2023 (5) TMI 634 - AT - Income Tax

Protective assessment - Addition u/s 68 - bogus share capital and premium credited in the companies controlled by the assessee - addition commission expenses on such bogus transaction - AR submitted that the source of share capital has already been suffered to tax in the hands of the other parties in the VSV Scheme, thus, the addition based on protective basis does not survive - CIT(A) deleting the impugned protective addition - HELD THAT - The concept of protective assessment is not defined in the provisions of the Act. However, the same has been used by the revenue authority as a precautionary tool where there is some income accrued or arise, but the AO is not sure who is liable to pay tax on such income, the AO may proceed to assess such income on protective and substantive basis. The concept of protective or substantive assessment only be applied where it is established beyond doubt that some income has been accrued or arisen in a particular assessment year but there is some uncertainty about the person who is liable to tax. It cannot be applied in cases where it cannot be established beyond that the income has accrued or arises. In holding so, we draw support and guidance from the order of coordinate bench of this tribunal in case of ITO ward 10(1) Ahmedabad vs. Ketan B Thakkar HUF 2015 (5) TMI 711 - ITAT AHMEDABAD As under the provision of section 68 of the Act, it is not the case that it has been established beyond that the certain income accrued or arisen in a particular assessment year but there is uncertainty regarding the person liable to tax. Indeed, the provision of section 68 of the Act triggered when any sum credited in the books of an assessee and that assessee fails explain the nature and source of such credit then same can be deemed to be the income of that assessee in whose books the sum was credited. Thus, to assess deemed income under section 68 of the Act, there is no ambiguity regarding who should be liable to pay tax. Therefore, in our considered opinion the concept of protective assessment cannot be applied in the given facts and circumstances. CIT(A) during the appellate proceedings found that the substantive addition made in the hands of M/s GTC Oilfield Services Pvt. Ltd. was deleted since the investor party has surrendered the income under VSV Scheme. Thus, once the amount has been taxed in the hands of the investing party, the same should not brought to tax again tax in the hands of receiving party in the form of share capital and premium. No infirmity in the order of the learned CIT(A) regarding the issue of deleting the protective assessment. Assessment u/s 153A - Claim of exempted long-term capital - AO held the entire claim of exempted capital gain by the assessee on account of sale of impugned share as fictitious and added the same to the total income of the assessee as income from unexplained sources - HELD THAT - The word 'assess' in Section 153A/153C of the Act is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to the completed assessment proceedings. The Hon ble Gujarat High Court in the case of Saumya Construction Pvt. Ltd 2016 (7) TMI 911 - GUJARAT HIGH COURT held there cannot be any addition of regular items shown in the books of accounts until and unless there were certain materials of incriminating nature found during search. The word incriminating has not been defined under the Act, but it refers to that materials/ documents/ information which were collected during the search proceedings and not produced in the original assessment proceeding. Simultaneously, these documents had bearing on the total income of the assessee. Now coming to the case, we note that addition was made based statement of some unconnected person and action of the SEBI on the group concern of the company the shares of which has been sold by the assessee without referring to incriminating document found from the premises of the assessee. DR has not brought anything on record contrary to the finding of the learned CIT (A). Accordingly, we hold that there cannot be any addition of the regular items which were disclosed by the assessee in the regular books of accounts. Thus we hold that there cannot be any addition to the total income of the assessee of the regular items as made by the AO in the present case. Accordingly, we do not find any infirmity in the order of the learned CIT (A). Hence, we uphold the same. Decided against revenue. Addition u/s 68 - The income generated by the assessee cannot be held bogus only based on the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. As relying on Smt. Krishna Devi case 2021 (1) TMI 1008 - DELHI HIGH COURT we hold that in absence of any specific finding against the assessee, the assessee cannot be held to be guilty. Hence, we don t find any reason to interfere in the order of the Ld. CIT-A. Hence, the ground of appeal of the Revenue is hereby dismissed.

Summary

Issues Involved:
1. Protective assessment under section 68 of the Income Tax Act on account of credit of share capital and premium alleged to be bogus.
2. Claim of exempted long-term capital gain for Assessment Year (AY) 2012-13.
3. Claim of exempted short-term capital gain for AY 2015-16.

Summary of Judgment:

1. Protective Assessment under Section 68:
The Revenue challenged the deletion of protective additions made under section 68 of the Act for Rs. 5,74,50,000/- on account of bogus share capital and premium credited in the companies controlled by the assessee. The Tribunal noted that the assessee is a key person in several firms and companies, and during a search under section 132, it was found that four companies managed by the assessee received substantial sums as share capital and premium from certain companies alleged to be paper companies. The Assessing Officer (AO) treated these credits as unexplained money and made protective additions in the hands of the assessee while making substantive additions in the hands of the respective companies. The CIT(A) deleted the protective additions, stating that the source of funds was declared under the Income Declaration Scheme (IDS) 2016 by the investor companies, and the same was accepted by the Income-tax Department. The Tribunal upheld the CIT(A)'s order, noting that the concept of protective assessment is not applicable when the source of funds has been declared and accepted under the IDS.

2. Claim of Exempted Long-Term Capital Gain for AY 2012-13:
The Revenue contested the deletion of an addition of Rs. 58,08,455/- claimed as exempt long-term capital gain by the assessee. The AO had treated the gain as income from other sources, alleging that the share transactions were fictitious. The CIT(A) deleted the addition on technical grounds, stating that no incriminating material was found during the search, and the assessment for the year was completed. On merit, the CIT(A) held that the gain on sale of shares was genuine and supported by evidence. The Tribunal upheld the CIT(A)'s order, emphasizing that no addition can be made in the absence of incriminating material for a completed assessment year.

3. Claim of Exempted Short-Term Capital Gain for AY 2015-16:
The Revenue appealed against the deletion of an addition of Rs. 1,90,57,117/- claimed as short-term capital gain by the assessee. The AO had treated the gain as income from other sources, alleging that the share transactions were manipulated. The CIT(A) directed the AO to treat the income as short-term capital gain, stating that the gain was genuine and supported by evidence. The Tribunal upheld the CIT(A)'s order, noting that the AO's observation of price manipulation was based on suspicion without any corroborative evidence. The Tribunal emphasized that the sharp rise in share price alone cannot be the sole criterion for treating the transaction as bogus.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue, upholding the orders of the CIT(A) in deleting the protective additions and treating the gains as genuine. The Tribunal emphasized the importance of corroborative evidence and the non-applicability of protective assessment in cases where the source of funds has been declared and accepted.