2021 (7) TMI 1005 - AT - Income Tax

Addition u/s 69 on protective assessment - cash deposit was treated as unexplained investment in the hands of the assessee under the provisions of section 69 and therefore the same was added to the total income of the assessee on protective basis - HELD THAT - There is no provision under the law for making the assessment on protective basis. It is well settled by the judicial precedent that in the interest of the revenue, the protective assessment can be framed. The circumstances arise for making the protective assessment in a situation where the revenue during the proceedings finds that a particular amount of income can be taxed in the hands of the different persons/assessee and the AO is not sure enough about such person in whose hands the income is chargeable to tax. Where the legal ownership of the income is under suspicion, the AO can resort to make the addition in the hands of 2 persons or more than 2 persons on the basis of protective and substantive basis. But the demand of tax is not enforceable in the case of protective assessment until and unless it changes its shape by becoming substantive assessment. The concept of protective assessment also becomes important in a situation where the addition on substantive basis is deleted and in such an event, protective assessment shall change its colour by becoming substantive assessment. Had there not been such protective assessment, then assessment with respect to such person (protective assessment) would have become barred by time. The protective assessment framed by the AO without making the substantive assessment is not sustainable. Hence, the assessee succeeds on this technical ground. As the assessee has succeeded on the technical ground, we do not find any reason to adjudicate the issue raised by the assessee on merit. Hence the grounds raised by the assessee on merit are dismissed.

Summary

Issues:
1. Validity of protective assessment without substantive assessment.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) regarding an addition made under section 69 of the Income Tax Act, 1961. The Assessee contended that the addition was made on a protective basis without a substantive assessment in the case of another assessee. The key issue was whether a protective assessment without a substantive assessment is sustainable in the eyes of the law.

The Assessee argued that a valid protective assessment cannot exist without a substantive assessment. On the other hand, the Revenue contended that the absence of a substantive assessment does not invalidate a protective assessment, as it can take on the role of a substantive assessment when necessary. The Revenue supported the lower authorities' decision.

The Tribunal considered both arguments and noted that while there is no specific provision for protective assessments, judicial precedent allows for them in certain circumstances. Protective assessments are made when there is uncertainty about the person liable for taxation. The Tribunal outlined instances where protective assessments are warranted, such as when income is received by one person but enjoyed by another. It was emphasized that a protective assessment must eventually become substantive to be enforceable.

In this case, it was found that only a protective assessment was made against the Assessee without any substantive assessment in the names of other individuals involved. The Tribunal referred to a letter from the Income Tax Officer confirming the lack of substantive assessments. The Tribunal highlighted that without a substantive assessment, a protective assessment cannot stand. Citing precedents, the Tribunal emphasized that protective assessments are contingent on substantive assessments and cannot survive independently.

Consequently, the Tribunal held that the protective assessment made by the Assessing Officer without a substantive assessment was not sustainable. As a result, the Assessee succeeded on this technical ground, leading to the partial allowance of the appeal. The Tribunal did not address the merit-based issues raised by the Assessee due to the success on the technical grounds. The appeal was partly allowed by the Tribunal in favor of the Assessee.

In conclusion, the Tribunal's decision focused on the necessity of substantive assessments to support protective assessments, emphasizing that protective assessments must evolve into substantive assessments to be legally valid.