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Judgment
PER SUDHIR KUMAR, JM:
This appeal by the Revenue is directed against the order dated 05.08.2025 of the Ld. Commissioner of Income Tax (Appeals)-24, New Delhi. Assessment in this case was completed by the DCIT Central Circle, Delhi under Section 147 read with Section 148 of the Act, for the Assessment Year 2014-15 vide order dated 31st March 2022.
The revenue has raised the following grounds of appeal:
On the facts and circumstances of the case, the learned CIT(A) has erred and on facts and in law and on facts in deleting the protective addition of Rs. 20.98 lakhs made by the AO without appreciating the fact that the substantial addition in the case of Rajyog Buildtech Private Limited has been admitted before the Hon'ble High Court and has not attained finality.
That the CIT(A) failed to appreciate that protective and substantive addition are parallel and complementary mechanism and the protective assessment cannot be annulled so long as the substantive assessment remains subjudice.
On the facts and circumstances of the case, the learned CIT(A) has mechanically relied on appellate order in the case of M/s Rajyog Buildtech Private Limited, without independently examining the confirming material on apparent one movements.
On the facts and circumstances of the case, the learned CIT(A) has deleted the protective addition without assigning cogent reasons and without dealing with the substantial evidence in findings recorded in the re-assessment order passed under Section 147 read with Section 143(3) of the Act.
The brief facts of the case are that the assessee e-filed its return of income u/s. 139 of the Act for the AY 2014-15 on 21.9.2014 declaring the total income of Rs. 2,02,2014. The case of the assessee was taken up for scrutiny u/s. 143(3) of the Act for the AY 2014-15 and assessment was completed on 15.12.2016 at an assesseed income of Rs. 2,02,313. Further, on the basis of the information available on record, case of the assessee was taken up for reassessment proceedings u/s. 147 of the Act and notice u/s. 148 of the Act, was issued to assesse on 31.3.2021, which was served upon the assessee through ITBA. In response to notice u/s 148 of the Act, was issued to assessee on 31.3.2021, which was served upon the assessee through ITBA. In response to the notice u/s. 148 of the Act, the assessee e-filed its return of income on 28.4.2021 declaring income of Rs. 2,02,310/-. The notice u/s. 143(2) of the Act was issued to the assessee on 22.10.2021 alongwith the copy of reasons recorded. Thereafter, notice u/s. 142(1) of the Act dated 22.11.021 alongwith a detailed questionnaire was issued and served upon the assessee to furnished and a reminder was also issued on 10.2.2022 and in response to the same the assessee filed necessary submission / details on the department web portal ITBA for e-assessment. AO considered the reply of the assessee and found that during the year under consideration the assessee has advanced Rs. 19.18 crore to M/s Jak Infrastructure Pvt. Ltd. and further the amount of Rs. 19.19 crore has been advanced by M/s Jak Infrastructure tom/s Rajyog Buildtech Pvt Ltd. Thus, the AO noted that Rs. 20.99 crore has already been substantially in case of M/s Rajyog Buildtech Pvt. Ltd. for AY 2014-15. AO further noted that as per the data base of shell companies, prepared by Kolkata Directorate of Invcstigation Wing it is found that M/s Artile Vinimay Pvt. Ltd. is identified as shell company controlled and managed by Kolkata base entry operator. The company does not have any creditworthiness and has only paper assets. Money is infused into the company through selling of these paper assets. Thus, the transaction of Rs. 20.98 crore is a non-genuine transaction. Hence, the amount of Rs. 19.178 crore and Rs. 1.80 crore received by Jak Infrastructure Pvt. Ltd. is added to the income of the assessee on protective basis, substantive addition of which has already been made in the case of Raj Yog Buildtech for AY 2014-15. Against the aforesaid action of the AO, assessee appealed before the Ld. CIT(A) who partly allowed the appeal of the assessee.
Aggrieved, Revenue is in appeal before us.
Ld. DR has relied upon the order of the AO and submitted that the learned CIT(A) has erred in deleting the protective addition, without assigning cogent reasons and without any substantial evidence and findings recorded in the re-assessment order passed under Section 147 read with Section 143(3) of the Act.
On the other hand, learned counsel for the assessee has relied upon the order of the CIT(A) and submitted that the learned CIT(A) has rightly deleted the protective addition, which does not need any interference on our part and thus requested to uphold the findings of the Ld. CIT(A) on the issue in dispute.
We have heard both the parties and perused the record. We find the Assessing Officer has completed the assessment at income of Rs. 21,00,02,310/- after making addition of on protective basis of Rs. 20.98 crore on protection basis on account of credits transferred by the assessee to the following entities during the assessment:
M/s JAK Infrastructure Pvt. Ltd. Rs. 19.18 crore
M/s Rajyog Buildtech Pvt. Ltd. Rs. 1.80 crore
Total Rs. 20.98 crore
It is noted that in this case, based on the search action, in the case of Sanjay Singhal Group, assessment proceedings under section 153A of the Income Tax Act had been initiated in the case of M/s Rajyog Buildtech Private Limited, which was concluded by order dated 31st December 2019, wherein AO gave a definite finding that the ultimate beneficiary of funds totaling Rs. 20.98 crore, which were transferred by the Assessee company to M/s Rajyog Buildtech Private Limited directly (Rs. 1.80 crore) and through M/s JAK Infrastrcuture Private Limited, (Rs. 19.80 crore) was, M/s Rajyog Buildtech Private Limited. It is based on this clear factual finding that protective addition was made in the hands of Assessee. Further, it transpires from the perusal of assessment record in the case of M/s Rajyog Buildtech Private Limited that the said credits, which were immediately transferred from the Assessee to M/s Rajyog Buildtech Private Limited, were assessed on substantive basis, in the hands of M/s Rajyog Buildtech Private Limited for assessment year 2014-15 vide order dated 31st December 2019 by the same Assessing Officer. It is an undeniable fact arising from perusal of both the assessment orders, i.e., M/s Rajyog Buildtech Private Limited and Assessee company, that as per the Assessing Officer, the Assessee was merely a conduit /paper entity i.e. facilitator for transfer of funds, and that ultimate beneficiary of credit received from Assessee was held to be M/s Rajyog Buildtech Private Limited. Further, it is also noted that the assessee company showed its negligible annual income during the relevant financial year in its ITR and audited balance sheet. A perusal of Assessee balance sheet for the assessment year 2014-15 shows that during the relevant year, it was not involved in any revenue-generating activity. It had no assets and it did not earn any profit or dividend during the year. Therefore, the finding given by the AO in his assessment order that the Assessee was merely as a pass-through entity seems thoroughly justified. At this point of view, it is noted that the substantive assessment so made in the hands of M/s Rajyog Buildtech Private Limited has already been deleted by the learned Ld. CIT(A) vide order dated 22nd June 2020 on legal grounds. The said order was subsequently challenged by the Income Tax Department before the ITAT, and that appeal was dismissed. In this connection, the Assessee has contended before us that before the learned CIT(A) that protective addition made in the case of the Assessee has presently become unsustainable in the eyes of law, since the substantive addition has ceased to exist. It is a settled law that a substantive addition must mandatorily precede every protective addition. Thus, the very foundation of protective addition is the substantive addition. It has been consistently held by various courts of tribunals that once a substantive addition is set down on the ground of it being time-barred or being technically deficient, the protective addition also does not survive.
To support our aforesaid view, we draw support from the ITAT Delhi Bench decision in the case of Kanaw Metals, Vs. ITO, on 19th September 2023 in ITA No. 7778/Del/2019, wherein on exactly similar facts and circumstances of the case, it has been held as under:-
“7.It is brought to our notice that the said reassessment proceedings under section 127 of the Act against the partners of the Assessee firm was dropped on account of same becoming time-barred as per the provision of section 153(2) of the Act on 31st March 2023, which was not disputed by the learned DR. It is well settled proposition of law that when substantive addition does not survive on account of being time-barred, then the protective addition also does not survive.
8.In view of the above, this question seems that substantive addition has not been survived on account of being time-barred. Consequently, the protective addition made in the hands of Assessee herein also will not survive. Accordingly, we delete the protective addition by setting aside the order of the learned authority.
9.In the appeal of the Assessee is allowed.”
We further draw support from the decision of the Coordinate Bench in the case of DCIT vs. Artline Vinimay Pvt. Ltd. wherein, vide order dated 10.10.2024 on identical facts and circumstances, it has been held as under:
“Thus, it is abundantly clear that substantive addition has not survived. It is a settled law that if the substantive addition does not survive, the protective addition also does not survive. To support this view, we refer the decision dated 30th October 2023 of the Hon'ble Delhi High Court in the case of PCIT versus Electrical and Electronics India Limited, [2023] 11 TMI 60, wherein it has been held that the addition made on protective basis does not survive where the substantive addition has been deleted.”
Therefore, considering the factual and legal material of the case, we find considerable consistency in the finding of the Tribunal that protective addition made in the case of the Assessee for assessment year 2014-15 is not sustainable. Hence, Ld. CIT(A) has rightly deleted the addition in dispute accordingly. Therefore, we affirm the order of the learned Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue.
In the result, Revenue’s Appeal is dismissed.