2021 (6) TMI 815 - AT - Income Tax

Assessment u/s 153A - Protective assessment - whether the funds lying with the bank accounts as mentioned hereinabove belong to the assessee before us and finally the interest income arising out of those funds can be assessed in the hands of the assessee on substantive basis? - HELD THAT - The right to make protective assessment is the right to be exercised by the ITO and not the appellate authority. Once addition made on substantive basis in the hands of the sons of the assessee and tax and/or penalty paid thereon the said category of assessment cannot be altered from substantive to protective by indicating the substantive assessment as an error on the part of the Ld. AO merely on the ground that the said income was added on substantive basis in the hands of the assessee. This proposition and conclusion made thereupon by the Ld. CIT(A) at the appellate proceeding is nothing but an afterthought without any basis arbitrary whimsical erroneous and not sustainable in the eyes of law. This observation made by the Ld. CIT(A) thus may to be expunged. From all corners the Revenue has failed to satisfy us to how the addition in the hands of the assessee at all be sustainable. By no stretch of imagination the addition made by Revenue on the interests income on substantive basis in the hands of the assessee holding assessee as the owner of the funds of the account only on relying upon the instructions to transfer the fund solely on the basis of surmise and conjecture cannot be said to be justified in the absence of corroborative evidence and/or clinching evidence in support of the same and also on the ground of assessment already made on substantive basis in the hands of the sons of the assessee on the same amount of interest income as narrated hereinbefore. In that view of the matter the addition under challenge is hereby deleted. Addition on substantive basis in the hands of the assessee by way of interest on ABN Amro Bank Account bearing NO. 208695A jointly held with grandson of the appellant - HELD THAT - AO in the assessment proceeding initiated against the assessee added the same income in the hands of the assessee on substantive basis in the similar manner as has been done in respect of the income already assessed in the hands of the sons of the appellant on substantive basis and income was assessed in the hands of the grandson on protective basis. However the substantive addition made in the hands of Vicky Mehta on this particular amount of income in respect of the year under consideration has not been denied by the Revenue. No evidence is forthcoming so as to substantiate that the income belongs to the assessee and not Vicky Mehta upon whom the income has already been assessed on substantive basis. Needless to mention that in this case also such addition in the hands of the assessee on substantive basis on the same amount already assessed and added in the hands of the grandson Vicky Mehta on substantive suffers from the principle of double taxation. Relying upon the observation made by us hereinabove on this issue in case of the assessment made in the hands of the sons we find that the addition by way of interest on ABN Amro Bank Account No. 208695A again in the hands of the assessee is not sustainable in the eye of law and thus deleted. Substantive income returned by the appellant into a protective income - HELD THAT - It is a settled position of law that before making such order the person concern should be given an opportunity of being heard. Unless the person in whose hand the income is directed to be added on protective basis from substantive basis the direction issued by the appellate authority is an exercise in futility. The completed assessment cannot be disturbed in the manner as has been done by the Ld. CIT(A) in the case in hand. This direction is thus patently incorrect in the absence of providing an opportunity to the effected party while discharging judicial functions by the Ld. CIT(A). The matter relying upon the discussion on the identical issue as narrated hereinabove the assessment made by the Ld. CIT(A) in treating the substantive income returned by the appellant into a protective income in his hands is not sustainable in the eye of law and thus the same is hereby expunged. Addition of interest income from HSBC Account - HELD THAT - The appellant has applied the exchange rate on the dates the respective interests were credited by the bank and as per the respective ledger furnished before the Revenue. The interest income has been found correct. Thus the interest income as admitted by the Ld. AO by applying the exchange rate as on 31st March of that year has been rightly rejected by the Ld. CIT(A) and consequently deletion of addition of the difference amount is in our considered opinion just and proper and without any ambiguity so as to warrant interference. Hence the ground of appeal preferred by Revenue is found to be devoid of any merit and thus dismissed.

Summary

Issues Involved:
1. Substantive vs. Protective Addition of Interest Income
2. Ownership and Control of Foreign Bank Accounts
3. Double Taxation
4. Procedural Errors in Altering Nature of Assessment
5. Specific Additions Related to Joint Bank Accounts

Detailed Analysis:

1. Substantive vs. Protective Addition of Interest Income:
The primary issue revolved around the addition of interest income of Rs. 2,77,48,083/- on a substantive basis in the hands of the appellant. The Revenue argued that the bank accounts held jointly with the appellant’s sons and grandson were controlled by the appellant, thus treating the interest income as the appellant's. The appellant contended that the funds were divided among his sons and the interest income did not belong to him. The Tribunal found that the Revenue's conclusion was based on conjecture and lacked corroborative evidence. The interest income was already taxed in the hands of the sons, and thus, the addition in the appellant's hands was deleted to avoid double taxation.

2. Ownership and Control of Foreign Bank Accounts:
During the search, it was found that the appellant and his family held undisclosed foreign bank accounts. The appellant argued that these funds were transferred to his sons' accounts after his wife's demise and that he acted merely as a power of attorney holder. The Tribunal observed that the Revenue failed to provide evidence proving the appellant's ownership of the funds. The instructions given by the appellant to transfer funds were in his fiduciary capacity and did not establish beneficial ownership. Consequently, the interest income from these accounts could not be substantively added to the appellant's income.

3. Double Taxation:
The Tribunal emphasized the principle of avoiding double taxation. The interest income had already been assessed substantively in the hands of the appellant's sons. The Tribunal referred to several judgments, including those by the Jurisdictional High Court, which supported the principle that the same income cannot be taxed in the hands of different entities. The addition of interest income in the appellant's hands was thus deleted.

4. Procedural Errors in Altering Nature of Assessment:
The Tribunal found fault in the CIT(A)'s action of altering the nature of assessment from substantive to protective in the hands of the appellant's sons without providing an opportunity for a hearing. The Tribunal held that such an alteration is beyond the jurisdiction of the appellate authority and must be done by the assessing officer. The procedural error rendered the CIT(A)'s alteration unsustainable, and the original substantive assessments in the sons' hands were upheld.

5. Specific Additions Related to Joint Bank Accounts:
The Tribunal addressed specific additions, such as Rs. 27,85,904/- by way of interest on an ABN AMRO Bank account jointly held with the appellant’s grandson. The Tribunal found that this income had already been assessed substantively in the hands of the grandson. The addition in the appellant's hands was thus deleted to prevent double taxation. Similarly, another addition of Rs. 23,76,000/- as interest on USD 54,00,000/- in joint accounts was also deleted on similar grounds.

Separate Judgments:
- The Tribunal allowed the appeals filed by the appellant for various assessment years (2006-07 to 2009-10) and deleted the substantive additions made in his hands.
- The appeals filed by the appellant's son, challenging the alteration of substantive to protective assessments, were allowed, and the original substantive assessments were restored.
- The appeals filed by the Revenue, challenging the deletion of certain additions, were dismissed.

Conclusion:
The Tribunal's judgment comprehensively addressed the issues of ownership, control, and substantive vs. protective addition of interest income. It emphasized the importance of avoiding double taxation and adhered to procedural fairness in altering the nature of assessments. The substantive additions in the appellant's hands were deleted, and the original assessments in the hands of his sons were upheld.