1988 (10) TMI 72 - AT - Income Tax

Summary

Issues:
1. Whether the protective assessments made on the assessees were justified.
2. Whether the inclusion of the same income in the hands of Shri A.N. Agarwal and the assessees amounts to double assessment.
3. Whether the appeals of the assessees against the protective assessments should be allowed.

Detailed Analysis:
1. The appeals involved connected assessees for the assessment year 1981-82, who were the son and wife of Shri A.N. Agarwal. The assessees declared amounts received through an alleged overriding title in the profits earned by Shri A.N. Agarwal in a partnership firm. The Revenue disputed the genuineness of the agreement creating the overriding title. The Income Tax Officer (ITO) included the declared amounts in the assessees' income on a protective basis since they were also included in Shri A.N. Agarwal's income. The assessees appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], but their appeals were dismissed.

2. The CIT(A) upheld the protective assessments, stating that such assessments were legally permissible pending the final settlement of the ownership dispute over the income. The CIT(A) rejected the assessees' contention of double assessment, emphasizing that the protective assessment did not cause prejudice since the disputed tax demand was not enforced. The assessees then appealed to the Income Tax Appellate Tribunal (ITAT).

3. During the ITAT hearing, the assessees argued that since the amounts were already included in Shri A.N. Agarwal's income, they should not be assessed as the assessees' income to avoid double assessment. They also highlighted that in a similar case involving Smt. Shobha Agarwal, the CIT(A) had deleted the income in question for the subsequent assessment year, and the Department did not appeal against that decision. The Departmental Representative contended that the protective assessments did not prejudice either the assessees or Shri A.N. Agarwal.

4. The ITAT considered both sides' arguments and upheld the CIT(A)'s decision to dismiss the assessees' appeals. The ITAT reasoned that the assessments were protective and based on the assessees' own admissions. The real dispute lay with Shri A.N. Agarwal, who contested the inclusion of the income in his returns. The ITAT emphasized that a protective assessment on a person who admits to receiving income and files a return voluntarily does not cause prejudice, especially when no additional tax demand is enforced. The ITAT noted that the controversy regarding the income's ownership was ongoing with Shri A.N. Agarwal, and until resolved, it was unclear whether the income belonged to the assessees or Shri A.N. Agarwal. The ITAT dismissed the appeals, stating that the assessees had no legal grievance to pursue further.

Overall, the ITAT affirmed the protective assessments and concluded that the assessees' appeals lacked merit due to the ongoing dispute over the income's ownership, which needed resolution before any conclusive decision could be made.