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TMI Blog2014 (10) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... s observed by the tribunal – thus, the tribunal has materially erred in treating the assessment order as substantive assessment order without properly appreciating the order passed by the AO and it is to be held that the assessment order as such was a protective assessment order. Where there is dispute as to whether income concealed would be assessed in the hands of the assessee, unless the determination is made by the AO, no charge of concealment can be made against the person in whose hands income is added on protective basis and the assessee is liable only if it is his income, which has been concealed - the only person upon whom the substantive assessment is made would be liable for penalty, provided the conditions precedent for the imposition of the penalty are satisfied. Unless and until the substantive assessment is made and final assessment order is passed in case of the assessee adding the income in the hands of the assessee, even the initiation of the penalty proceedings are not permissible - There cannot be any initiation of the penalty proceedings with respect to the protective assessment order – relying upon Bankim J. Shah Versus Commissioner Of Income-Tax [1991 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the said briefcase containing promissory notes was given by him to Shri Jitendra R. Patel for safe custody. He also admitted that the said promissory notes belonged to his family consisting of his father, grandfather, uncle etc. The assessse, is the grandfather of Shri Dhanveer J. Patel. The assessee also came to be examined under Section 132(4) of the Act on 22/03/1988 and in the statement recorded he admitted that the said promissory notes worth ₹ 37,65,000/- belonged to him individually and the same were given by him to his grandson, Shri Dhanveer J. Patel fifteen days back for safe custody. He also admitted that the entire investment in the said promissory notes was unexplained and unaccounted. The assessee thereafter on 30/03/1988 made a disclosure petition to the Commissioner of Income Tax, Ahmedabad offering the entire amount of unexplained investment in promissory notes to be treated as income under Section 69 of the Act, which aggregates to ₹ 37,65,000/- and sought immunity from penalty under Section 271(1)(c) of the Act as per Explanation 5 to that Section. Subsequently, the assesse claimed that one promissory note dated 20/05/1982 of ₹ 2 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of Shri Jitendra R. Patel. The Assessing Officer also further observed that similarly if the said unexplained investment in the promissory note is included in the income of Shri Jitendra R. Patel, it will accordingly be excluded from the income of the assessee-Shri Bhailal M. Patel. The Assessing Officer computed the income of the assessee accordingly and passed an order to initiate the proceedings for penalty under Section 271(1)(c) of the Act in respect of the income of ₹ 5 lakhs. 2.1. It appears that thereafter proceedings under Section 271(1)(c) of the Act came to be initiated treating the assessment order passed by the Assessing Officer as substantive assessment order. The Assessing Officer vide order 28/03/1990 levied the penalty on the aforesaid amount of ₹ 5 lakhs under Section 271(1)(c) of the Act. 2.2. Being aggrieved and dissatisfied with the order of penalty levied/imposed by the Assessing Officer, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax (Appeals) allowed the appeal by quashing and setting aside the order imposing penalty under Section 271(1)(c) of the Act for both the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l has materially erred and has committed a grave error of law in treating the assessment order as substantive assessment order and not treating it as protective assessment order. 3.1. In support of her above submission, Ms. Vyas, learned advocate appearing on behalf of the assessee has heavily relied upon the decision of the Calcutta High Court in the case of Commissioner of Income Tax Vs. Super Steel (Sales) Co. reported in (1989) 178 ITR 451. 3.2. She has also heavily relied upon the unreported decision of this Court in the case of Commissioner of Income Tax Vs. Bankim J. Shah rendered in ITR No.117/1979 by which a view has been taken by this Court that no penalty proceedings under Section 271(1)(c) can be initiated in the protective assessment order. By making the above submissions, it is requested to quash and set aside the order passed by the tribunal and to answer the question in favour of the assessee and against the revenue. 4. Shri Manish Bhatt, learned Counsel appearing on behalf of the revenue has submitted that in the facts and circumstances of the case the tribunal has not committed any error in treating and/or considering the assessment order as substantive a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter to the tribunal so that the aforesaid factual aspects can be considered. 5. Heard the learned advocates appearing on behalf of the respective parties. The short question, which is posed for consideration of this Court is, whether the Assessing Officer was justified in imposing/levying penalty under Section 271(1) (c) of the Act? It is the case on behalf of the assessee that the assessment order passed by the Assessing Officer was a protective assessment order and, therefore, the Assessing Officer as such could not have passed an order to initiate the penalty proceedings under Section 271(1)(c) of the Act and the Assessing Officer could not have levied the penalty under Section 271(1)(c) of the Act on the basis of the protective assessment order. On the other hand, it is the case on behalf of the revenue that, as such and so held and observed by the tribunal that the assessment order passed by the Assessing Officer was in substance a substantive assessment order and not protective assessment order as contended by the assessee, the Assessing Officer was justified in levying/imposing the penalty under Section 271(1)(c) of the Act and, therefore, while considering the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as substantive assessment if an when income by way of unexplained investment in promissory notes worth ₹ 37,65,000/- is finally excluded from income of Shri Jitendra R. Patel. Similarly, if such income is finally sustained in the assessment of Shri Jitendra R. Patel it will be accordingly excluded from the income of Shri Bhailal M. Patel 5.1. It is also required to be noted at this stage that while passing the order to initiate the penalty proceedings under Section 271(1)(c) of the Act the Assessing Officer specifically observed that the penalty under Section 271(1)(c) of the Act be initiated in respect of income of ₹ 5 lakhs, which has been assessed as protective measure. 5.2. Under the circumstances, we are of the view that the assessment order passed by the Assessing Officer was as such a protective assessment order and the same cannot be termed as substantive assessment order as observed and held by the tribunal. 5.3. The contention on behalf of the revenue that the assessee himself accepted that the seized promissory notes worth ₹ 37,65,000/- belonged to him and the same may be included in his income is neither here nor there. What is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, which has been concealed. In other words the only person upon whom the substantive assessment is made would be liable for penalty, provided the conditions precedent for the imposition of the penalty are satisfied. 5.6. Under the circumstances, unless and until the substantive assessment is made and final assessment order is passed in case of the assessee adding the income in the hands of the assessee, even the initiation of the penalty proceedings are not permissible. There cannot be any initiation of the penalty proceedings with respect to the protective assessment order. The aforesaid is supported by the decision of this Court in the case of Bankim J. Shah (Supra). In the said case also penalty was sought to be levied under Section 271(1) of the Act on the protective assessment and to that it is held that there cannot be any protective initiation of the penalty proceedings. It is further observed and held that in a given case a particular income belong to A or B and although the Income Tax Officer reaches to the conclusion that the said income belongs to one of them, he may make protective assessment on the other hearing regard to the fact that the matter was likely to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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