Protective assessment versus substantive assessment in tax cases: delete protective additions once real assessee is substantively assessed.

Protective assessment is a temporary safeguard when the taxable person is uncertain; once the real assessee is identified and substantive additions are sustained in that person's hands, the protective addition must be deleted because the same income cannot be taxed twice. The assessing officer had made substantive additions in the partners' hands which were affirmed on appeal, and the partners accepted liability; accordingly the protective addition assessed against the partnership firm was held redundant and ordered deleted, since allowing both assessments would amount to impermissible double taxation and is not required to protect revenue once the correct assessee is fixed.

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Issues: Whether protective additions made in the hands of the partnership firm should be deleted where substantive additions on the same income have been made and sustained in the hands of the partners.

Analysis: The issue concerns the legal effect of a protective assessment/addition once substantive assessment and additions on the same income are made and upheld against the correct assessee. Protective assessment is a temporary measure to safeguard revenue when there is doubt about the person assessable; it operates as an alternate or stand-by assessment and is intended to be cancelled if the substantive assessment is sustained. The statutory provisions invoked for computing capital gain on transfer/recorded value (notably Section 45(3) and Section 48 of the Income-tax Act, 1961) were applied by the assessing officer and CIT(A) to make substantive additions in the hands of the partners and parallel protective additions in the hands of the partnership firm. The protective addition in the firm was retained only as an alternate measure pending resolution of who is the correct assessee.

Conclusion: Protective additions in the hands of the partnership firm are deleted because substantive additions on the same income have been made and sustained in the hands of the partners; allowing both substantive and protective additions to stand would amount to double taxation. Appeal allowed in favour of the assessee and protective additions in the hands of the firm deleted.

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