* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA NO. 981 OF 2008
WITH
ITA NO.1123 OF 2008
ITA NO. 1062 OF 2008
RESERVED ON: JANUARY 27, 2011
% PRONOUNCED ON: JANUARY 31, 2011.
1) ITA NO.981 OF 2008
COMMISSIONER OF INCOME TAX, DELHI II . . . Appellant
through : Mr. Sanjeev Sabharwal, Sr.
Standing Counsel.
VERSUS
MAHINDRA FINLEASE P. LTD. . . .Respondent
through: Mr. Vishwendra Verma, Advocate
for the Respondent.
2) ITA NO.1123 OF 2008
COMMISSIONER OF INCOME TAX, DELHI II . . . Appellant
through : Mr. Sanjeev Sabharwal, Sr.
Standing Counsel.
VERSUS
MAHINDRA TRADERS P. LTD. . . .Respondent
through: Mr. Vishwendra Verma, Advocate
for the Respondent.
3) ITA NO.1062 OF 2008
COMMISSIONER OF INCOME TAX, DELHI II . . . Appellant
through : Mr. Sanjeev Sabharwal, Sr.
Standing Counsel.
VERSUS
MAHINDRA FINLEASE P. LTD. . . .Respondent
through: Mr. Vishwendra Verma, Advocate
for the Respondent.
ITA No. 981, 1062, 1123 of 2008 Page 1 of 8
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. These appeals were admitted on the following substantial
question of law and immediately thereafter heard finally:
“Whether the protective assessment can be framed in the
proceedings under Section 158BC/158BD?”
2. Since question of law is common and arise out of same
transactions, the question formulated is being answered by this
singular judgment.
3. The facts of the matter do not need a wide canvass and briefly
stated herein below.
A search and seizure operation under Section 132 of the
Income Tax Act (hereinafter referred to as „the Act‟) was
conducted on 20.06.2000 at the residential and business premises
of Shri P.K. Sood who is the Director in the assessee companies.
During the said operation, certain documents were found in his
possession wherein it was recorded that during the block
assessment period, Shri Sood was indulging in giving
accommodation entries to various parties on commission basis.
Some of such accommodation entries were represented under the
head introduction of share capital by Shri P.K. Sood in the
assessee companies. During the block assessment period in the
case of Shri P.K. Sood, he could not explain the source of aforesaid
ITA No. 981, 1062, 1123 of 2008 Page 2 of 8
income and the amount of `66 lacs was added back to his income
as undisclosed income by the Assessing Officer (AO).
4. We may also record at this stage that the basis for making the
aforesaid addition in the block assessment of Shri P.K. Sood was
that along with the documents seized, statement of Shri P.K. Sood
was also recorded wherein he had inter alia stated as under:
“The factual position is that my known people used to come
to me for financial matter advice. Since I know that Sh. S.K.
Jain deals in such type of activities I used to refer people to
him for getting their work done. Sh. S.K. Jain used to give
me services charges @ .50 to .75 paise per hundred rupees
depending on needs of the client. I do not have knowledge
of total quantum of transactions my referred cases had with
Sh. S.K. Jain nor have any details of such clients. The total
amount of entries given through Sh. S.K. Jain may be as
stated by you & shown to me of `2,23,86,554/- as I do not
have the precise figures with me. This I am stating after
seeing Annexure A-8, A-10, A-12, A-13 and A-18 of the
documents seized from the premises of Sh. S.K. Jain. The
shares of capital amount of `66,00,000/- are also
accommodation entries and no actual transaction of share
capital introduction took place. The cash available with me
for these unaccounted transactions was advanced to Sh. S.K.
Jain for obtaining cheques of equal amount in the form of
share capital introduction in the companies as under:
M/s Mahindra Finance Pvt. Ltd. – Receipt amount of
`31,00,000/- shares allotted for `21,00,000/- balance
`10,00,000/- refunded.
M/s Mahindra Finance Pvt. Ltd. – Receipt of `23,00,000/-
share allotted of `22,50,000/-
Refunded – `50,000/-.
M/s Mahindra Traders – Receipt of `10,00,000/- share
allotment of `10,00,000/-.
xxx xxx xxx
The Share of capital amount of `66,00,000/- are also
accommodation entries and no actual transaction of share
capital introduction took place. The cash available with me
for these unaccounted transactions was advanced to Sh.
S.K. Jain in their obtaining cheques of equal amount in the
form of share capital introduction in the companies as
under:
M/s Mahindra Finlease Pvt. Ltd – Receipt amount of
`31,00,000- share allotted for `21,00,000/- balance
`10,00,000/- refunded.
M/s Mahindra Finance Pvt. Ltd. – Receipt of `23,00,000/-
shares allotment of `22,50,000/- Refunded `50,000/-.
ITA No. 981, 1062, 1123 of 2008 Page 3 of 8
M/s Mahindra Traders – Receipt of `10,00,000/- shares
allotment of `10,00,000/-.”
5. Since search had taken place at the premises of Sh. P.K. Sood and
documents were found in his possession, in the case of Sh. P.K.
Sood the addition was made under Section 68 of the Act on
substantive basis. At the same time, the AO had also issued
notice under Section 158BD of the Act to these three assessee
companies as their names surfaced, Sh. P.K. Sood was the
Managing Director of these companies through whom he was
allegedly doing the passing of providing accommodation entries.
6. On the basis of the aforesaid facts, these assessees were required
to prove the introduction of share capital within the parameters of
Section 68 of the Act, i.e., the identity, genuineness and
creditworthiness. According to the AO, the assessees were not
able to prove the same. Since addition of substantive basis was
made in the block assessment of Sh. P.K. Sood, in the case of
these assessees, the AO completed the assessment by making
additions of income of the assessee on protective basis for the
Assessment Year 2000-01.
7. The assessees went in appeals before the CIT (A) challenging the
assessment order passed by the AO making additions on
protective basis as aforesaid. The appeals were allowed and
additions were deleted by the CIT (A).
8. The Revenue feeling aggrieved by the order of the CIT (A)
preferred appeals before the Income Tax Appellate Tribunal
(hereinafter referred to as „the Tribunal‟). The Tribunal has
ITA No. 981, 1062, 1123 of 2008 Page 4 of 8
maintained the deletion on the ground that there cannot be
protective assessment under Section 158BD of the Act. The entire
discussion of the Tribunal on this aspect is located in para 4 of the
impugned orders dated 26.10.2007, which reads as under:
“4. We have heard the arguments of both the sides and
also perused the relevant material on record. It is observed
that similar issue relating to protective assessment made
u/s 158BD had arisen for consideration before the Madras
Bench of ITAT in the case of L. Saroja Vs. ACIT – 76 ITD 344
wherein it was held by the Tribunal that protective
assessment qua the person sought to be covered u/s
158BD cannot be sustained. To the similar effect is the
decision of Ahmedabad Bench of ITAT in the case of Smt.
Farzana Farooq Desai Vs. DCIT – 74 TTJ 507 wherein it was
held that there cannot be a protective assessment u/s
158BD. Since no contrary decision of Tribunal or any High
Court on this issue has been brought to our notice by the
learned DR, we respectfully follow the aforesaid decisions
of the Tribunal in the case of L. Saroja (supra) and Smt.
Farzana Farooq Desai (supra) and uphold the impugned
orders of the learned CIT (A) deleting the additions made by
the AO u/s 68 on protective basis in the assessments
completed u/s 158BC/158BD.”
9. It is in this conspectus that the issue has arisen as to whether the
protective assessment can be framed in the proceedings under
Section 158BC/158BD of the Act.
10. Before we proceed to answer to the question, it would be
necessary to point out that the substantive addition made in Shri
P.K. Sood was deleted by the CIT (A) and that order of the CIT (A)
has been upheld by the Tribunal. The reason for deletion was that
even as per the statement of Shri P.K. Sood, on the basis of which
the AO made the addition, Mr. Sood was engaged in providing
accommodation entries in commission with Shri S.K. Jain in his
own companies through loans, advance, gifts etc. Therefore, the
issue was in respect of quantification of commission charges for
such accommodation entries. The AO had estimated the
ITA No. 981, 1062, 1123 of 2008 Page 5 of 8
commission @ 3%, but brought no basis and material in support of
the same. On the contrary, the claim of Sh. P.K. Sood that
commission charges to the extent of 0.5% to 0.75% was
supported and corroborated from the seized records. The
correctness of which was not in dispute. It was, thus, opined that
when there was seized record with the AO and the same was used
for computing undisclosed income, as per that record the
commission receipt could be computed by applying 0.75% and no
addition on account of unexplained investment under Section 69
of the Act could be made.
11. We may clarify at this stage itself that the basis of the deletion
made by the CIT (A) as well as the Tribunal in the case of Shri P.K.
Sood is noted above as a fact and we have not commented upon
the correctness or otherwise of the said decision of the Tribunal as
that was not the issue before us. The reason for taking note of
this fact was that the learned counsel for the Revenue justified the
protective assessment in the case of these assessees as his plea
was that when it was not clearly ascertainable as to whether the
addition should be made in the case of sood or these assessees, it
was very well within the powers of the AO to make substantive
addition in the case of Shri P.K. Sood and protective addition in
these cases.
12. Coming to the powers of the AO to make addition on protective
basis, the learned counsel referred to the judgment of the
Supreme Court in the case of Lalji Haridas Vs. Income Tax
Officer & Another and Chhotalal Haridas Vs. M.D. Karnik
and Another [43 ITR 387] wherein the Court delineated the
ITA No. 981, 1062, 1123 of 2008 Page 6 of 8
following principle justifying the reason for making protective
addition:
“In cases where it appears to the income-tax authorities
that certain income has been received during the relevant
assessment year but it is not clear who has received that
income and prima facie it appears that the income may
have been received either by A or B or by both together, it
would be open to the relevant income-tax authorities to
determine the said question by taking appropriate
proceedings both against A and B. That being so, we do not
think that Mr. Nambiar would be justified in resisting the
enquiry which is proposed to be held by respondent No. 1 in
pursuance of the impugned notice issued by him against
the appellant.”
13. Following the aforesaid judgment, Gauhati High Court in the case
of Jagannath Bawri and Others Vs. Commissioner of Income
Tax and Others [234 ITR 464] has explained the concept of
protective assessment in the following manner:
“As regards the contention of Ms. Hazarika, learned counsel
for the petitioners about income-tax returns, on perusal of
annexure-A series it can only be said that those documents
are only intimation which is sent to the assessee specifying
the sum so payable under section 143(1)(a). At any rate,
the assessments made are only protective assessments.
Under the law it is open to the department to make
assessments on two persons in respect of the same
income, where there is some ambiguity as to the liability to
charge, Such assessments are made to protect the interest
of the revenue so much so, unless such protective or
alternate assessment is made, assessment proceedings
against the party finally found to be liable may become
barred by time. It has now become an established practice
that in the case of doubt as to the person who will be and
deemed to be in receipt of the income, it is open to the
department to make protective or alternative assessment. ”
14. What clearly emerges from the discussion in the aforesaid
judgments is that even when there is no specific provision in the
Income Tax Act for protective assessment, power lies with the AO
to make such an assessment on protective basis under certain
ITA No. 981, 1062, 1123 of 2008 Page 7 of 8
circumstances. When there is such a power to make the
protective assessment while carrying out the normal assessment
proceedings even in the absence of specific provision, we fail to
understand how the absence of provision should be a ground to
preclude the AO for making protective assessment in block
assessment proceedings under Section 158BC/BD of the Act.
Principle of law laid down by the Supreme Court holding that the
AO has power to make protective assessment even when there is
no specific provision under the Act would equally apply to the
block assessment also.
15. We, therefore, are not in agreement with the approach of the
Tribunal. We answer the question of law as formulated in the
affirmative, i.e., in favour of the Revenue and against the
assessee. As a result, these appeals are allowed and the
impugned order passed by the Tribunal is set aside. Since the
appeals were not disposed on merits, the matters are remitted
back to the Tribunal for deciding the appeals on merits.
(A.K. SIKRI)
JUDGE
(M.L. MEHTA)
JUDGE
JANUARY 31, 2011
pmc
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