Santlal Enterprise Vs ITO (ITAT Kolkata)
Assessee filed return declaring NIL income. The case was selected for CASS scrutiny. AO issued notices & a draft assessment order proposing additions, & Assessee sought adjournment till 25.04.2021. However, AO passed the final order prematurely on 21.04.2021, making total addition of ₹2,73,30,000 –
- ₹2,50,00,000 u/s 56(2)(x)
- ₹23,30,000 u/s 68 r.w.s. 115BBE (as unexplained cash deposit, on protective basis)
In appeal, CIT(A) deleted the ₹2.50 Cr addition u/s 56(2)(x), & the Revenue did not challenge this. However, CIT(A) sustained the ₹23.30 lakh protective addition u/s 68.
Before Tribunal, Assessee argued that the ₹23.30 lakh represented cash deposits made by partners in their personal bank accounts, & those amounts were already offered to tax in the hands of the partners. Hence, taxing the same amount again in the hands of the firm, even on a protective basis, is illegal.
Tribunal explained the law on protective assessments – they are permitted only in case of doubt about in whose hands income should be assessed. However, once it is clear who is the real recipient & that person has already been assessed & tax paid, any protective addition in another person’s hands becomes redundant & otiose. Tribunal relied on CIT vs Ram Chand Tilli Works (Allahabad HC) which held that protective additions survive only until the correct entity is determined; thereafter they must be deleted.
