Lolika Chandrababu Vs ACIT (Kerala High Court)
Kochi: In a significant ruling for taxpayers facing parallel tax proceedings, the Kerala High Court has stayed coercive recovery action initiated based on a protective assessment order. The court, relying on precedents from the Supreme Court and its own Division Bench, held that recovery proceedings cannot be enforced on an assessment made as a protective measure while a substantive assessment on the same income is pending elsewhere.
The case involved Ms. Lolika Chandrababu, a partner in the firm ‘M/s. Sreedhanya Construction Company’. Like any partner in a firm, she is an assessee under the Income Tax Act, 1961. The background of the case traces back to a search conducted by the income tax authorities at the business premises of the firm during the assessment year 2023-24. Following this search, the tax department initiated proceedings against the partners of the firm, which included both the petitioner, Ms. Lolika Chandrababu, and her husband, who was the other partner.
In situations where there is uncertainty about which entity or person the income truly belongs to, tax authorities sometimes resort to making assessments on different persons to safeguard the interests of the revenue. One such approach is to frame a ‘substantive assessment’ against the person or entity believed to be the primary recipient of the income and a ‘protective assessment’ against another person or entity who might potentially be liable for the tax on the same income if the substantive assessment does not stand. This ensures that the time limits for assessment do not expire while the tax department is investigating the correct ownership or attribution of the income.
