Reopening of Assessment is not permissible in respect of Protective Addition when reasons are only of Assumption: ITAT deletes Addition [Read Order]

The Ahmedabad bench of Income Tax Appellate Tribunal ( ITAT ) after deleting the addition made by the assessing officer held that reopening of assessment is not permissible in respect of protective addition when reasons are only of assumption.

The Assessee Sanjay bhai Ranchhodbhai Patel,after filing the return of income which was revised  on account of capital gain of Rs.25,44,449/- which pertained to sale of agriculture which was exempt from capital gain.

Accordingly, the assessee case was reopened by issuing notice due to the search action carried out in the group case of Shayona Group on 15.10.2013 in which documents showing a land transaction was found which pertained to all partners of the firm M/s. Shayona Land Corporation.

 In response to these notices issued, the assessee raised objections against the reopening of the assessments which was dealt by the Assessing Officer by a speaking order on 14.07.2016. The Assessing Officer after taking cognisance of the assessee’s reply objected that during the search survey under Section 133A of the Act was conducted on Shop No.22/23 Shayona Complex and various documents pertaining to a land transaction were found and impounded.

After taking cognisance of all the aspects of the said transactions, the Assessing Officer held that since the funds for purchase of land had been sourced from the unsecured loans from Shreeji Finance taken by the firm, M/s. Sayona Land Corporation, the addition will be substantive in case of the firm.

However, it is a fact that the partners are equally liable to the firm and hence protective addition has been made in case of the partners with substantive addition in case of the firm. Thus, the difference of Rs.3,45,01,388/- was divided between the eight partners and thus Rs.43,12,673/- was added as unaccounted investment under Section 69 of the Act on protective basis.

Aggrieved by the order the assessee filed another appeal before the CIT(A), who partly allowed the appeal of the assessee.

R.B. Tank, the counsel for assessee   submitted that the reopening is not permissible in respect of protective addition as the reasons are only of assumption. The reasons categorically not mentioned by the assessee as purchaser or seller and there was no nexus between the information and formation of the assessee’s involvement in the transaction.

Saumya Pandey Jain,counsel for revenue argued that the notice issued under Section 148 of the Act was that for the year 2011-12 only and the mistake in the paragraph no.2 of the notice is a typographical error as the subject itself mentions notice under Section 148 for the A.Y. 2011-12.

It was observed that As regards reopening not permissible in respect of protective addition, since the substantive addition has already been made in case of the firm, the assessing officer cannot make protective addition in the present assessee’s case which tantamount to double taxation.

After reviewing the facts the ITAT bench of Suchitra Kamble ( Judicial Member )and Annapurna Gupta (Accountant Member) allowed the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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