M/s Marsh Steel Ltd., Chandigarh V. DCIT, CC-1, Chandigarh

ITA 696/CHANDI/2019

AI Insights

The case involves multiple appeals by different steel companies against the orders of the CIT(A)-2, Gurgaon, which confirmed protective additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961, for the assessment years 2008-09 to 2010-11. The main issue was the addition of share application money received by the assessee companies, which was treated as unexplained income. The Tribunal examined whether protective assessments could be made in the absence of substantive assessments in the hands of any other assessee, particularly M/s Bhushan Power & Steel Ltd., which was the ultimate beneficiary of the alleged accommodation entries. The Tribunal concluded that protective assessments were not permissible without corresponding substantive assessments, leading to the allowance of the appeals and deletion of the additions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127630 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-01-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2019
• Other Referred Cases: Chitturi Subbanna Vs. Kudapa Subbanna & Others, National Thermal Power Co. Ltd. Vs. CIT, Lalji Haridas vs ITO, DHFL Venture Capital Fund Vs. ITO, M.P. Ramachandran Vs. DCIT, Suresh K. Jajoo Vs. ACIT, Pegasus Properties (P.) Ltd. Vs. DCIT, Income-tax Officer, Ward-1, Nagaon Vs. Keshava Nanda Kakati, DCIT Vs. Pallavi Mishra
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Search and seizure; Document seized; Application of stay; Accommodation entries; Block assessment; Documents seized; Reassessment proceedings; Set aside; Capital Gains
• Section: 147; 68; 148; 69C; 143(3); 142(1); 153A; 143(1); 251; 143(2); 69A; 191; 158BC; 43; 2(A); 73; 13; 22

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NOS. 685 To 687/Chd/ 2019 Assessment Year : 2008-09 To 2010-11 M/s Vision Steel Ltd. 3, Industrial Area, Phase-1 Chandigarh The DCIT Central Circle-1, Chandigarh PAN NO: AABCV8232B Appellant Respondent STAY APPLICATION NOS. 17 & 18/Chd/2022 In ( ITA NOS. 685 & 687/Chd/ 2019) ( Assessment Year : 2008-09 & 2010-11) M/s Vision Steel Ltd. 3, Industrial Area, Phase-1 Chandigarh The DCIT Central Circle-1, Chandigarh PAN NO: AABCV8232B Appellant Respondent ITA NOS. 688 To 690/Chd/ 2019 Assessment Year : 2008-09 To 2010-11 M/s Jasmine Steel Trading Ltd. 3, Industrial Area, Phase-1 Chandigarh The DCIT Central Circle- 1 Chandigarh PAN NO: AABCJ2348C Appellant Respondent STAY APPLICATION NOS. 19 TO 21/Chd/2022 In ( ITA NOS. 688 To 690/Chd/ 2019) ( Assessment Year : 2008-09 To 2010-11) M/s Jasmine Steel Trading Ltd. 3, Industrial Area, Phase-1 Chandigarh The DCIT Central Circle- 1 Chandigarh PAN NO: AABCJ2348C Appellant Respondent 2 ITA NOS. 691 To 693/Chd/ 2019 Assessment Year : 2008-09 To 2010-11 M/s Diyajyoti Steel Ltd. 3, Industrial Area, Phase-1 Chandigarh The DCIT Central Circle- 1 Chandigarh PAN NO: AABCD8983H Appellant Respondent STAY APPLICATION NOS. 22 TO 24/Chd/2022 In ( ITA NOS. 691 To 693/Chd/ 2019) ( Assessment Year : 2008-09 To 2010-11) M/s Diyajyoti Steel Ltd. 3, Industrial Area, Phase-1 Chandigarh The DCIT Central Circle- 1 Chandigarh PAN NO: AABCD8983H Appellant Respondent ITA NOS. 694 To 696/Chd/ 2019 Assessment Year : 2008-09 To 2010-11 M/s Marsh Steel Ltd. 3, Industrial Area-1 Chandigarh The DCIT Central Circle- 1, Sector-17 Chandigarh PAN NO: AADCM7569E Appellant Respondent STAY APPLICATION NOS. 25 TO 27/Chd/2022 In ( ITA NOS. 694 To 696/Chd/ 2019) ( Assessment Year : 2008-09 To 2010-11) M/s Marsh Steel Ltd. 3, Industrial Area-1 Chandigarh The DCIT Central Circle- 1, Sector-17 Chandigarh PAN NO: AADCM7569E Appellant Respondent ! " Assessee by : Shri Ashwani Kumar, CA Shri Aditya Kumar, CA Shri Bhavesh Jindal, CA 3 # ! " Revenue by : Shri Vivek Nangia, CIT D.R Smt. Amanpreet Kaur, Sr DR $ % ! & Date of Hearing : 19/01/2023 '()* ! & Date of Pronouncement : 16/02/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M.: These are Appeals alongwith Stay Applications filed by the aforesaid assessees against the respective orders passed by the Ld. CIT(A)-2, Gurgaon each dated 28/02/2019 pertaining to Assessment Years 2008-09 to 2010-11. 2. Firstly, regarding the stay applications filed by the respective assessees against the demand raised by the Assessing officer, the ld AR taken us through the stay applications and submitted that in all these cases, more than 30% of tax demand raised by the Assessing officer has already been deposited by the respective assessees and they have a fair chance on merits of the case. It was submitted by the ld AR that he is ready to argue the appeals on merits and the remaining demand may be stayed till the matter is heard and disposed off. 3. The ld Sr. DR submitted that a report dated 15.11.2022 has been received from the office of PCIT(Central), Gurgaon that the instructions have been issued to the concerned Assessing officer not to take any coercive action to recover the demand outstanding till the decision of the Hon’ble Punjab and Haryana High Court in CWP No. 20234/2013 filed by the Department against the order of the Income Tax Settlement Commission dated 30.06.2013 in case of Bhushan Power and Steel Ltd. 4. Considering the aforesaid submissions made by both the parties and the material available on record, the aforesaid stay petitions have become infructious. At the same time, given that both the parties are ready to argue these cases on merits of the case, it was decided to hear both the parties 4 considering the fact that these appeals were registered way back in year 2019 and there is no justifiable reason to adjourn these matters any further. 5. Since common issues are involved, all these appeals were heard together and are being disposed off by this consolidated order. 6. With the consent of both the parties, the case of the assessee M/s Vision Steel Limited in ITA No. 685/Chd/2019 for A.Y 2008-09 was taken as a lead case wherein assessee has taken the following grounds of appeal: 1. That the Ld. CIT(A)-2, Gurgaon vide the impugned order dated 28.02.2019 has erred in confirming the protective addition of Rs.37,31,00,000/- made by the Ld. A.O u/s 68 of the Act by ignoring the detailed documentary evidences filed by the Assessee and as also furnished directly by the impugned investors in response to notices/summons issued by the Ld. A.O. in the course of the assessment proceedings, to duly discharge the onus cast u/s 68 of establishing the identity and creditworthiness of the investors and the genuineness of the impugned credits. 2. That the order dated 28-02-2019 passed u/s 250(6) of the Act by the Ld. Commissioner of Income-Tax (Appeals)-2, Gurgaon is against law and facts on the file in as much as she was not justified in not dealing with the ground raised on behalf of the Appellant Company that the assessment has been framed by ignoring principles of natural justice by relying solely on certain pre-search enquiries and investigations carried out by the Investigation Wing, New Delhi. 3. That the Ld. C.I.T.(A)-2, Gurgaon has erred in acting beyond jurisdiction in enhancing income of the Appellant u/s 251 (1 )(a) of the Income-tax Act, 1961 (the 'Act') by Rs.37,31,000/- being the alleged commission expenses u/s 69C on a sheer presumptive basis by introducing and assessing a new source of income beyond the record (i.e., the return of income and assessment order) and outside the subject matter of assessment appealed against. Additional Grounds of appeal 4. That on the facts and in the circumstances of the case, the Ld. CIT(A)-2, Gurgaon vide impugned Order dated 28.02.2019 has erred in confirming the protective assessment framed by the Ld. DCIT, CC-1, Chandigarh ('A.O') u/s 68 of the Act although no corresponding substantive assessment with respect to the impugned issue existed in the case of any other assessee, thus acting against the judicially established principle that there cannot be a protective assessment/addition without there being a substantive assessment/ addition. 5. That the Ld. CIT(A) has erred in confirming the addition made by the Ld. A.O. u/s 68 on a protective basis by violating the judicially settled law that it is not permissible for appellate authorities to make protective orders. 5 6. That without prejudice to Additional Ground No.2, the Ld. CIT(A) has erred in upholding the impugned addition of Rs.37,31,00,000/- 'the impugned amount' made by the Ld. A.O. u/s 68 of the Act on a protective basis despite the categorical finding contained in the assessment order u/s 153A that Bhushan Power & Steel Ltd. was the ultimate & actual beneficiary of the alleged accommodation entries thus, leaving no room for doubt with respect to the actual ownership of the alleged unaccounted income (as per the A.O's own finding) and thereby rendering the impugned protective additions made in the hands of the Assessee to be infructuous, nugatory and bad-in-law. 7. That the Ld. CIT(A) while confirming addition u/s 68 on protective basis, has erred in making an enhancement u/s 69C to the protectively assessed income by ignoring the settled position in law that states that an enhancement cannot be made when the impugned addition is protective in nature. 8. That on the facts and in the circumstances of the case, the Ld. CIT(A)-2, Gurgaon vide Impugned Order dated 28.02.2019 erred in not admitting the additional ground of appeal filed by the Assessee challenging jurisdiction assumed by the Ld. A.O. u/s 153A of the Act in respect of the unabated A Y . 2008-09 in the absence of incriminating material pertaining to the said year being found in course of the search on the ground that the same required verification of facts although the assessment order itself clearly demonstrated that there was no incriminating material relating to the Assessee for the impugned Assessment Year. 9. That the Ld. CIT(A) has erred in holding that the proceedings for A.Y. 2008- 09 had abated, on the fallacious reasoning that the intimation issued u/s 143(1) for the said AY could not be construed as an assessment. The CIT(A) has therefore erred in ignoring that as on the date of the search, i.e., 03.03.2010, there was no pendency of proceedings for A.Y. 2008-09 since the statutory period for issuance of notice u/s 143(2) for the said year had already elapsed resulting in no abatement of proceedings for the purpose of section 153A.” 7. At the outset, the Ld. AR submitted that the assessee has taken additional grounds of appeal and has moved a specific application for admittance of the same before the Tribunal. It was submitted that these are legal grounds of appeal as to whether protective additions can be made by the Assessing officer where there is no corresponding substantive assessment made in hands of any other person and whether the protective assessment so made can be confirmed and enhanced by the ld CIT(A). It was submitted that the relevant facts leading up to the aforesaid additional grounds of appeal are already on record and require no further factual investigation. It was accordingly submitted that the additional grounds of appeal being legal grounds of appeal be 6 admitted for adjudication in light of Hon’ble Supreme Court decisions in case of Chitturi Subbanna Vs. Kudapa Subbanna & Others 1965 AIR 1325 and in case of National Thermal Power Co. Ltd. Vs. CIT [1998] 229 ITR 383 (SC) wherein it has been held that the Tribunal has the jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. 8. The ld CIT/DR objected to the admission of the aforesaid grounds of appeal and submitted that these grounds of appeal were not taken before the ld CIT(A) and therefore, the same cannot be admitted for the first time before the Tribunal. 9. We have heard the rival contentions and purused the material available on record. The additional grounds raised by the assessee and as contended by the ld AR are additional ground no. 4, 5 & 7 which relates to whether protective additions can be made by the Assessing officer where there is no corresponding substantive assessment made in hands of any other person and whether the protective assessment so made can be confirmed and enhanced by the ld CIT(A). In our view, these are purely legal grounds of appeal and involves questions of law. We find that the relevant facts are available on record and basis the same, these grounds of appeal can be examined and disposed off after hearing the contentions raised by both the parties. The fact that these grounds are legal in nature, it is a settled law that the same can be raised for the first time before the Tribunal even though not raised before the lower authorities. The decisions relied upon by the ld AR support the prayer of the assessee for admission of these additional grounds of appeal. In light of same, the additional grounds of appeal no. 4, 5 & 7 are hereby admitted for adjudication and both the parties are at liberty to raise rival contentions on merits of the same. 10. Briefly the facts of the case are that search and seizure operations under section 132(1) were conducted at the business premises of M/s Bhushan Power 7 & Steel Ltd. on 04/03/2010 by the Investigation wing of the Department and the business premises of the assessee company was also covered. Thereafter, notice under section 153A was issued on 18/08/2010 for the impugned assessment year and in response to the notice, the assessee company filed its return of income on 22/09/2010 declaring total income of Rs. 5,14,769/-. Thereafter notice under section 143(2) and 142(1) alongwith detailed questionnaire and show cause were issued. After taking into consideration the submissions and the explanations filed by the assessee, the assessment proceedings were completed under section 153A(1)(b) r.w.s 143(3) vide order dt. 23/12/2011 wherein the AO made an addition of Rs. 37,31,00,000/- in the hands of the assessee company on protective basis and as against the returned income of Rs. 5,14,769/-, the assessed income was determined at Rs. 37,36,14,770/-. 11. Being aggrieved, the assessee company carried the matter in appeal before the Ld. CIT(A) who has disposed off the assessee company’s appeal vide impugned order dt. 25/03/2013 wherein protective additions of Rs. 37,31,00,000/- made by the AO were confirmed. Further, the Ld. CIT(A) has enhanced the income in the hands of the assessee company by an amount of Rs. 37,31,000/- being addition under section 69C of the Act. 12. Against the said findings and the direction of the Ld. CIT(A), the assessee is now in appeal before us. 13. During the course of hearing, the Ld. AR taken us through the contents of the assessment order and submitted that the entire case of the Department throughout has been that the amount received as share application money received by the assessee company from various other companies and which were later invested as share application money in M/s Bhushan Power & Steels Limited represent the unexplained income of M/s Bhushan Power & Steels Limited. It was submitted that M/s Bhushan Power & Steel Limited had moved an application under section 245C(1) on 12/12/2011 before the Income Tax 8 Settlement Commission which was admitted and thereafter order under section 245D(4) was passed by the Income Tax Settlement Commission on 30/06/2013. It was submitted that before the Income Tax Settlement Commission, the Department had argued that the amount received by M/s Bhushan Power & Steel Ltd. from assessee company as share application money be treated as unexplained income of M/s Bhushan Power & Steel Ltd which was however not accepted by the Income Tax Settlement Commission. It was submitted that against the said order of the Income Tax Settlement Commission, the Department has moved a Civil Writ Petition before the Hon’ble Punjab & Haryana High Court which is currently pending adjudication. It was submitted that vide the said writ petition, the Department is still agitating that the amount of share application money received from the assessee company to be treated as income of M/s Bhushan Power & Steels Limited on substantive basis. 14. It was submitted that pursuant to the order passed by the Income Tax Settlement Commission, even though the assessee was not a party to the application, the AO passed an order on 30/12/2014 giving effect to the order of Settlement Commission passed u/s 245D(4) of the Act and has treated the entire amount of share capital / application money received during the year as income in the hands of the assessee company on substantive basis and raised tax demand against the assessee company. 15. It was submitted that the Ld. CIT(A) vide the impugned order upheld the addition made on account of share application money on protective basis by the AO which was later on converted into substantive addition. Further the Ld. CIT(A) has enhanced the assessment by to resort the provision of Section 69C and has made an arbitrary addition of commission @1% on the sum of share capital received. 16. It was submitted that with respect to action of the Ld. AO in converting protective addition into substantive addition, the entire additions made are 9 highly disputed and fact of the matter is that as per own stand of the Department, the additions on account of share capital is to be made on substantive basis in the case of M/s Bhushan Power and Steels Limited and not in the case of the appellant company. In this regard, reference was drawn to para 24 of the impugned assessment order, wherein the Ld. AO has stated as under: “24. In view of above, the entire amount of Rs. 153,99,00,000/- taken as share application money by M/s Bhushan Power & Steel Ltd. through the process of accommodation entries is treated as income of the company M/s Bhushan Power & Steel Ltd. u/s 68 of the I.T. Act. Since M/s Bhushan Power & Steel ltd. has preferred an application before the Hon’ble Settlement Commission our findings so arrived will obliviously from part of our reports to be made to the Settlement Commission. The assessee M/s Vision Steel Pvt. Ltd. filed a reply on 14.12.2011 in continuation to earlier reply dated 07.10.2011 to the questionnaire dated 29.09.2011. In this reply the assessee has reiterated the contentions made by M/s Bhushan Power & Steel Ltd. in its reply filed on 12.12.2011. The reply filed by the assessee has already been discussed in para 22 above. Vide this office showcause notice dated 16.12.2011, the assessee was showcaused as to why an amount of Rs. 37,31,00,000/- should not be added back to taxable income on protective basis. The case of the assessee was fixed for 23.12.2011. Vide written reply dated 21.12.2011, the assessee reiterated the submission which were made in the replies, earlier filed by the assessee on 07.10.2011 and 12.12.2011. Regarding protective assessment, the submission of the assessee was that addition of aforesaid amount on protective basis is bad in law. The submission of the assessee has been duly considered, there is no bar under the Income Tax Act, 1961 to make protective addition. Findings of the revenue are that in view of discussion in the preceding paragraphs, the entire amount of Rs. 153,99,00,000/- taken as share application money by M/s Bhushan Power & Steel Ltd. company through the process of accommodation entries is treated as income of the company M/s Bhushan Power & Steel Ltd. u/s 68 of the I. T. Act and M/s Bhushan Power & Steel Ltd. has filed an application before the Hon'ble Settlement Commission. Needless to say that the above findings would form part of our report to be sent to the Hon'ble Commission. Notwithstanding the above, as the share application money/share capital amounting to Rs. 37,31,00,000/- was received by the assessee company M/s Vision Steel Pvt. Ltd. during the financial year 2007-08 relevant to assessment year 2008-09, to keep the issue alive and to protect the interest of revenue amount of Rs. 37,31,00,000/- is added back to the income of the assessee on PROTECTIVE BASIS." 17. It was submitted that unlike the present case, where no addition on substantive basis has been made in case of M/s Bhushan Power and Steels Limited, pursuant to another search operations conducted on 21.02.2014, in the 10 subsequent years similar additions have been made by the Assessing Officer on substantive basis in the case of M/s Bhushan Power and Steels Limited and only protective additions have been made in the case of the appellant company. It was submitted that such additions made in the case of M/s Bhushan Power and Steels Limited have already been upheld by the ld CIT(A) -2, Gurgaon and those appeals are also pending for adjudication before the Tribunal. Similarly, in case of the appellant company, the ld CIT(A)-2, Gurgaon has allowed its appeal against which the Department is in appeal before the Tribunal. It was submitted that the said action of the Department (though in subsequent years) infact supports the assessee’s contention that only where there is a substantive addition, protective addition can be made. In the instant case, it was accordingly submitted that the ld CIT(A) has erred in confirming the protective assessment framed by the AO although no corresponding substantive assessment with respect to the impugned issue were made and existed in the case of M/s Bhushan Power and Steels Limited. It was submitted that the said action is against the judicially established principle that there cannot be a protective assessment/addition without there being a substantive assessment/addition. 18. In this regard, reference was drawn to the decision of the Coordinate Mumbai Benches in the case of Suresh K. Jajoo Vs. ACIT 39 SOT 514, wherein while dismissing the protective addition made in the hands of appellant, it was held as under: "28. In the present case, we are of the view that the observations of the Assessing Officer while completing assessment for assessment year 2001- 02which we have extracted above cannot be said to be an expression of his intention to make a protective assessment of the capital gain as long-term capital gain. It is an assessment pure and simple. Firstly, the words used by the Assessing Officer do not express his intention that the long-term capital gain is being brought to tax by way of protective assessment. Secondly, there is no substantive assessment already made treating the capital gain as short-term capital gain. Therefore, there can be no protective assessment." 11 19. It was submitted that the aforesaid proposition has been followed in another recent Mumbai Benches decision in case of Pegasus Properties (P.) Ltd. Vs. DCIT reported in 193 ITD 514 (Mumbai - Trib.), wherein it was held as under: "9.3 In the instant case before us, admittedly, no substantive addition of Rs. 13,86,600/-was made by the revenue either in the hands of M/s. Fisher Health Resorts (P.) Ltd or in the hands of any other person. In Respectfully following the aforesaid decision, since no substantive addition was made, the protective addition made in the hands of the assessee company does not survive. Hence, we have no hesitation in directing the Id.AO to delete the addition made in the sum of Rs. 13,86,600/- on protective basis u/s. 69A of the Act for A.Y.2018-19. Accordingly, the ground No. 12 raised by the assessee is allowed." 20. It was submitted that as a matter of fact, in the instant case, there is no substantive addition which has been sustained by the Revenue authorities in any case as on date. Thus, the action of AO in making a protective addition prior to making a substantive addition in any case, is arbitrary and bad in law. Thus, the impugned additions should be deleted on this ground alone. 21. It was further submitted that in the instant case, the Ld. AO has passed an order dated 30.12.2014, whereby the AO has converted protective additions made in the captioned matters into substantive pursuant to the order passed by the Income Tax Settlement Commission, New Delhi u/s 245D(4) of the Act. It was submitted that the appellant company was not an applicant before the Income Tax Settlement Commission, New Delhi and thus, neither any clear finding could have been given nor the same was given in the order passed by Income Tax Settlement Commission with respect to the appellant companies. Thus, it can clearly be said that the action of the Ld. AO in converting protective additions into substantive pursuant to the aforesaid order is an afterthought and ultravires, in as much as he had no jurisdiction in the captioned matters to pass such order and that too, during the pendency of appellate proceedings before the ld CIT(A). In this regard, reliance was placed on decision of the Coordinate 12 Jaipur Benches in case of DCIT Vs. Pallavi Mishra reported in 191 ITD 13 (Jaipur - Trib.). 22. It was submitted that in the instant case, the Ld. AO had no jurisdiction to arbitrarily convert protective additions into substantive, as once he framed the assessment originally, he had become functus officio and could have resumed jurisdiction only u/s 154/147 of the Act. In light of aforesaid, it was submitted that the addition so made in the hands of the assessee company on protective basis subsequently converted on substantive basis be directed to be deleted. 23. Per contra, the Ld. CIT DR submitted that the Ld. AR has not raised any contention regarding the merits of the addition made by the AO. Therefore, he is limiting his submissions to the extent of legality of protective addition made by the AO vis - a-vis the substantive addition in hands of M/s Bhushan Power & Steel Ltd. It was submitted that in the in the instant case, M/s Bhushan Power & Steel Ltd. has moved a petition before the Income Tax Settlement Commission and in Rule 9 report, substantive additions were proposed by the Department in the hands of M/s Bhushan Power & Steel Ltd. It was submitted that Income Tax Settlement Commission has since disposed off the said petition vide its order dt. 30/06/2013 wherein it didn’t make the substantive additions in hands of M/s Bhushan Power & Steel Ltd. It was submitted that the Department has not been accepted the said order passed by the Income Tax Settlement Commission and has moved a Civil writ petition no. 20234 of 2013 before the Hon’ble Punjab & Haryana High Court which is currently pending adjudication. It was submitted that since M/s Bhushan Power & Steel Ltd. has moved a petition before the Hon’ble Income Tax Settlement Commission, therefore to protect the interest of the Revenue, protective addition was made in the hands of the assessee company. It was submitted that there is no bar under law to make the protective addition which has rightly been made by the AO and confirmed by the Ld. CIT(A). 13 24. It was further submitted that the decision relied on by the Ld. AR are distinguishable on facts and therefore the ratio laid down therein does not apply in the facts of the present case. It was further submitted that the AO’s order giving effect to the direction of the Income Tax Settlement Commission whereby the protective addition have been converted in the substantive addition is not in appeal. He accordingly supported the order and findings of the lower authorities. 25. We have heard the rival contentions and purused the material available on record. In this case, the assessment proceedings were completed under section 153A(1)(b) r.w.s 143(3) vide order dt. 23/12/2011 wherein the AO made an addition of Rs. 37,31,00,000/- in the hands of the assessee company on protective basis. As per the findings of the Assessing officer, as we have noted in para 12 supra, the entire amount of Rs 153,99,00,000/- taken as share application money by M/s Bhushan Power and Steel Ltd through the process of accommodation entries is treated as income of the company M/s Bhushan Power & Steel Ltd and since M/s Bhushan Power & Steel Ltd has preferred an application before the Settlement Commission, the findings shall form part of report to be made/sent to the Settlement Commission. It has been further held by the Assessing officer that notwithstanding the same, as the share application money/share capital amounting to Rs 37,31,00,000/- has been received by the assessee company M/s Vision Steel Limited during the financial year 2007-08 relevant to impugned assessment year, to keep the issue alive and to protect the interest of the Revenue, the amount of Rs 37,31,00,000/- was added to the income of the assessee on protective basis as there is no bar under the Income tax Act to make protective addition and the assessment order was passed on 23/12/2011. 26. As regards the status of application filed by M/s Bhushan Power & Steel Ltd before the Settlement Commission and the order of Settlement Commission 14 disposing off the said petition, it is noted from the report of the DCIT, Central Circle-1, Chandigarh dated 05.09.2022, placed on record before us by the ld CIT/DR vide his letter dated 20.09.2022, that M/s Bhushan Power & Steel Ltd has moved an application before the Settlement Commission on 12/12/2011 for Assessment Year 2004-05 to 2011-12 (including the impugned assessment year 2008-09) and the Department in its Rule 9 report submitted before the Settlement Commission has proposed substantive additions in the hands of M/s Bhushan Power & Steel Ltd, however, the Settlement Commission in its order passed u/s 245D(4) dated 30/06/2013 didn’t make the substantive addition of share application money in the hands of M/s Bhushan Power & Steel Ltd. The contents the said report of the DCIT, Central Circle-1, Chandigarh read as under: “2. In this regard, the desired report as to the present status of CWP No. 20234/2013 and as to the factual report in first search cases of the group in this case is submitted as under:- A. Present status of CWP No. 20234/2013:- As regard, the status of CWP No. 20234/2013, under reference, it is submitted that the same is pending for adjudication as on date. Further, as checked from the official site of the Hon'ble Punjab & Haryana High Court, there is no next date of hearing fixed in this case. B- Factual report in first search cases of the group:- A search and seizure operation u/s 132(1) of the Income Tax Act (here-in-after referred as "Act"), was carried out. by the Department at the business premises of the M/s Bhushan Power & Steel Ltd. (BPSL) along with residential / business premises of its Directors and other related entities & persons on 03.03.2010. During the course of search various incriminating documents, papers, books of accounts etc. were found and seized. Sh. Sanjay Singal, the director and the key person of the group filed a letter dated 18.6.2010 before the Investigation Wing surrendering amount of Rs. 239 crores in the hands of himself and his wife as undisclosed income emanating from seized documents. During the course of search & seizure proceedings as well as assessment proceedings it was noticed that the M/s BPSL had received huge share capital/application money from various bogus paper companies managed & controlled by Sh. S M Nahata, a chartered accountant (CA) based at Kolkata. M/s BPSL moved an application before the Hon'ble Income Tax Settlement Commission on 12.12.2011 for Assessment Years 2004-05 to 2011-12. Since, the final beneficiary of the accommodation entries, received from Sh. S M Nahata was 15 the assessee M/s Bhushan Power and Steel Ltd., therefore, in the Rule 9 report, substantive additions were proposed in the hands of the assessee M/s BPSL. Accordingly, protective additions were made in the assessment orders dated 23.12.2011 u/s 153B (l)(b) r.w.s. 143(3) of Act, in the hand of four front companies of the BPSL group i.e. M/s Diyajyoti Steel Ltd., M/s Jasmine Steel Trading Ltd., M/s Marsh Steel Ltd. and M/s Vision Steel Trading Ltd. However, the Hon'ble ITSC in order u/s 245D(4) dated 30.06.2013 for the A.Y. 2004- 05 to 2011-12 did not make the substantive additions of share application money in the hands of M/s BPSL. Keeping in view the order of the Hon'ble ITSC, the protective addition made in the hands of these 4 companies was confirmed by the Ld. CIT(A) in their respective hands.” 27. Admittedly and undisputedly, at the time of passing of the assessment order where the protective addition was made in the hands of the assessee company, there was no order passed in case of M/s Bhushan Power & Steel Ltd much less an assessment order where substantive additions were made in its hands. The proceedings before the Settlement Commission were initiated by an application moved by M/s Bhushan Power & Steel Ltd on 12/12/2011 (well before passing of the impugned assessment order dated 23/12/2011) but were concluded by passing of the order u/s 245D(4) dated 30/06/2013 (subsequent to passing of the impugned assessment order). Even in the order so passed by the Settlement Commission subsequent to the passing of the impugned assessment order, as so stated by the Revenue, no substantive additions were made in the hands of M/s Bhushan Power & Steel Ltd. It is therefore a case where no substantive addition has been made in hands of M/s Bhushan Power & Steel Ltd and at the same time, only protective assessment has been made in the hands of the assessee and which has been confirmed by the ld CIT(A) on protective basis. 28. The question that arises for consideration is whether there is any bar under the Income tax Act to make such protective addition in hands of the assessee company, the inter-play between the substantive and protective assessment and where in absence of substantive addition made in hands of M/s Bhushan 16 Power & Steel Ltd or any other person, whether protective addition can be made and sustained in the hands of the assessee. 29. The concept of protective assessment has not been defined in the Income Tax Act and there are no specific provisions governing the same. At the same time, it is an established departmental practice, which has gained judicial recognition by the Courts over the years and thus form part of established tax law which can be applied where it appears to the Assessing Officer that income has been received during the relevant Assessment Year, but it is not clear or unambiguous as to who has received the income. The foundation thereof by way of judicial recognition can be said to be laid by the decision of the Constitution Bench of the Hon’ble Supreme Court in case of Lalji Haridas vs ITO [1961] 43 ITR 387. It would therefore be relevant to briefly refer to the said decision of the Hon’ble Supreme Court in case of Lalji Haridas vs ITO as in the said decision, the Hon’ble Supreme Court has also defined the inter-play between the substantive and protective assessment and how the Revenue should proceed in such cases. Thereafter, we shall refer to various other decisions of the Coordinate Benches quoted at the Bar. 30. In the said case, there were two writ petitions before the Hon’ble Supreme Court which were filed by two brothers, namely, Lalji Haridas who was resident of Jamnagar and Chotalal Haridas, who was resident of Bombay. In the notices issued by the respective Income-tax Officers against the two brothers, an enquiry was proposed to be held in regard to the liability to pay tax on the alleged total income of Rs. 97,00,000 received by either or both of the two brothers. This income represented the remittances of monies through the Indian Overseas Bank Ltd., Pondicherry, and the United Commercial Bank Ltd. Pondicherry, and had accrued during the assessment year 1952-53 respectively. The Hon’ble Supreme Court took note of the contention advanced by the ld Counsel on behalf of Chotalal Haridas wherein it was contended that the 17 proposed assessment in his hands would be in nature of precautionary or protective assessment which is not recognized in the Act and any attempt to levy tax on completion of assessment would be illegal. The Hon’ble Supreme Court also took note of the statement of the case filed by the Department wherein it was stated that “steps are being taken against the appellant for taxation of income in his hands only as a precautionary measure against the eventuality of its being finally held that the income is not liable to be taxed in his brother's hands", and “until the question of liability to pay tax in respect of the income in question is finally determined it may not be possible to safely predicate that it is the income of one and not of the other, and the respondent's case appears to be that in such circumstances protective assessments have to be made so that the income may not escape taxation altogether”. Taking the said contentions into consideration, the Hon’ble Supreme Court held that the case of the Revenue is clearly that the notices issued against the two brothers by their respective Income-tax Officers are intended to determine who is responsible to pay tax for the income in question and thereafter, has laid down the following legal proposition: “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.” The Hon’ble Supreme Court further held that: “We would, however, like to add one direction in fairness to the appellants. The proceedings taken against both the appellants should continue and should be dealt with expeditiously having regard to the fact that the matter is fairly old. In the proceedings taken against Lalji the Income-tax Officer should make an exhaustive enquiry and determine the question as to whether Lalji is liable to pay the tax on the income in question. All objections which Lalji may have to raise against his alleged liability would undoubtedly have to be considered in the said proceedings. Proceedings against Chhotalal may also be taken by the Income- tax Officer and continued and concluded, but until the proceedings against Lalji are finally determined no assessment order should be passed in the proceedings taken against Chhotalal. If in the proceedings taken against Lalji it is finally 18 decided that it is Lalji who is responsible to pay tax for the income in question it may not become necessary to make any order against Chhotalal. If, however, in the said proceedings, Lalji is not held to be liable to pay tax or it is found that Lalji is liable to pay tax along with Chhotalal it may become necessary to pass appropriate orders against Chhotalal. When we suggested to the learned counsel that we propose to make an order on these lines they all agreed that this would be a fair and reasonable order to make in the present proceedings.” 31. The legal proposition so laid down by the Hon’ble Supreme Court in the aforesaid case has since been discussed and being subject matter of decisions by Hon’ble Courts and it would be useful to refer to a decision of the Hon’ble Mumbai High Court in case of DHFL Venture Capital Fund Vs. ITO [2013] 34 Taxmann.com 300 wherein the relevant findings read as under: “17. Undoubtedly as counsel appearing on behalf of the Revenue submits the concept of a protective assessment is well known to the law of income tax in India. The basis on which a protective assessment is carried out is summed up succinctly in Sampath Ayengar's Law of Income Tax (11th edition, Vol. VI, page 9724) : "Protective assessment - The Assessing Officer may often have to assess the same income in more than one place. Sometimes they may be made by different officers as, for example, where an officer assessing A thinks that certain income belongs to him but another officer assessing B is of the opinion that the income is his. Sometimes the same officer may find that an assessee before him is returning a particular income but is of the opinion that it should be assessed in the hands of a firm or a family and not in the hands of the person who returned it. It has been held that the officer may, when in doubt (Not otherwise : CIT v. Shri Ramchandraji Maharaj Ka Bada Mandir [1988] 73 CTR (MP) 79), to safeguard the interests of the Revenue assess it in more than one hand (Lalji Haridas v. ITO [1961] 43 ITR 387 (SC)). But this procedure can be permitted only at the stage of the assessment as, at higher levels, it is possible for the appellate or revisional authority to give a clear finding as to the assessee who is liable to be so assessed leaving the one who is aggrieved to get redress by appropriate proceedings. (See Dayabai v. CIT [1985] 154 ITR 248 (MP)). In any event, if, at the stage of the Tribunal or High Court it is found that the same income is assessed in both places, the Department should provide relief suo motu to one of them. (ITO v. Bachu Lal Kapoor [1966] 60 ITR 74 (SC)). There can be precautionary assessments but not protective recovery. (CIT v. Cochin Co. Pvt. Ltd. [1976] 104 ITR 655 (Ker.)). But where an assessment is intended to be protective, it should be so expressed. (CIT v. Khalid Mehdi [1987] 165 ITR 685 (AP)). 18. A protective assessment as the learned author indicates (Vol. 1 page 272) is regarded as being protective because it is an assessment which is made ex abundanti cautela where the department has a "doubt as to the person who is or will be deemed to be in receipt of the income". A departmental practice, which has gained judicial recognition, has emerged where it appears to the Assessing 19 Officer that income has been received during the relevant Assessment Year, but where it is not clear or unambiguous as to who has received the income. Such a protective assessment is carried out in order to ensure that income may not escape taxation altogether particularly in cases where the Revenue has to be protected against the bar of limitation. But equally while a protective assessment is permissible a protective recovery is not allowed. However, such an exercise which is permissible in the case of a regular assessment must necessarily yield to the discipline of the statute where recourse is sought to be taken to the provisions of Section 148. Protective assessments have emerged as a matter of departmental practice which has found judicial recognition. Any practice has to necessarily yield to the rigour of a statutory provision. Hence, when recourse is sought to be taken to the provisions of Section 148, there has necessarily to be the fulfillment of the jurisdictional requirement that the Assessing Officer must have reason to believe that income has escaped assessment. To accept the contention of the Revenue in the present case would be to allow a reopening of an assessment under Section 148 on the ground that the Assessing Officer is of the opinion that a contingency may arise in future resulting an escapement of income. That would, in our view, be wholly impermissible and would amount to a rewriting of the statutory provision. Moreover, the reliance which is sought to be placed on the provisions of Explanation 2(a) to Section 147 is misconceived. Explanation 2 provides a deeming definition of cases where income chargeable to tax has escaped assessment and clause (a) includes a case where no return of income has been furnished by the assessee although his income or the income of any other person in respect of which he is assessable exceeds the maximum amount which is not chargeable to tax. As the reasons which have been disclosed to the assessee would indicate, this is not a case where an assessee has not filed a return of income simplicitor. The whole basis of the reopening is on the hypothesis that if the provisions of Sections 61 to 63 are attracted as has been claimed by the assessee, and the income of Rs.32.83 Crores which has been claimed by the assessee to be exempt is treated as exempt, in that event an alternate basis for taxing the income in the hands of the AOP of the contributories is sought to be set up. For the reasons already indicated, the entire exercise is only contingent on a future event and a consequence that may enure upon the decision of the Tribunal, that again if the Tribunal were to hold against the Revenue. A reopening of an assessment under Section 148 cannot be justified on such a basis. There has to be a reason to believe that income has escaped assessment. 'Has escaped assessment' indicates an event which has taken place. Tax legislation cannot be rewritten by the Revenue or the Court by substituting the words 'may escape assessment' in future. Writing legislation is a constitutional function entrusted to the legislature.” 32. We now refer to some of these decisions which have been quoted at the Bar including the earlier decisions so relied upon therein to examine how the same applies in the instant case. 33. In case of M.P. Ramachandran Vs. DCIT [2009] 32 SOT 592 (Mum), the issue for consideration before the Mumbai Benches of the Tribunal was where the 20 block assessment order under section 158BC has been passed in hands of the assessee wherein certain income has already been included in the block assessment, whether the AO can subsequently initiate and resort to reassessment proceedings in the hands of the same assessee to include the same income on protective basis. Briefly the facts of the case were that the assessee had claimed advertisement and publicity expenses amounting to Rs. 994.63 Lacs and in the order passed under section 143(3), there was no disallowance made by the AO in respect of such expenses. Thereafter, a search action was taken up on the assessee and M/s Jyoti Laboratories Ltd. on 03/11/2000 and the AO during the block assessment proceedings came to the conclusion that the entire advertisement expenses could not be allowed as deduction in as much as part of this expenses was towards M/s Jyoti Laboratories Limited for which the assessee was to get the reimbursement. As per the AO, since the assessee had not got the reimbursement of expenses amounting to Rs. 583.71 lacs having been incurred by the assessee towards M/s Jyoti Laboratories Limited and has only got the reimbursement of Rs. 55.86 lacs, in respect of the balance amounting to Rs. 527.85 Lacs which was not reimbursed to the assessee, the addition was made by the AO in the block assessment order dt. 30/11/2002 passed for the block period 01/04/1992 to 03/11/2000. On appeal, the said addition was deleted by the Ld. CIT(A) on the ground that such disallowance of expenditure was not covered with in the ambit of Chapter XIV- B of the Act which on further appeal was confirmed by the Tribunal and thereafter the Department went in appeal before the High Court against the order of the Tribunal assailing that the addition was to be made in the block assessment in the hands of the assessee. During the pendency of the appellate proceedings before the Ld. CIT(A), the AO recorded the reasons for escapement of income and issued a notice under section 148 of the Act dt. 26/03/2003 and one of the reasons which weighed heavily with the AO for issuing notice under section 148 of the Act was that the 21 assessee has claimed huge advertisement and publicity expenses which was not allowable and the initiation of reassessment proceedings and consequent reassessment order was assailed again before the ld CIT(A) and then, it came up for consideration before the Coordinate Bench. The Coordinate Bench observed that the AO formed his opinion about alleged escapement of income even before passing of the order by the Ld. CIT(A) against the block assessment and even from the reasons recorded by the AO, it is seen that this item was taken up for consideration in reassessment not as per the AO’s belief about the escapement of income but the fact that the assessee has consistently been of the opinion that such disallowance is not warranted in the block assessment being not within in the purview of Chapter XIV-B of the Act. The Coordinate Bench observed that how the disallowance of Rs. 527.85 lacs out of the advertisement expenses can be a reason of belief that income has escaped the assessment, when the AO himself has taxed the same in the block assessment of this very assessee for the period which also covers the year in question. It was held by the Coordinate Bench that where the appeal has been filed by the Department before the Hon’ble High Court against the order of the Tribunal deleting the addition in the block assessment, it clearly indicate that the Department is still of the opinion that income has been rightly put to tax in block assessment. It held that once this is the view of the Department then how can it entertain a diagonally opposite view that this income has escaped assessment and relied on the decision of Hon’ble Bombay High Court in case of Smt. Mira Ananta Naik’s case wherein it was held that merely because the block assessment was not upheld by the authorities, it cannot be a reason enough to invoke section 147 of the Act. It was accordingly held that there cannot be any initiation of reassessment proceedings on the basis of an item of income or disallowance which has been made in another proceeding of the same assessee for the same year. 22 34. Further, referring to the pleading of the Ld. DR that there is a crucial difference in the present case in as much as the initiation of reassessment proceedings was done by the AO by way of abundant caution as it was a case of protective addition and not substantive addition and thus, there cannot be any embargo on the power of the AO to initiate reassessment proceedings on a protective basis, the Coordinate Bench referred to the decision of Hon’ble Supreme Court in case of Lalji Haridas Vs. ITO (Supra) wherein it was held that where the AO is not fully satisfied about the correct person to be taxed in respect of income, he is competent to proceed against the other possible person(s) by way of protective measures, who in his opinion might have earned that income. It was held by the Coordinate Bench that it was thus the case of an alternative assessment of another person subject to the finality of the decision in whose hands the assessment is substantially made. It was held by the Coordinate Bench that the scope of the protective assessment cannot be cabined in case of two or more persons only. It may be possible that the AO may be sure of only one person having earned an income but he may be uncertain of the year in which the income was earned i.e. year one or year two. In such a case, he can tax such income in both the years of course subject to the other provisions in one year on substantive basis and in the other year on the protective basis. The Coordinate Bench thereafter gone ahead and examined the situation when the regular assessment was originally made and later on, it comes to the notice of the AO that some income chargeable to tax has escaped assessment and in the interim, the block assessment order under section 158BC has been passed wherein such income has already been included in the block assessment, whether the AO can resort to provisions of reassessment to include the same income on protective basis. It was held by the Coordinate Bench that the protective assessment cannot be independent of substantive assessment. The protective assessment is always successive to the substantive assessment. There may be a substantive assessment without any 23 protective assessment but there cannot be any protective assessment without there being a substantive assessment. It was held that there has to be some substantive assessment / addition first which enables the AO to make a protective assessment / addition. It was held that the substantive addition / assessment is made in the hands of the person in whose hands the AO prima facie holds the opinion that the income is rightly taxable. Having done so and with a view to protect the interest of the Revenue where the AO is not sure that the person in whose hands he has made the substantive addition rightly, he embarks upon the protective assessment. Thus the protective assessment is basically based on the doubt of the AO as distinct from his belief which is there is the substantive assessment. Obviously there is no place for doubt in the scheme of reassessment as it has to be belief of the AO about the escapement of income which is the foundation for assessment or reassessment under section 147. It was accordingly held that having made addition of Rs. 527.85 Lacs in the block assessment, the AO was not justified in forming the belief that the same income has escaped the assessment in the same year and accordingly the initiation of reassessment proceedings on this count was set aside. 35. In case of Suresh K Jajoo vs ACIT (Supra), the issue for consideration before the Coordinate Mumbai Benches was again the validity of reassessment proceedings for A.Y 2000-2001 and for the purposes, it held that it was necessary to examine as to whether the assessment for the assessment year 2001-02 could be said to be a protective assessment and it went on to examine the inter-play between the substantive and protective assessment. The relevant facts of the case were that the assessee was in the business of dealing in shares and investments. She had purchased 1,00,000 equity shares during the assessment year 2000-01, of DSQ Software on 9-4-1999 on spot delivery basis. Out of the above, 63,000 shares were sold on 24-3-2000 and balance 37,000 were sold on 30-3-2000 as per the broker’s contract note dated 30-3-2000. She claimed that the sale of 63,000 shares was made on 8-4-2000 as per broker’s bill No. 01. She 24 offered for tax as short-term capital gains the capital gain on sale of 63,000 shares in the assessment year 2001-02. The sale in respect of 37,000 shares was claimed as long-term gain and offered to tax in the assessment year 2001-02. According to assessee, the broker raised the bill for this transaction in the broker bill on 12-4-2000 and delivery of shares and its corresponding pay-in/pay-out took place only on 12-4-2000. Since the corresponding sale and delivery had taken place only on 12-4-2000, i.e., after expiry of one year from date of purchase of shares, the capital gain on sale of 37,000 shares was claimed to be a long-term capital gain and offered to tax in the assessment year 2001-02. In the course of assessment, the Assessing Officer did not come to any definite conclusion regarding taxability of long-term capital gain. He expressed the opinion that as per the delivery of shares and broker’s bill, there was only an incident of long-term capital gains on sale of shares. He, however, expressed an opinion that if the date of contract note of the broker was taken, then the transaction would relate back to the assessment year 2000-01 and the capital gain would also be short-term capital gain. Thereafter, the Assessing Officer merely made the observation that since the assessee had already offered the income in the assessment year 2001-02, the same was to be assessed in the said year to protect interest of the Revenue. Subsequently, the Assessing Officer reopened the assessment proceedings for assessment year 2000-01 and brought to tax income arising from sale of 37,000 shares as short-term capital gain. While doing so, the Assessing Officer relied upon Circular No. 704, dated 28-4-1995 wherein the CBDT had instructed officers of the revenue to adopt the date of broker’s note/bill as date of transfer, provided such transaction was followed by delivery. On appeal, the Commissioner (Appeals) upheld the reassessment order. In the said background, the matter came up for consideration before the Coordinate Bench and objection relating to validity of initiation of reassessment proceedings were raised by the assessee. 25 36. It was held by the Coordinate Bench that in order to determine validity of reassessment proceedings, it was necessary to examine as to whether the assessment for the assessment year 2001-02 could be said to be a protective assessment. It examined the contents of the assessment order and the observations so made by the Assessing officer that “as the assessee had already offered this income in assessment year 2001-02, the same was assessed in said year to protect the interest of the revenue” and raised a question as to whether the said observations were enough to conclude that the assessment of the capital gain as long-term capital gain in the assessment year 2001-02 by the Assessing Officer was only a protective assessment. The Coordinate Bench held that the Hon’ble Supreme Court in the case of Lalji Haridas v. ITO (supra) while recognizing the concept of protective assessment has very clearly laid down that there must be an exhaustive enquiry and the question as to who is liable to pay (in instant case which year the capital gain was to be assessed and whether as long-term capital gain in the assessment year 2001-02 or short-term capital gain in the assessment year 2000-01) should be determined after hearing objections. He should determine the question in the case of one person (in this case in one assessment year) and then conclude the proceedings in the case of the other person (in this case in other year) in whose case assessment has to be made protectively. The Coordinate Bench thus held that the protective assessment has to be done only after substantive assessment is done, an assessment can be considered as protective only when there is substantive assessment and the substantive assessment has to precede protective assessment. It thereafter held that in the instant case, the observations of the Assessing Officer while completing assessment for the assessment year 2001-02 could not be said to be an expression of his intention to make a protective assessment of the capital gain as long-term capital gain. It was an assessment pure and simple. Firstly, the words used by the Assessing Officer did not express his intention that the long-term capital gain was being brought to tax by way of 26 protective assessment. Secondly, there was no substantive assessment already made treating the capital gain as short-term capital gain. Therefore, there could be no protective assessment. Thirdly, there had been a demand (without any limitation that it should not be recovered) raised pursuant to the above assessment which also showed that the said assessment was not a protective assessment but a substantive assessment. 37. The Coordinate Bench thereafter held that where the assessment for the assessment year 2001-02 was not a protective assessment but assessment pure and simple, could the Assessing Officer entertain a belief that income chargeable to tax had escaped assessment. It held that the law on this aspect is very clear. The belief entertained by the Assessing Officer should be that of an honest and reasonable person based upon reasonable grounds. The reason to believe should be held in good faith and should not be a mere pretence. In the instant case, the Assessing Officer brought to tax the capital gain as a LTCG in the assessment year 2001-02 not on a protective basis but on a substantive basis. In such circumstances, the Assessing Officer could not entertain a belief that the capital gain in question was short-term capital gain. His belief that capital gain had been brought to tax at too low a rate could be said to be held in good faith and not as a pretence only when the contrary belief of the Assessing Officer in the form of an assessment of the very same capital gain as long-term capital gain in the assessment year 2001-02 did not exist. Therefore, there could not be any belief that capital gain had been assessed at too low a rate. The conditions precedent for valid initiation of reassessment prescribed in section 147 are meant to ensure that there is finality to assessment and to ensure that there is no arbitrary exercise of power to reopen a concluded assessment. Therefore, the existence of conditions precedent for reopening has to be satisfied before the Assessing Officer can proceed to assume jurisdiction to pass an order of reassessment. In the instant case, the condition precedent for valid initiation of reassessment proceedings had not been satisfied inasmuch as the 27 belief that income chargeable to tax had escaped assessment did not exist. In the circumstances, initiation of reassessment was held as bad in law, and set- aside. 38. In case of Pegasus Properties (P) Ltd vs DCIT (Supra), the issue for consideration before the Coordinate Mumbai Benches was whether any protective addition could be made when no substantive addition were made in the hands of any other person. In the said case, the relevant facts were that during the course of search proceedings, certain cash was recovered from the premises of the assessee. It was explained by the assessee that the said cash belongs to Fisher Health Resorts Private Limited. It was also submitted that in view of the common directors of the assessee company and Fisher Health Resorts Private Limited, the said cash was found in the premises of the assessee. It was also submitted that the source of such cash was from subscription from members for health club facilities. The Assessing officer, however, disregarded these contentions and proceeded to tax the cash in the hands of the assessee company on protective basis under Section 69A of the act. While doing so, the Assessing officer doesn’t make any mention as to whether any substantive addition was made in the hands of Fisher Health Resorts Private Limited or any other person. On appeal, the ld CIT(A) observed that there is no evidence that Fisher Health Resort Private Limited had owned up the cash and no confirmation from the said company has been filed regarding cash belonging to them. The ld CIT (A) also observed that no explanation has been given by the assessee that this cash has been considered in the hands of Fisher Health Resorts Private Limited. In the said background, on further appeal, the Coordinate Bench held that only protective addition has been made in the hands of the assessee company. It was held that normally, protective assessment is made only where the Revenue entertains doubt as to in whose hands a particular income is to be assessed, this is primarily done to protect the interest of the Revenue, therefore, either in the hands of the assessee, addition under section 69A should have 28 been made on substantive basis, and in the hands of Fisher Health Resort Private Limited, it should have been made on protective basis or vice versa. It was held that very strangely the addition has been made under section 69A in the hands of the assessee company on protective basis without any substantive addition in the hands of any other party, including Fisher Health Resorts Private Limited. Thereafter, the Coordinate Bench referred to and relied upon the decision of Kolkata Benches in case of Vikas Aryaan and Steel Private Limited versus ITO (ITA No. 332-334/Kol/2012 dated 1/07/2015), Mumbai Benches in case of Suresh K Jajoo versus ACIT (Supra) and MP Ramachandran versus DCIT (Supra) as well as judgement of the Hon’ble Supreme Court in case of Lalji Haridass versus ITO (Supra) and held that admittedly in this case, no substantive addition was made by the Revenue either in the hands of M/s Fisher Health Resort Private Limited, or in the hands of any other person, and since no substantive addition was made, protective addition made in the hands of the assessee company doesn’t survive and the addition made on protective basis under section 69A was deleted. 39. We find that similar issue came up for consideration before the Coordinate Gauhati Benches in case of Income-tax Officer, Ward-1, Nagaon Versus Keshava Nanda Kakati [2021] 133 taxmann.com 316 (Gauhati - Trib.). In the said case, briefly the facts of the case were that there were certain deposits found deposited in the savings bank account in the name of the assessee. The assessee explained that the said account was opened for the purpose of Junior College and duly reflected about the same in the return of income of the Society of Education (Alpha Beta College) which runs the Junior College ; and the sums deposited/withdrawn in the bank account are not pertaining to him and so he is not maintaining any details of the cash deposits or withdrawals in the said bank account. It was brought to the notice of AO that the deposit/withdrawal of sums are reflected in the books of Junior College and he was not in a position to produce the books of the Junior College during his assessment proceedings because the Junior College is managed by M/s. 29 Society of Education and, therefore it was submitted before the AO that it is not just and proper to consider the sum credited in the Savings Bank Account (supra) as his own. The AO noted that there were withdrawals amounting to Rs. 94,55,938/- by the members on various dates. According to him, the assessee could not prove that the said bank account was exclusively used for the purpose of college and that the gross receipt shown by the assessee society does not match with the cash deposits as claimed by the assessee. Therefore, the AO was of the opinion that the total credit made in the said bank account amounting to Rs. 1,51,56,830/- need to be treated as "income from other sources" in the hands of the assessee and added to the total income of the assessee on protective basis to safeguard the interest of Revenue and he also observed in the assessment order that the substantive addition would be made by the respective AO of M/s Society of Education (Alpha Beta College) and that the information regarding this is being passed to the that AO of the college and thus he made protective assessment in the hands of the assessee to the tune of Rs. 1,51,56,830/-. On appeal, the ld CIT(A) held that in the absence of any prior substantive addition in the case of M/s. Society of Education, no protective assessment could have been made by the AO in the hands of assessee and, therefore, the action of the AO was held as bad in law and the addition was deleted. On further appeal by the Revenue, the Coordinate Bench held that where there was no prior substantive addition in the hands of M/s. Society of Education or any other person, the ld CIT(A) has rightly deleted the addition and upheld the order of the ld CIT(A) and the relevant findings read as under: “8. We have heard both the parties and perused the records. We note that the Ld. CIT(A) has made a categorical finding of fact that there was no substantial addition of such an amount (Rs. 1,51,56,830/-) made prior in the case of M/s. Society of Education and this finding of fact has not been rebutted/controverted or assailed by the revenue before us by filing specific ground to this effect in this appeal. From a perusal of the grounds of appeal raised by the revenue (supra), it is clear that the revenue has only assailed the decision of the Ld. CIT(A) in deleting the protective addition made by the AO to the tune of Rs. 1,51,56,830/-. And it can be very well seen that the basis for deletion resorted by Ld CIT(A) to delete the protective assessment in the hands of assessee was because there 30 was no substantial addition in the hands of M/s. Society of Education. This crucial fact has not been rebutted/controvered/assailed before us. Therefore, this finding of fact of Ld CIT(A) crystallizes (i.e. no substantive addition in the hands of M/s. Society of Education) and, therefore, we do not find any infirmity in the order passed by the Ld. CIT(A) on this issue on deletion of protective addition without substantial addition. We also take note that the Ld. CIT(A) to come to such a decision has taken note of relevant decisions of this Tribunal which reads as under: "In the case of ITO v. Fussy Financial Services Private Limited [I.T.A. No. 44/DEL/2014 dated 5-6-2017, it was held/averred, as follows, by the Hon'ble ITAT-Delhi : We further note that the analysis of the investment account reveal that the company has made investment of Rs. 5,04,01,000/. The statement given by Sh. PN Jha assumes importance wherein he categorically admitted that the company was doing the business of investment and finance and during the year the bank accounts of the company have been used to provide the accommodation entries. The addition of Rs. 3,17,67,951/- made by the Assessing Officer on protective basis, which is not sustainable in the eyes of law, because in this case the AO himself stated in the assessment order that the Department is looking after the cases of beneficiaries and the amounts channelized through this group would be taxed in the hands of the beneficiaries, the amount of total credits of Rs. 3,17,67,951/- made in its bank account with Kotak Mahindra Bank, KG Marg, New Delhi, during the year is added to the income of the assessee on protective basis. In this case we find that AO has not made any substantive assessment. There may be Substantive assessment without any protective assessment, but there cannot be any protective assessment without there being a substantive assessment. In the case of M.P. Ramchandran v. DCIT [129 TTJ 190 at page 195], it was held/averred, as follows, by the Hon'ble ITAT : "In order to give a different colour, the ld. DR contended that this disallowance was made on protective basis only and hence cannot be equated with the substantive disallowance. We have noted above about the validity and presumption of the protective assessment in general. Protective assessment cannot be independent of substantive assessment. Thus protective assessment is always successive to the substantive assessment. There may be a substantive assessment without any protective assessment but there cannot be any protective assessment without there being a substantive assessment. In simple words there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition. Substantive addition/assessment is made in the hands of the person in whose hands the AO prima facie holds the opinion that the income is rightly taxable. Having done so and with a view to protect the interest of the Revenue, if the AO is not sure that the person in whose hands he had made the substantive addition rightly, he embarks upon the protective assessment. Thus the protective assessment is basically based on the doubt of the AO as distinct from his belief which is there is the substantive assessment." 31 In the case of Gregory & Nicholas v. Asstt. CIT [IT Appeal No. 5102 (Mum.) of 2006, dated 1-3-2007], it was held/averred, as follows, by the Hon'ble ITAT (Mumbai) : "21. In the case of Suresh K. Jaju (2010) 39 SOT 414(Mum), E-Bench of the Tribunal at pages 532 to 533 held as follows : "The AO made the following observations: "As the assessee has already offered this income in assessment year 2001- 02, the same is assessed in this year to protect the interest of the revenue" Whether the above observations are enough to conclude that the assessment of the capital gains as long-term capital gain in assessment year 2001-02 by the Assessing Officer was only a protective assessment? We have already seen the ratio laid down by the Hon'ble Supreme Court in the case of Lalji Haridas (supra) wherein the Hon'ble Supreme Court while recognizing the concept of protective assessment has very clearly laid down that there must be an exhaustive enquiry and the question as to who is liable to pay (in this case which year the capital gain is to be assessed and whether as long-term capital gain in assessment year 2001- 02 or short term capital gain in assessment year 2000-01) should be determined after hearing objections. He should determine the question in the case of one person (in this case of the other person (in this case in other year) in whose case assessment has to be made protectively. Thus, protective assessment has to be done only after substantive assessment is done. An assessment can be considered as protective only when there is substantive assessment. Thus, substantive assessment has to precede protective assessment." In the case of G.K. Consultants Ltd. v. ITO [IT Appeal No. 1502 (Delhi) of 2013, dated 27-6-2014], [upheld in CIT v. G.K. Consultants Ltd., [IT Appeal No. 86 of 2015, dated 24-5-2016] High Court], it was held/averred, as follows, by the Hon'ble ITAT Delhi : "19. On careful consideration of above contention, we are of the view that there may be a substantive assessment without any protective assessment but there cannot be any protective assessment/addition without substantive assessment/addition, meaning thereby there has to be some substantive assessment/addition first which enables the AO to make a protective assessment/addition. In the present case, the AO proceeded to make protective assessment by way of reopening of assessment of the assessee appellant company without being a substantive assessment on the date of assumption of jurisdiction u/s 147 of the Act which is not permissible as per decision of ITAT, Mumbai in the case of M.P. Ramachandaran v. DCIT (supra) and Suresh K Jajo v. ACIT (supra)." 9. In the light of the aforesaid decision of the Tribunal and based on the discussion, we do not find any infirmity in the action of Ld. CIT(A) to have deleted the protective assessment in the hands of the assessee when the fact was that there was no substantive addition in the hands of M/s. Society of Education or other assessee's and ergo the same is confirmed.” 32 40. In case of DCIT versus Pallavi Mishra (Supra), a similar matter came up for consideration before the Jaipur Benches wherein substantive addition was proposed in the hands of another assessee which moved a petition before the Income Tax Settlement Commission and protective addition was made in the hands of the assessee. The relevant facts of the case were that search & seizure operations u/s 132(1) were carried out at the various business and residential premises of NIMS Group including the premises of the assessee. Thereafter, the assessment was completed u/s 143(3) read with section 153A wherein the Assessing Officer interalia made protective addition of Rs. 3,27,83,846/- in the hands of the assessee as undisclosed investment in certain land situated at village Jugalpura wherein substantive addition was proposed in the hands of the M/s Indian Medical Trust. Being aggrieved, the assessee challenged the order and the findings of the Assessing Officer before the ld. CIT(A). During the pendency of the appellate proceedings, the Assessing Officer passed another order to give effect to the order of Settlement Commission u/s 245D(4) of the Act, wherein the Assessing officer converted the earlier protective addition into substantive addition. On appeal, the said order was set-aside by the ld CIT(A) and on further appeal by Revenue, the Coordinate Bench has upheld the order of the ld CIT(A). 41. The Coordinate Bench referred to the assessment order and from the contents thereof noted that the Department has claimed the undisclosed investment in impugned land purchase in the hands of Indian Medical Trust and substantive addition was thus proposed by the Department before the Income Tax Settlement Commission in the hands of Indian Medical Trust and thereafter, held that there was a proposal to make substantive addition in the hands of Indian Medical Trust, however, in the order so passed by the Income Tax Settlement Commission u/s 245D(4), there was no discussion about any undisclosed investment in aforesaid immoveable property which is apparently suggestive of the fact that such a proposal was not accepted by Income Tax 33 Settlement Commission and as a matter of fact, no addition was made in the hands of M/s Indian Medical Trust on substantive basis. The Coordinate Bench further noted that subsequently the AO has drawn an inference that since the matter relating to investment in the land at Jugalpura has not been considered by Income Tax Settlement Commission in the hands of M/s Indian Medical Trust (in whose hands substantive addition was originally proposed by the department), the protective addition originally made in the hands of the assessee u/s 143(3) r/w 153A in respect of the said transaction needs to be converted into substantive addition and thereafter, the AO changed his earlier position as taken in the original assessment proceedings and proceeded to converted the protective addition into substantive addition in the hands of the assessee by way of impugned order dated 15.09.2017. The Coordinate Bench accordingly held that it is a case where there was no substantive addition made in the hands of Indian Medical trust at first place and in absence of substantive addition, the AO has proceeded with protective assessment in the hands of the assessee, it cannot be sustained. It was further held that subsequent to completion of original assessment proceedings made on protective basis in hands of the assessee, realizing the fact that no substantive addition has been made in hands of either of two assessees, the AO changed his position and took a suo-moto decision to convert protective addition into substantive addition in the hands of the assessee. It was held that AO’s own independent decision subsequent to completion of original assessment and not something which is directed by the Income Tax Settlement Commission and then, it poses a question and examines whether post completion of original assessment proceedings, what is the basis of the assumption of such jurisdiction by AO to suo-moto convert protective assessment into substantive assessment and under what specific provisions of law, the AO has assumed such jurisdiction and passed the impugned order dated 15.09.2017 and the relevant findings read as under: 34 “21. The concept of substantive and protective assessment though not defined in the Income Tax Act has the necessary legal recognition by the Courts. It has been held by the Courts that 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 by B, it would be open to the relevant income tax authorities to determine the said question by taking appropriate proceedings both against A and B by way of substantive and protective assessment. Once an assessment has been made, the veracity of the additions are to be adjudicated by the appellate authorities in both the cases and the appellate authority has to give a specific finding in whose hands the income on account of impugned addition is to be finally assessed. Therefore, to safeguard the interest of Revenue, the AO can assess the income in more than one hand but this procedure can be permitted at the stage of assessment and once the assessment is done, the taxability in the rights hands need to be decided by the appellate authority and pursuant to decision by the appellate authority, the AO can take the necessary action to finally assess the income in right hands and enforce recovery of taxes. In the instant case, as we have noted above, there is no substantive addition in hands of Indian Medical trust and in the case of the assessee, post completion of original assessment proceedings and during the pendency of the appellate proceedings before the ld CIT(A), the AO took a suo-moto decision to convert protective assessment into substantive assessment and raised the demand notice for recovery of taxes on the assessee, thereby initiating the recovery proceedings against the assessee. As to the basis of such change in position of the AO, the ld CIT(A) has also recorded a finding that post completion of the original assessment proceedings, there are no fresh facts or enquiries which have been conducted by the AO and all the enquiries and facts were forming part of the original assessment proceedings and only basis is that there was no reference to the issue of investment in hands of Indian Medical Trust in the order of the Settlement Commission. Such a change in position thus amounts to change of opinion on same set of facts. In any case, once the ld CIT(A) was ceased of the matter, the AO could have brought this up before the ld CIT(A) and sought necessary directions. Where however, the AO still hold the belief to take suo-moto action to convert protective assessment into substantive assessment, he could have invoked his jurisdiction in terms of section 147 on satisfaction of conditions specified therein and in absence of thereof, the present action of the AO cannot be sustained in the eyes of law. In this regard, we find that the ld CIT(A) has rightly held that once an assessment has been framed by the AO, he becomes functus officio and whenever the AO wishes to modify and/or enhance the assessment, he is required to reassume the jurisdiction under the Act after satisfying the conditions as so contained in section 154 or section 147 of the Act. Further, the AO can assume jurisdiction so as to give effect to an order or directions so contained in order passed u/s 250/254/263/264 of the Act. In the instant case, the AO has not invoked his jurisdiction under section 154 and section 147 and the order so passed is again not an order to give effect to the directions contained in any order passed u/s 250/254/263/264 of the Act, thus, the action of the AO doesn’t have the necessary sanction of the relevant provisions and the order so passed has been rightly set-aside by the ld CIT(A) for want of jurisdiction and requisite sanction under law.” 35 42. Applying the aforesaid legal proposition in the instant case, at the time of passing of the assessment order where the protective addition was made in the case of the assessee, no substantive additions were made in the hands of M/s Bhushan Power & Steel Ltd and thus, no substantive additions were in existence. Even in the order so passed by the Settlement Commission u/s 245D(4) dated 30/06/2013 subsequent to passing of the impugned assessment order), no substantive additions were made in the hands of M/s Bhushan Power & Steel Ltd. It is therefore a case where no substantive additions have been made in hands of M/s Bhushan Power & Steel Ltd and at the same time, only protective assessment has been made in the hands of the assessee. In light of aforesaid legal proposition and respectfully following the decisions cited supra, in absence of substantive addition made in hands of M/s Bhushan Power & Steel Ltd or any other person, protective addition cannot be sustained in the hands of the assessee. Accordingly, the protective addition of Rs. 37,31,00,000/- so made by the AO and confirmed by the ld CIT(A) is hereby directed to be deleted. The enhancement done by the ld CIT(A) by an amount of Rs. 37,31,000/- under section 69C of the Act, the same being consequential in nature is also directed to be deleted. 43. No other grounds on merit were argued by either of the parties, hence we need not adjudicate these grounds and the same are dismissed as infructious. 44. In the result, the appeal of the assessee is allowed. 45. In other appeals, both the parties fairly submitted that the facts and circumstances of the case are exactly identical except for the difference in the amount involved and contentions as raised in ITA No. 685/CHD/19 be considered. Taking into considerations submissions so made by both the parties, our findings and directions contained in ITA No. 685/CHD/19 shall apply mutatis mutandis to these appeals also. 36 46. In the result, respective appeals of the assesses are allowed whereas the corresponding Stay Applications are dismissed as infructuous. Order pronounced in the open Court on 16/02/2023 Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 16/02/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar