Protective Assessment cannot be made without a Substantive Assessment: ITAT Delhi [Read Order]

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In ITO v. M/s Fussy Financial services Pvt Ltd, the Delhi bench of the ITAT held that, under the provisions of IT Act, protective assessment cannot be made without a substantive assessment.

AO observed that the assessee company has received / provided entries to other paper companies so as to pass on the money to the ultimate beneficiaries. He further observed that the genuineness of the transaction, identity of beneficiaries etc were not proved. Accordingly, he passed a protective assessment in the name of the assessee under Section 68 of the Income Tax Act.

The bench noted that the Assessing Officer accepted the fact that the assessee is acting as the entry operator. Whie analyzing the investment account, the bench noted that the company has made investment of Rs. 5,04,01,000/.

Deleting the addition, the bench noted that “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.”

Read the full text of the Order below.

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