2021 (8) TMI 367 - AT - Income Tax

Unexplained expenditure/ investment - sustainability of protective addition in absence of any substantive addition - HELD THAT - We find that residuary surrender against unexplained expenditure/investment/assets was not specifically identified and before the settlement commission the assessee has already paid taxes on the enhanced income in the case of one of the group company - the finding of the CIT(A) on the issue in dispute is justified and we do not find any error in the same. Accordingly, we uphold the same and dismiss the ground of appeal of the Revenue.

Issues:
1. Addition of unexplained expenditure/investment by AO
2. Legality of protective assessment made by AO
3. Deletion of protective addition by Ld. CIT(A)
4. Sustainability of protective addition in absence of substantive addition

Analysis:

1. Addition of unexplained expenditure/investment by AO:
The appeal by the Revenue and cross objection by the assessee were directed against the order passed by the Ld. CIT(A) for the assessment year 2012-13. The Assessing Officer made an addition of ?12.00 crores in the hands of the assessee on a protective basis, as the assessee had surrendered ?100 crores during a search action, including ?12 crores for unspecified expenditure or leakage. The Ld. CIT(A) deleted this addition after considering the submission of the assessee, which highlighted that the disclosed amount was already covered in the enhanced income of one of the group companies during settlement proceedings before the Settlement Commission. The Ld. CIT(A) observed that the disclosure was made voluntarily by the appellant based on seized documents and that the protective addition was not sustainable. The Tribunal upheld the decision of the Ld. CIT(A) as the residuary surrender of ?12 crores was not specifically identified, and taxes were already paid on the enhanced income of ?15.06 crores in the case of one group company.

2. Legality of protective assessment made by AO:
The protective assessment made by the AO in the hands of the appellant was based on the disclosure made during the search action, which was later retracted by the appellant. The appellant argued that the disclosure was not specifically made in their hands but for the group in general. The Settlement Commission settled the income higher than the disclosed amount, further supporting the appellant's contention. The Tribunal found that the protective addition deserved to be deleted as it was already covered through the enhanced income by the Settlement Commission in the case of the group company controlled by the appellant.

3. Deletion of protective addition by Ld. CIT(A):
The Ld. CIT(A) deleted the protective addition after considering the facts, evidence, and case laws relied upon by the appellant. The Ld. CIT(A) noted that the disclosure was made voluntarily by the appellant based on seized documents and that the addition made on a protective basis was not sustainable as the disclosed amount was already subject to tax through settlement proceedings with one of the group companies. The Tribunal upheld the decision of the Ld. CIT(A, finding no error in the same.

4. Sustainability of protective addition in absence of substantive addition:
The issue of the sustainability of the protective addition in the absence of any substantive addition was raised by the assessee in cross objection. However, since the protective addition was already deleted by the Ld. CIT(A) and upheld by the Tribunal, the cross objection was deemed academic and dismissed as infructuous.

In conclusion, both the appeal of the Revenue and the cross objections of the assessee were dismissed by the Tribunal, upholding the deletion of the protective addition and finding it justified based on the facts and circumstances of the case.

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