There Can Be No Protective Addition In Absence Of Substantive Addition: ITAT

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that protective addition presupposes the existence of substantive additions; there can be no protective addition in the absence of substantive addition.

The bench of Yogesh Kumar U.S. (Judicial Member) and Pradip Kumar Kedia (Accountant Member) has observed that the assessment order was passed against the assessee on December 28, 2016, by making additions in the hands of the assessee firm on a protective basis to protect the interest of the revenue. In the very same assessment order, it is observed that ‘since both the partners of the firm have admitted and owned the introduction of Rs. 67,50,000 from their own source to the assessee firm, and in the absence of any plausible explanation furnished by the partners, the reassessment proceedings in their hands are being initiated separately for bringing the said amount to tax’.

The assessee/appellant is shown to have derived income from the wholesale business of scrap. The case of the assessee was selected for complete scrutiny, and during the course of the assessment proceedings, it was noticed from the balance sheet of the assessee firm that an addition of Rs. 67,50,000 was made to the firm. The assessee was issued a show cause notice asking why an addition to partners’ capital accounts amounting to Rs. 67,50,000 may not be added back to the income of the assessee.

Since both partners admitted to having introduced capital of Rs. 67,50,000 in the partnership firm by way of cash and no plausible explanation was furnished by them, the reassessment proceedings in their hands have been initiated against the partners. Therefore, the A.O. in the case of the assessee made an addition in the hands of the assessee firm on a protective basis to protect the interest of the revenue via the assessment order dated December 28, 2016.

The assessee contended that the assessee vehemently submitted that the assessment proceedings initiated under Section 147 of the Act against the partners of the assessee firm have been dropped on account of the same becoming time-barred. Therefore, substantial additions made in the hands of the assessee firm do not survive.

The tribunal held that since the substantive addition has not survived on account of being time-barred, consequently, the protective addition made in the hands of the assessee will not survive.

Counsel For Appellant: Ved Jain

Counsel For Respondent: Kanti E. Khobragade

Case Title: Kanav Metals Versus ITO

Case No.: ITA No.7778/Del/2019

Click Here To Read The Order