2020 (8) TMI 913 - AT - Income Tax

Addition u/s 68 - Protective additions - substantive addition made in the hands of lender - CIT(A) deleting the addition in the hands of the assessee, which was made on the protective basis - Whether CIT-A erred ignoring the fact that the issue of substantial addition in the case of Shri Global Tradefin Ltd., has not reached the finality and is pending in the Bombay High Court - HELD THAT - AO as well as CIT(A) recorded a findings that 25 companies who invested in the assessee company are included in the list of said 53 investor companies which have advanced money to 14 companies including the assessee and same amount has been transferred by all 14 companies including the assessee to one company namely M/S Shree Global Tradefin Ltd. Thus, the amounts have been transferred by 14 companies including assessee to M/S Shree Global Tradefin Ltd., and the flow of funds are clearly evident and discernible. As such, there is no doubt as to the source of money. AO added u/s 68 of the Act on protective basis in the hands of the assessee and simultaneously similar addition was made to the income of Shree Global Tradefin Ltd. on substantive basis on the ground that source of money was not proved. Pertinent to note that in the appellate proceeding, the Tribunal deleted the addition in the case of Shree Global Tradefin Ltd. 2018 (10) TMI 1974 - ITAT MUMBAI and there is no finding by the Coordinate Bench that the said amount of Rs. 43.50 Cr belongs to the present assessee. We note from the perusal of the order of coordinate bench that the addition in the case of M/S Shree Global Tradefin Ltd. has been deleted on merit. Thus, the coordinate bench has not given any finding that the money belongs to the assessee. The protective addition is always made whenever there is a doubt about the correct entity or correct assessment year. Thus , where there is a doubt as to whom the income belongs to, the addition is made in the hands of two persons, i.e. on substantive basis in the hands of one person and on protective basis in the hands of the other person. The protective addition would become substantive, only and only if substantive addition is deleted by the appellate authority on the ground that the income belonged to the person in whose hands protective addition has been made. The protective addition does not survive if the substantive addition has been confirmed or substantive addition has been deleted on merits. Thus protective addition has to go as the substantive addition was deleted on merits. We do not find nay force in the arguments/written submissions of the ld. DR that where substantive addition is deleted the protective has to restored to the AO as in the case of M/S Shree Global TradefinLtd , assessment has not attained finality. We are therefore inclined to dismiss the appeal of the revenue by upholding the order of CIT(A) - Decided against revenue.

Summary

Issues Involved:
1. Deletion of protective additions by CIT(A)
2. Jurisdiction of the assessing officer to frame assessment under section 143(3) r.w.s 147 of the Act
3. Protective vs. Substantive addition
4. Procedural issue regarding the pronouncement of the order beyond 90 days due to the COVID-19 pandemic

Detailed Analysis:

1. Deletion of Protective Additions by CIT(A):
The revenue's primary contention was against the CIT(A)'s order deleting the protective addition in the assessee's hands, arguing that the substantive addition in the case of Shree Global Tradefin Ltd. had not reached finality. The CIT(A) had observed that the funds received by the assessee from 25 companies were immediately transferred to Shree Global Tradefin Ltd., indicating a one-to-one nexus. The CIT(A) concluded that the Jogia Group entities, including the assessee, were merely conduits for transferring funds to Shree Global Tradefin Ltd., which should be taxed substantively.

2. Jurisdiction of the Assessing Officer to Frame Assessment:
The assessee challenged the AO's jurisdiction to frame assessment under section 143(3) r.w.s 147 of the Act. The CIT(A) upheld the reopening of the assessment, stating it was based on survey proceedings revealing information about the share application money received by the assessee, forming a prima facie belief that income had escaped assessment.

3. Protective vs. Substantive Addition:
The AO had made a protective addition of Rs. 43.50 crores in the assessee's hands under section 68 of the Act, while a similar substantive addition was made in the hands of Shree Global Tradefin Ltd. The Tribunal, in a separate proceeding, deleted the substantive addition in Shree Global Tradefin Ltd.'s case, with no finding that the income belonged to the present assessee. The protective addition, therefore, could not survive as the substantive addition had been deleted on merits.

4. Procedural Issue Regarding Pronouncement of Order Beyond 90 Days:
The order was pronounced beyond the 90-day period due to the COVID-19 pandemic. The Tribunal referred to the extraordinary circumstances caused by the pandemic, citing directions from the Hon'ble Supreme Court and Hon'ble Bombay High Court, which extended limitations and acknowledged the disruption in judicial functioning. The Tribunal excluded the lockdown period from the 90-day rule for pronouncement of orders, ensuring compliance with Rule 34(5) of the ITAT Rules.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order that the assessee was merely a conduit and confirming the deletion of the protective addition. The cross-objections filed by the assessee were also dismissed as the main appeal was decided on merits. The procedural delay in pronouncement was justified due to the COVID-19 pandemic, aligning with judicial precedents and administrative directions.