2019 (10) TMI 515 - AT - Income Tax

Addition u/s 68 - Protective addition - addition of gift as income from undisclosed sources - HELD THAT - Protective addition cannot be sustained at second appellate stage and consequently no proceedings either for recovery of tax or for initiating any penalty proceedings could be initiated. If the addition has been made on substantive basis in case of another person, here in this case alleged entry provider Mr. Harish Kumar wherein the amount of gift given by him to the assessee has been added on substantive basis, then whether tax is recoverable from him or not is relevant at all. What is relevant is that same addition cannot be taxed twice and there has to specific finding in whose hand the amount is taxable. Before us both the parties could not provide the detail of fate of substantive addition, whether any appellate authority has held that the addition made in the case of Mr. Harish Kumar should be made on protective basis and substantive addition should be made in the case of the donees, i.e., the person who has received the gift. Until and unless there is such finding by the appellate authority in the case of Sri Harish Kumar, then protective addition has no legs to stand. We direct the Assessing Officer as under - to ascertain whether in the case of Shri Harish Kumar any finding has been given by the appellate authority that additions made in his hand should be taxed on protective basis and substantive addition should have been made in the hands of the donee, i.e. the assessee who has received the gift if addition has been deleted on merits in the case of Shri Harish Kumar then again no addition can be confirmed against the assessee. Until and unless the appellate authority has held that addition made in the hands of Shri Harish Kumar is to be examined or made in the case of the assessee no addition can be made or confirmed and if the substantive addition made in the hands of Shri Harish Kumar had attained finality then also no addition or any proceedings can be initiated against the assessee. AO is directed to comply with this direction within a period of six months from the date of receiving of the order, because already huge time have elapsed and by this time either the fate of the appeal of Shri Harish Kumar must have been decided or the assessment order in his case must have attained finality. Appeal treated as partly allowed for statistical purposes.

Summary

Issues Involved:
1. Arbitrary and unlawful order by the Commissioner of Income Tax (Appeals).
2. Non-compliance with the directions of the Income Tax Appellate Tribunal by the Assessing Officer.
3. Jurisdictional errors, unjustified assessment, and denial of adequate opportunity of being heard.

Detailed Analysis:

1. Arbitrary and Unlawful Order by the Commissioner of Income Tax (Appeals):
The appellants argued that the order passed by the Commissioner of Income Tax (Appeals) (CIT(A)) was arbitrary, against the law, and based on incorrect facts. The Tribunal noted that the CIT(A) failed to consider the substantive addition made in the donor’s case and confirmed the addition on a protective basis without ascertaining the finality of the substantive addition. The Tribunal emphasized that the CIT(A) should have first verified the outcome of the substantive addition in the donor’s case before confirming any addition on a protective basis.

2. Non-compliance with Directions of the Income Tax Appellate Tribunal by the Assessing Officer:
The Tribunal had previously directed the Assessing Officer (AO) to provide the assessee with an opportunity to cross-examine the donor, Shri Harish Kumar, and to consider whether the donor had paid tax on the gifted amount. The AO, however, did not comply with these directions. Instead, the AO made the addition on a protective basis while noting that the substantive addition was already made in the donor’s case. The Tribunal criticized this approach, highlighting that the AO should have followed the Tribunal’s directions and ensured proper compliance.

3. Jurisdictional Errors, Unjustified Assessment, and Denial of Adequate Opportunity of Being Heard:
The appellants contended that the assessment order was beyond jurisdiction, bad in law, and based on incorrect facts without giving adequate opportunity of being heard. The Tribunal found that the AO made the addition on a protective basis despite having reservations about the substantive addition made in the donor’s case. The Tribunal noted that the same income could not be taxed twice and that the AO should have ensured that the substantive addition in the donor’s case had attained finality before making any protective addition in the assessee’s case.

Conclusion:
The Tribunal directed the AO to:
1. Ascertain whether any appellate authority had directed that the addition made in the donor’s case should be taxed on a protective basis and that the substantive addition should be made in the assessee’s case.
2. Verify if the addition in the donor’s case had been deleted on merits, in which case no addition could be confirmed against the assessee.
3. Confirm if the substantive addition in the donor’s case had attained finality, in which case no addition could be made or proceedings initiated against the assessee.

The Tribunal allowed the appeals for statistical purposes and directed the AO to comply with these directions within six months. The Tribunal did not decide the issue on merits, keeping it open for future consideration. Both appeals were partly allowed, and the order was pronounced in open court on 11th October 2019.