2024 (10) TMI 595 - AT - Income Tax

Addition made on protective basis - substantive addition has been deleted - Assessment u/s 153A - Validity of additions made in the absence of incriminating material in concluded assessment proceedings - HELD THAT - We find that AO has made protective addition which shows that he is convinced that substantive addition is required to be made in the hands of other persons. On the basis of details available on record, no substantive addition appears to have been made. Under these circumstances, protective addition cannot be made as per settled law. We note that revenue in the grounds of appeal had reiterated that substantive additions were made in the hand of Rajyog Buildtech Pvt Ltd for AY 2013-14 and AY 2014-15 and year involved in the present appeal of the assessee is AY 2012-13 and thus it cannot have relation with AY 2013- 14 and AY 2014-15. However, even in AY 2013-14 and AY 2014-15, the additions made in the hand of Rajyog Buildtech Pvt Ltd has not survived as the CIT(A) as well as ITAT has deleted the additions in the matter of DCIT VS. Rajyog Buildtech Pvt. Ltd. 2022 (7) TMI 1552 - ITAT DELHI wherein, the Tribunal has dismissed the appeals of the Revenue. Thus it is abundantly clear that substantive addition has not survived. It is a settled law that if the substantive addition does not survive, the protective addition also does not survive. To support this view, we refer the decision in the case of Pr. CIT (Central)-2 vs. Electrical and Electronic India Ltd 2023 (11) TMI 657 - DELHI HIGH COURT wherein, it has been held that addition made on protective basis does not survive where the substantive addition has been deleted. In our considered view, CIT(A) has rightly deleted the addition made by the AO on protective basis, which does not need any interference on our part, hence, we affirm the action of the ld. CIT(A) and accordingly the grounds raised by the Revenue are rejected. Appeal by the Revenue is dismissed.

Summary

Issues:
- Whether the Ld. CIT(A) erred in entertaining an appeal against a 'protective' assessment.
- Whether the Ld. CIT(A) erred in deleting a protective addition of Rs. 2,44,68,000.
- Whether the Ld. CIT(A) erred in holding that necessary document evidence was filed by the assessee to prove the refund of share application money.
- Whether the AO's addition on a protective basis was sustainable.

Analysis:
1. The Revenue filed an appeal against the Ld. CIT(A)'s order concerning the assessment year 2012-13. The grounds of appeal included the contention that the Ld. CIT(A) erred in entertaining an appeal against a 'protective' assessment. The AO had made a protective addition of Rs. 2,44,68,000 based on information received from the Investigation Wing, Kolkata. The Ld. CIT(A) partly allowed the appeal, confirming a substantive addition of Rs. 1,21,323 but deleting the protective addition. The Ld. CIT(A) noted the lack of mention of parties from whom share application money was received back and the absence of a specific section under which the addition was made. The Ld. CIT(A) emphasized the need for incriminating material to support additions.

2. The Ld. CIT(A) held that the AO's reliance on a statement without allowing cross-examination reduced its evidentiary value. The Ld. CIT(A) emphasized the importance of proving identity, genuineness, and creditworthiness regarding share application money. The Ld. CIT(A) highlighted that necessary documentary evidence was provided by the appellant to support the transactions. The Ld. CIT(A) concluded that additions cannot be made under sections 68, 69, or 69A without proper substantiation.

3. The Tribunal considered the arguments presented by both parties. The Ld. AR for the assessee cited legal precedents to support the deletion of the protective addition. The Tribunal noted that no substantive addition was evident in the case, rendering the protective addition baseless. The Tribunal referred to judgments by the Hon'ble Delhi High Court and emphasized the need for incriminating material to support additions. The Tribunal affirmed the Ld. CIT(A)'s decision to delete the protective addition and dismissed the appeal by the Revenue.

4. The Tribunal's decision was based on the principle that if substantive additions do not survive, protective additions are also unsustainable. The Tribunal referenced legal precedents and the need for incriminating material to justify additions. The Tribunal highlighted that the addition made on a protective basis lacked a legal basis. The Tribunal affirmed the Ld. CIT(A)'s decision, emphasizing the importance of proper substantiation for additions. The Tribunal dismissed the appeal by the Revenue, upholding the deletion of the protective addition.

5. In conclusion, the Tribunal affirmed the Ld. CIT(A)'s decision to delete the protective addition, emphasizing the requirement for incriminating material to support additions. The Tribunal's decision was in line with legal precedents and the principle that protective additions cannot stand without substantive additions. The Tribunal dismissed the appeal by the Revenue, maintaining the deletion of the protective addition.