2013 (2) TMI 296 - HC - Income Tax

Additions made on the protective basis deleted by ITAT - revenue argued that the substantive assessment of PACL India Limited is still pending before the Tribunal, therefore, protective assessment in the hands of the assessees should not have been finalized - Held that - No substantial question of law arises for consideration. On account of the finding recorded by the Tribunal, the amount disclosed by the assessees as their income has been assessed to tax as income in terms of Section 44-AD . If in the proceedings against PACL India Limited, a finding is recorded that the transactions were not genuine, then the same would be liable to be added back to the income of PACL India Limited but if finding is recorded that the transaction is genuine, the order of assessment passed by the Tribunal would require no interference so far as the assessees in the present appeal are concerned. The finalization of the assessment proceedings against the assessees has, thus, no effect in respect of the assessment of PACL India Ltd. No substantial question of law arises for consideration by this Court in the present appeals.

Summary

Issues:
1. Whether the ITAT erred in deleting additions made in the hands of the assessee on a protective basis?
2. Whether the profit of the assessee should be restricted to 8% of the receipts from another entity?

Analysis:

Issue 1:
The assessees filed returns under 'Income from business or profession' but were found not to have done any contract work for PACL India Limited. Consequently, their receipts from PACL India Limited were treated as income on a protective basis. The Commissioner of Income Tax (Appeals) found that the receipts were not from contract business and assessed the income at 8% of the receipts. The Tribunal held that if no work was done by the contractors, the amount received cannot be considered as income but only the profit from such receipts can be taxed. The assessees were considered name lenders who could have charged only commission for lending their name. As they had offered 8% of their income, no further amount was deemed taxable.

Issue 2:
The Revenue argued that the substantive assessment of PACL India Limited was pending, so the protective assessment on the assessees should not have been finalized. However, the Court found no substantial question of law. The Tribunal's finding led to the assessment of the assessees' disclosed income as per Section 44-AD of the Income Tax Act. The finalization of assessment proceedings against the assessees would not affect the assessment of PACL India Limited. If the transactions were found genuine, the assessment order for the assessees would stand. Consequently, the Court dismissed the appeals as no substantial question of law arose for consideration.

In conclusion, the judgment dealt with the protective assessment of assessees based on receipts from another entity and the restriction of profit to 8% of those receipts. The Court upheld the Tribunal's findings and dismissed the appeals, emphasizing that the assessment of the assessees would not impact the assessment of the other entity.