DCIT Vs Cholan Buildings & Estates (ITAT Bangalore)
Protective Addition Cannot Continue Indefinitely Once Substantive Addition is Sustained Elsewhere- Bangalore ITAT Deletes Addition in Firm’s Hand
The Bangalore ITAT upheld deletion of a protective addition made in the hands of a partnership firm after noting that the very same income had already been assessed substantively and sustained in the hands of the managing partner. The Tribunal observed that once the Revenue itself had identified the person in whose hands the income substantively belongs, the protective assessment in another person’s hands could not continue indefinitely.
The case arose out of a search where the managing partner admitted undisclosed income. Based on the material found, the AO made a substantive addition of deemed dividend u/s 2(22)(e) in the hands of the partner, Shri N. Gunasekaran, while simultaneously making a protective addition of the same amount in the hands of the partnership firm. Subsequently, the substantive addition in the partner’s case was also confirmed by the CIT(A).
The Department argued before the ITAT that the CIT(A) ought not to have deleted the protective addition until the substantive addition attained finality. Rejecting this contention, the Tribunal held that a protective assessment is not intended to become a permanent assessment mechanism. Once the Revenue chooses the substantive assessee and succeeds in sustaining the addition there, the corresponding protective addition deserves deletion.
