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Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order dated 03.11.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A)-31, New Delhi. This particular case has a peculiar set off facts which deserve to be briefly captured.
A search action was conducted on a Rajasthan based land aggregator named Navin Mahipal on 16.10.2019. During the course of such search action allegedly incriminating documents were seized which contained information related to one Shri Robert Vadra (Proprietor – M/s Artex) and various companies related to him. During this search action documents were also recovered pertaining to the assessee under consideration. Thereafter, proceedings u/s 153C of the Act for AYs 2010-11 to 2019-20 were initiated in the case of Shri Robert Vadra and also in the case of the assessee. There is an allegation that Shri Robert Vadra has invested substantial sums of money, allegedly from income arising from undisclosed sources, with the help of one Shri Mahesh Nagar and his Associates. Thereafter, search action was also conducted on the premises of Shri Mahesh Nagar and his Associates. There is an allegation that the said Shri Mahesh Nagar has utilized the services of several people for investment of alleged unaccounted income of Shri Robert Vadra. There is an allegation that the assessee under consideration was one of the conduits for channeling allegedly unaccounted investments of Shri Robert Vadra. Thereafter, the Ld. AO has given a detailed finding in the body of his order dated 30.03.2023 and has concluded in para 5.6 at page 12 of his order that the assessee has been used to channel unaccounted investments of Shri Robert Vadra through Shri Mahesh Nagar. Thereafter, the Ld. AO proceeded to add Rs.1,11,93,500/- u/s 68 of the Act on protective basis, following a substantive addition of the same amount under the same section in the hands of Shri Robert Vadra.
The aggrieved assessee approached the Ld. CIT(A) where he could not succeed, leading to the present appeal before the ITAT. It may be briefly mentioned that the assessee has challenged the assumption of jurisdiction; has challenged the addition on the basis of a claim that the same is not made on account of any seized material; and also on the ground that no addition u/s 68 of the Act was possible considering that the assessee had duly established the genuineness of the impugned transaction.
On the last date of hearing the Ld. CIT – DR filed an application requesting consolidation of appeals pertaining to Shri Robert Vadra, where the impugned amount has been substantively added. On a query from the Bench regarding the status of the matter pertaining to Shri Robert Vadra it was informed at the Bar by the Ld. AR that as far as he was aware, that matter was still pending with the Ld. CIT(A).
Before us the Ld. AR argued on the legal issue of assumption of jurisdiction and relied on several case laws and orders of Coordinate Benches of ITAT to canvass the point that no addition was possible u/s 153C in the present case. It was argued and mentioned by the Ld. AR that the Bench may be pleased to delete the impugned addition following the case laws relied upon and also the orders of several Coordinate Benches placed on record or, alternatively, it was fairly mentioned, that this matter may be remanded back to the file of Ld. CIT(A) so that he may adjudicate Shri Robert Vadra’s case, where substantive addition has been made of the impugned amount, along with the case of the assessee.
The Ld. CIT – DR repeated her request for consolidation of this appeal with the appeal of Shri Robert Vadra since substantive and protective assessments legally need to be decided simultaneously so that the correct income can be assessed in the hands of the assessee or in the hands of Shri Robert Vadra.
We have carefully perused the documents before us and we have also gone through the orders of authorities below. We have heard the Ld. AR/Ld. DR at length. It is a settled position that the concept of “substantive” and “protective” assessments as a concept has arisen exclusively from judicial rulings as this concept does not find mention anywhere in the Act even till today. A protective assessment is regarded as being protected 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 an income. The departmental practice of substantive/protective assessment has gained judicial recognition for situations where it appears to the Assessing Officer that certain income has been received during the relevant assessment year but where it is not clear or unambiguous as to who has received such income. Such a protective assessment is carried out in order to ensure that income may not escape taxation all together particularly in cases where the Revenue has to be protected against the bar of limitation. We may refer to the case of Lalji Haridas vs. ITO reported in 43 ITR 387 (SC). In this case, the Appellant and his brother disowned certain income. To solve this problem the Revenue adopted an approach where a substantive assessment was made on the person who was primarily believed to be the true owner of the income and at the same time a protective assessment was made on the alternative person just to keep the option open in case the first assumption turned out to be wrong. This particular case law legally validated the practice of protective assessments and became the foundation for a series of judgments in later years. For the purposes of the present adjudication, a review of judicial literature on the subject reveals that both substantive and protective assessments must be adjudicated together so that technically the income/receipt under consideration can be taxed in one or the other hand. We are conscious of the fact that the Revenue Authorities have erred in spreading out the substantive and protective assessments in the name of several persons, other than Shri Robert Vadra, in such a manner that they are not being heard together. In our opinion, this would disturb the delicate issue of taxability of a particular receipt, in this case the impugned amount, in either the hand of the assessee or in the hand of Shir Robert Vadra. As mentioned earlier while summarizing the arguments of Ld. AR, that it was fairly mentioned by the Ld. AR that this Bench could consider remanding this matter back to the file of Ld. CIT(A) where both the substantive and the protective assessments could be holistically dealt with to avoid any miscarriage of justice and should also conform to the judicial principles governing substantive and protective assessments. We wholeheartedly support this view and also agree with the contention of Ld. CIT-DR that such cases should be consolidated and heard together. Accordingly, we set aside the impugned order and remand this matter back to the file of Ld. CIT(A) who is seized of the matter pertaining to Shri Robert Vadra. We would expect that the Ld. CIT(A) would examine the facts in both the cases and arrive at a judicious conclusion regarding the taxability, or otherwise, of the impugned receipt. We would also expect the Ld. CIT(A) to adjudicate on the legal grounds challenging the assumption of jurisdiction raised by the assessee, which have been raised before us. We direct accordingly.
In the result, appeal is allowed for statistical purposes.