2014 (1) TMI 1284 - AT - Income Tax

Cancellation of protective assessment Held that - The assessments have been made on substantive basis and on protective basis in the hands of assessees - When all the assessees challenged the assessment orders passed in their respective hands - Tribunal did not accept the methodology adopted for determining the peak credit and accordingly held that the computation of peak credit requires to be re-computed in accordance with the discussions made in the order of the Tribunal. Accordingly, the matter relating to the determination of income was set aside to the file of the assessing officer. The protective assessments are liable to be quashed if the substantive assessments got confirmed - the Ld CIT(A) confirmed the substantive assessments made in the hands of Shri K.P. Abdul Majeed, he has cancelled the protective assessments made in the hands of the assessees - Shri K.P. Abdul Majeed is the real beneficiary of the partnership firms and their bank accounts, which means, the substantive assessments made in the hands of Shri K.P. Abdul Majeed have been confirmed by the Tribunal - the Tribunal is also required to uphold the order of the CIT(A) in cancelling the assessments made in the hands of the assessees - if orders passed by the Tribunal in the case of Shri K.P. Abdul Majeed confirming the substantive assessments are reversed by any higher appellate forum, then the protective assessments made in the hands of the assessees herein shall automatically get converted into substantive assessments Decided partly in favour of Assessee.

Summary

Issues:
- Assessment of partnership firms based on common set of facts
- Validity of protective assessments in the hands of the assessees
- Challenge to cancellation of protective assessments by the Ld CIT(A)

Analysis:
1. The appeals were filed by the Revenue against the orders passed by the Ld. CIT(A)-I, Kozhikode concerning multiple partnership firms for the respective assessment years. The appeals were heard together due to identical issues arising from a common set of facts.

2. Despite the service of notice, no one appeared on behalf of the assessee, leading to the disposal of the appeals ex parte. The assessing officer observed discrepancies in the bank accounts of the partnership firms, including shared addresses, phone numbers, and involvement of the assessee's family members in financial transactions beyond their means.

3. The assessing officer concluded that the partnership firms were bogus entities controlled by an individual, Shri K.P. Abdul Majeed, who used the accounts for hawala transactions. Subsequently, the assessments were made on a protective basis in the hands of the partnership firms and substantively in the hands of Shri K.P. Abdul Majeed.

4. During the appellate proceedings, the counsel representing the assessees acknowledged that the firms were controlled by Shri K.P. Abdul Majeed, leading to the Ld CIT(A) upholding the substantive assessments on Shri K.P. Abdul Majeed. Consequently, the protective assessments in the hands of the partnership firms were cancelled.

5. The Revenue challenged the cancellation of protective assessments, arguing that the substantive assessments might be reversed in a higher appellate forum. However, the Tribunal confirmed that Shri K.P. Abdul Majeed was the real beneficiary of the firms and their bank accounts, leading to the cancellation of protective assessments being upheld.

6. The Tribunal clarified that if the substantive assessments on Shri K.P. Abdul Majeed were reversed in a higher forum, the protective assessments on the partnership firms would automatically convert into substantive assessments. Ultimately, the appeals filed by the Revenue were partly allowed, affirming the cancellation of protective assessments by the Ld CIT(A).

7. The judgment emphasized the principle that protective assessments are quashed if substantive assessments are confirmed, ensuring that assessments are aligned with the actual beneficiaries of financial transactions.