Contract based on which Addition is made is Subject Matter of Litigation: Protective Assessment can’t be made, rules ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the protective assessment under the Income Tax Act, 1961 cannot be made when the contract based on which the addition was made is a subject matter of litigation pending before the Court/Arbitrator.

A bench of Shri Chandra Poojari, Accountant Member and Smt. Beena Pillai, Judicial Member was considering an appeal by M/s. Ind Sing Developers Pvt. Ltd. The MOU was entered by assessee for arranging 75 acres of land to be handed over to Shobha Developers. There is a litigation between the parties, which is subject matter of arbitration which is pending for award. Further, as per MOU, assessee has to arrange total land of 75 acres out of this assessee arranged only 55 acres of land and 20 acres of land still to be procured and the issue is under litigation. The Assessing Officer made a protective assessment of Rs. 7 crores towards consideration received by assessee.

After analyzing the facts and documents, the Tribunal observed that AO arrived profit on these transactions at Rs.3,09,40,750/- as unaccounted sale proceeds. However, Ld. CIT(A) sustained only addition of Rs.24,44,500/- out of Rs.3,09,40,750/-made by AO.

“In our opinion, the basis for addition made by AO is with regard to oral statement made by Shri Kuppendra Reddy. The assessee has asked for cross examination of Mr. Shri Kuppendra Reddy before AO. On the appointed day Mr. Kuppendra Reddy failed to appear before cross examination,” the Tribunal said.

Dismissing the plea of the department, the Tribunal held that “We have given findings in assessment year 2006-07 in para 6.9 &6.14that addition is not based on any seized material and on the basis of oral statement given by Kuppendra Reddy for which an opportunity of cross examination has not been given to the assessee as such the sustentative addition cannot be sustained. Similarly, the protective assessment in assessment year 2008-09 also cannot be sustained on similar line. The deletion of addition made by Ld. CIT(A) on this issue is confirmed. This ground of appeal of the revenue is rejected. The contract between the assessee and M/s. Shobha Developers has not materialized and it is subject matter of litigation before arbitration and it is pending for award as such addition cannot be made even on protective basis. Accordingly, we dismiss this ground raised by revenue.”

To Read the full text of the Order CLICK HERE

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