ITAT's decision in the case of Suresh K. Jajoo vs ACIT, which explained that protective assessments are judicially recognized when it is unclear who received the income. The Tribunal in that case opined that protective assessments are not independent and must follow substantive assessments. The Tribunal also referred to the case of M.P. Ramachandran vs DCIT, which held that protective assessments cannot exist without substantive assessments. The Supreme Court in Lalji Haridas vs ITO recognized the concept of protective assessments, allowing the income-tax authorities to determine the liable party through appropriate proceedings against multiple parties.

3. Reassessment Proceedings Under Section 147/148 Based on the Statement of a Director:

The Tribunal found that the AO initiated reassessment proceedings under section 147/148 based on the statement of a director that the company did not carry out trading activities but provided accommodation entries, leading to the belief of income escaping assessment. However, the Tribunal noted that no substantive addition was made in any other hands, and the revenue could not identify the other parties involved. The Tribunal concluded that the reassessment proceedings were invalid as they were based on doubt rather than belief, and quashed the protective additions made by the AO.

Conclusion:

The Tribunal allowed the appeals of the assessee, quashing the reassessment proceedings and protective additions due to the absence of substantive assessments. The revenue's appeals were dismissed, and no other grounds on merits were argued or adjudicated.

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