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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 ..... he search a briefcase containing promissory notes of Rs. 37,65,000/- was found. Simultaneously, the Department also searched his premises under Section 132(1) of the Income Tax Act (hereinafter referred to as 'the Act') and the said promissory notes were seized by the Department. During the course of the search, Shri Jitendra R. Patel claimed that the briefcase containing promissory notes did not belong to him and was claimed to have been given to him for safe custody by Shri Dhanveer J. Patel, his brother-in-law. The Department therefore conducted the search in the premises of Shri Dhanveer J. Patel on 21/03/1988 itself and during the course of the search he admitted 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 Rs. 37,65,000/- belonged to him individually and the same were giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer, proper verification in respect of correct ownership was not possible because the promissory notes did not show the name of the real owner. By observing so, the Assessing Officer observed that the income by way of unexplained investment in the promissory notes is assessable under Section 69 of the Act and the same be assessed in the hands of the assessee as a protective measure. The Assessing Officer further observed that the said protective assessment shall be treated as substantive assessment if and when the income by way of unexplained investment in promissory notes worth Rs. 37,65,000/- is finally excluded from the 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 Rs. 5 lakhs. 2.1. It appears that thereafter proceedings under Section 271(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs, which has been assessed as protective measure. It is submitted that therefore when the assessment order was passed by the Assessing Officer as protective assessment, in that case, initiation of the proceedings under Section 271(1)(c) of the Act itself was bad in law and not permissible. It is submitted that therefore when the protective assessment order was passed by the Assessing Officer no order of penalty can be levied as it is not certain that the amount on which the penalty is sought to be levied would be in the hands of the assessee or not. It is submitted that therefore, on facts, the tribunal 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises of Shri Jitendra R. Patel was included in the income of Shri Jitendra R. Patel or not. It is submitted that therefore unless and until the said factual aspects comes on record that in fact the amount of promissory notes were considered, included and/or excluded in the income of Shri Jitendra R. Patel or not, as per the assessment order passed by the Assessing Officer and unless the said amount is included in the hands of Shri Jitendra R. Patel the assessment order is to be treated as substantive assessment order. By making the alternative submission, it is requested to remand the matter 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a R. Patel. An order under Section 132(5) read with Section 132(7) has been passed in the case of Shri Bailal M. Patel on 15/07/1988 in which income under Section 69 of the Act by way of unexplained investment in promissory notes has been held to belong to Shri Bhailal M. Patel as a protective measure. Considering various aspects of the case, the income by way of unexplained investments in promissory notes, assessable under Section 69 of the Income Tax Act, is assessed in the hands of the present assessee as a protective measure. This protective assessment shall be treated as substantive assessment if an when income by way of unexplained investment in promissory notes worth Rs. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere can be protective assessment but there cannot be protective penalty. It cannot be disputed that before any penalty can be levied the income has to be assessed as concealed income in the hands of the assessee. Where there is dispute as to whether such income allegedly concealed would be assessed in the hands of the assessee, unless the determination is made by the Assessing Officer, 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. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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