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2022 (9) TMI 1334 - AT - Income TaxAssessment u/s 153A - disallowance made on protective basis - addition on the basis of entries in the Pen Drive found from the premises of the key employees - HELD THAT - The bench has noted that when the PEN drive find during the search proceeding no questions are raised to the parties not only that the employee from this PEN drive found, his statement is not recorded - merely from that PEN when the veracity about that evidence is not recorded no addition either protective or substantive can be made. Not only that even on the merits the addition cannot be made on two counts, one is that there is no substantiative addition in those persons who claimed to have additional interest as duly confirmed before us by the AO and secondly when the substantive addition is not made protective addition cannot survive. The amount in dispute is nothing but the amount of the additional interest demanded and not paid by the assessee. Based on the decision relied upon by the ld. AR and on careful consideration of the facts in this case we hold that the ld. AO before completing the assessments on protective basis, the AO is supposed to point out the name of the assessee who may be the owner of such income. It is common ground that in the present case, till this date, the authorities below did not bring on record any material to show that the declared income in question really belongs to some other assessee. The ld. DR honestly conceded that till this date no proceedings in respect of the disputed income have been made against any other assessee and the same is also confirmed by the AO in the report presented before us. Not disputed the findings of the ld. AO that there is no addition on substantive basis. Thus, the protective addition cannot be survived as AR of the assessee explicitly proved that whatever interest that they have paid in the group cases is duly recorded in the books of accounts and wherever applicable TDS is also deducted. As an additional interest as allegedly demanded by the parties is not paid by the assessee, even those parties are not questioned on that 2.4% found recorded in the Excel-Sheet and same were also not taxed on substantive basis. There cannot be any protective addition without making the substantive addition and Revenue did not controvert the argument of the AR of the assessee and has also not supported by any judicial decision so as to confirm the order of the lower authorities. Thus, the interest which is actually paid is duly recorded in the books of accounts and there is no other material which is found even the person under whom possession the PAN Drive is found his statement is not recorded. This action itself shows that department find this evidence as dump documents and is not evidence relied upon. The statement of the person from whom the evidence his found is also not checked on its correctness and veracity. Therefore, based on the finding that the revenue has not made any substantive addition in the persons in whose name the interest as alleged addition income is not added and assessee categorically proved that there is no incriminating other document found recording the payment of the additional interest. Based on these observations we vacate the disallowance made for an amount made on protective basis. Appeal of assessee allowed.
Issues Involved:
1. Interest Payment from Undisclosed Sources 2. Validity of Protective Assessment Issue-Wise Detailed Analysis: 1. Interest Payment from Undisclosed Sources: The primary issue revolves around the addition of interest payments allegedly made from undisclosed sources, based on entries found in an excel sheet from a pen drive seized during a search operation. The pen drive was found in possession of an employee of the Maverick Group. The excel sheets contained adjustment entries with remarks of 2.4% interest. The Assessing Officer (AO) added these amounts to the assessee's income on a protective basis, citing the inability of the assessee to provide credible evidence refuting the entries. The assessee contended that the entries in the pen drive did not pertain to it and were not recorded in its books of accounts. The assessee argued that the pen drive was found with an employee and not from the business premises or directors, and the additional interest mentioned was never paid. The AO, however, maintained that the assessee failed to provide corroborative evidence to support its claims, leading to the protective addition. 2. Validity of Protective Assessment: The assessee challenged the protective addition on the grounds that there was no substantive assessment against any specific party. Citing various judicial precedents, the assessee argued that protective assessments must be accompanied by substantive assessments, and the AO must specify the entity and assessment year in which the substantive addition has been made. The assessee highlighted that the AO did not identify any specific case or person where substantive addition was made, rendering the protective assessment invalid. The assessee further argued that the Income Tax Act does not explicitly provide for protective assessments, and such assessments are only permissible under certain judicial guidelines, which were not followed in this case. The assessee relied on several judicial pronouncements, including the Supreme Court's decision in Lalji Haridas vs. ITO, to support its contention that protective assessments without substantive assessments are not sustainable. Judgment: The Tribunal noted that the pen drive found during the search was not relied upon at the time of search, and no statement was recorded from the employee in whose possession it was found. The Tribunal observed that the veracity of the pen drive was not established, and the AO did not make any substantive addition based on its contents. The Tribunal emphasized that there cannot be any protective addition without a substantive addition and that the assessee had recorded all interest payments in its books of accounts with TDS deducted where applicable. The Tribunal concluded that the protective additions made by the AO were not sustainable in the absence of substantive additions. The Tribunal relied on the Supreme Court's decision in Lalji Haridas vs. ITO and other judicial precedents to hold that protective assessments without substantive assessments are invalid. Consequently, the Tribunal vacated the protective additions made in all four assessment years. Conclusion: The Tribunal allowed the appeals, holding that the protective additions made by the AO were not sustainable due to the absence of substantive additions and the failure to establish the veracity of the pen drive's contents. The Tribunal emphasized the necessity of substantive assessments preceding protective assessments and the requirement for credible evidence to support any additions made.
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