2025 (8) TMI 879 - AT - Income Tax

Protective Additions Under Section 69A Are Temporary; Deleted When Real Owner Confirmed Under Section 147

The ITAT Rajkot held that protective additions under section 69A are temporary and meant to safeguard revenue interests when the real owner of income is ... Unexplained money u/s 69A - Protective and substantive addition - real owner of the income - HELD THAT:- We note that protective assessment is made when there is uncertainty about who the real owner of the income. The protective assessment is done to safeguard the interest of the Revenue, ensuring the income is taxed in at least one hand. Thus, protective addition is temporary and subject to deletion when the substantive addition is confirmed in the hands of the correct assessee. We note that substantive addition of the same amount has been made in the hands of real owner, vide assessment order framed u/s.147 r.w.s. 144/144B of the Act. Therefore, we find that since the substantive addition has been made in the hands of the real owner, therefore, there is no logic to keep protective addition, in the hands of the assessee, under consideration. Hence, we delete the protective addition in the hand of assessee. Appeal filed by the assessee is allowed. 1. ISSUES PRESENTED and CONSIDERED Validity of initiation of assessment proceedings under Section 153C of the Income Tax Act, 1961. Legitimacy and correctness of protective addition of Rs. 2,12,800/- on account of unexplained ownership of seized gold. Whether protective addition can be sustained when substantive addition has been made in the hands of the real owner. Lawfulness of dismissal of appeal ex-parte by the Commissioner of Income Tax (Appeals). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of initiation of assessment proceedings under Section 153C of the Income Tax Act, 1961 - Relevant Legal Framework and Precedents: Section 153C authorizes the Assessing Officer to initiate assessment proceedings in the case of a person other than the one searched, if seized assets belong to such person. The initiation requires satisfaction based on seized material. - Court's Interpretation and Reasoning: The Court noted that the Assessing Officer initiated proceedings under Section 153C after interception and seizure of gold parcels allegedly destined for the assessee. The AO sent the satisfaction note to the jurisdictional AO of the supplier, indicating compliance with procedural requirements. - Key Evidence and Findings: Interception of parcels containing 70.05 grams of fine gold valued at Rs. 2,12,800/- was recorded. The gold was seized due to lack of satisfactory ownership proof during investigation. - Application of Law to Facts: The initiation of proceedings under Section 153C was based on material seized during investigation and was procedurally valid. - Treatment of Competing Arguments: The assessee challenged the validity of initiation, but the Court found no infirmity in the AO's satisfaction or procedural compliance. - Conclusion: The initiation of assessment under Section 153C was valid and lawful. Issue 2: Legitimacy and correctness of protective addition of Rs. 2,12,800/- on account of unexplained ownership of seized gold - Relevant Legal Framework and Precedents: Protective assessment is a safeguard under tax law to protect revenue interests when ownership of seized assets is uncertain. It is temporary and subject to deletion upon substantive assessment. - Court's Interpretation and Reasoning: The AO made a protective addition in the assessee's hands because the real owner of the gold was not established at that stage. The CIT(A) confirmed this addition, relying on the principle that protective additions safeguard revenue pending final determination. - Key Evidence and Findings: The seized gold's ownership was not satisfactorily explained by the assessee. The addition was made on a protective basis, not as a substantive determination of income. - Application of Law to Facts: Protective addition was justified initially to safeguard revenue interests due to uncertainty in ownership. - Treatment of Competing Arguments: The assessee contended that the addition was unjustified and should be deleted; however, the CIT(A) upheld the addition due to pending substantive assessment. - Conclusion: Protective addition was initially justified given the facts and law. Issue 3: Whether protective addition can be sustained when substantive addition has been made in the hands of the real owner - Relevant Legal Framework and Precedents: Protective additions are temporary and must be deleted once substantive addition is confirmed in the hands of the correct assessee to avoid double taxation. - Court's Interpretation and Reasoning: The Court observed that substantive addition of Rs. 2,12,800/- was made in the hands of the real owner through assessment under Sections 147 read with 144 and 144B. Since the substantive addition is confirmed, the protective addition in the assessee's hands lacks justification. - Key Evidence and Findings: The substantive assessment order against the real owner was dated prior to the appellate order and was undisputed. - Application of Law to Facts: Protective addition became redundant and unjustified once substantive addition was finalized in the hands of the real owner. - Treatment of Competing Arguments: The revenue defended the protective addition; however, the Court prioritized avoidance of double taxation and adherence to principles governing protective assessments. - Conclusion: Protective addition in the assessee's hands was rightly deleted. Issue 4: Lawfulness of dismissal of appeal ex-parte by the Commissioner of Income Tax (Appeals) - Relevant Legal Framework and Precedents: Principles of natural justice mandate that appeals should not be dismissed ex-parte without adequate opportunity unless justified. - Court's Interpretation and Reasoning: The assessee challenged the ex-parte dismissal by CIT(A), but the appellate tribunal did not find sufficient grounds to interfere with the CIT(A)'s order on this procedural aspect. - Key Evidence and Findings: The record did not indicate procedural irregularity warranting interference. - Application of Law to Facts: Dismissal ex-parte was not challenged successfully on procedural grounds. - Treatment of Competing Arguments: The assessee's grievance was noted but not upheld. - Conclusion: No interference was warranted regarding ex-parte dismissal.