2020 (6) TMI 373 - AT - Income Tax

Addition of protective assessment - Liability on directors - documents were found in the possession of the assessee, in view of provisions of section 292C it was to be presumed that these documents belonged to the assessee - HELD THAT - It is undisputed that the substantive addition in the hands of the company i.e. M/s. G.L. Litmus Events Pvt. Ltd. has already been deleted by the coordinate bench of this Tribunal in 2019 (7) TMI 528 - ITAT DELHI A perusal of the order of the Ld. CIT (A) would further show that he has nowhere confirmed the protective addition on the ground that the said amount was paid by the assessee. Rather, the Ld. CIT (A) has clearly mentioned that the impugned amount related to the company and the protective addition was solely u/s 179 of the Act in the sole event of liability being fastened upon the company and its subsequent non recovery from the company. From this angle, the protective addition u/s 179 stands nullified as the substantive addition stands deleted in the hands of the company. Protective addition in the hands of the assessee does not have any feet to stand on. Since the protective addition was upheld by the Ld. CIT (A) solely for the purposes of section 179 since the substantive addition has been deleted, the basis for protective addition also goes. Therefore, for the reasons stated above we quash the protective addition in the hands of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of the protective addition of ?35,85,00,000/- in the hands of the assessee.
2. Applicability of Section 179 of the Income Tax Act, 1961.
3. Validity of the assessment order based on seized documents.
4. Impact of the Arbitration Award and subsequent court orders on the assessment.

Issue-wise Detailed Analysis:

1. Legality of the Protective Addition of ?35,85,00,000/- in the Hands of the Assessee:

The primary issue revolves around whether the addition of ?35,85,00,000/- made by the Assessing Officer (AO) on a protective basis in the hands of the assessee is legally sustainable. The AO made this addition based on seized documents during a search operation, which allegedly indicated illegal gratification paid in respect of contracts awarded by the OC, CWG, and DDA. The AO presumed that these documents belonged to the assessee due to his directorial position in M/s. G.L. Litmus Events Pvt. Ltd. However, the Tribunal noted that the substantive addition in the hands of the company had already been deleted by the coordinate bench of the Tribunal, which observed that the charges against the company were without any evidence of incurring such expenses. Consequently, the Tribunal held that the protective addition in the hands of the assessee also lacked a legal basis, as the substantive addition had been nullified.

2. Applicability of Section 179 of the Income Tax Act, 1961:

The CIT (A) upheld the protective addition, citing Section 179 of the Act, which fastens liability on directors for recovery/payment of tax due from a private company. The CIT (A) argued that since the assessee was a director, the protective addition was in accordance with law. However, the Tribunal clarified that Section 179 applies to companies in liquidation, which was not the case for M/s. G.L. Litmus Events Pvt. Ltd. Furthermore, since the substantive addition in the hands of the company was deleted, the liability under Section 179 on the assessee also stood absolved.

3. Validity of the Assessment Order Based on Seized Documents:

The AO based the protective addition on seized documents found at the assessee's premises, presuming they belonged to him. However, the Tribunal observed that the AO himself admitted that the documents pertained to the company. The CIT (A) also acknowledged that the payouts were made by the company, not by the assessee personally. Therefore, the Tribunal concluded that the protective addition was not justified, as the documents clearly related to the company and not to the individual assessee.

4. Impact of the Arbitration Award and Subsequent Court Orders on the Assessment:

The Tribunal took into account the Arbitration Award dated 14.5.2018, which negated accusations of fraud, corrupt practices, collusion, and cartelization against the company. The Arbitral Tribunal found no evidence of illegal gratification paid by the company. This award was upheld by the Delhi High Court, further strengthening the case for deleting the substantive addition in the hands of the company. Consequently, the Tribunal held that the protective addition in the hands of the assessee also had no basis, as the substantive addition had been nullified by the Arbitration Award and subsequent court orders.

Conclusion:

The Tribunal quashed the protective addition of ?35,85,00,000/- in the hands of the assessee, concluding that the addition lacked a legal basis following the deletion of the substantive addition in the hands of the company. The Tribunal emphasized that Section 179 did not apply, as the company was not in liquidation, and the seized documents pertained to the company, not the individual assessee. The Tribunal's decision was also influenced by the Arbitration Award and subsequent court orders, which negated the accusations against the company. Thus, the appeal of the assessee was allowed.