I-T - Any protective addition in hands of shareholder is not apt, if substantive addition was already made in hands of overseas companies treating them as residents in India: ITAT
By TIOL News Service
NEW DELHI, DEC 07, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether in case of substantive addition in the hands of overseas companies treating them as residents in India, no protective additions can be made in the hand of shareholder, when actually no benefit was derived by him. YES IS THE ANSWER.
Facts of the case:
The Assessee is an individual. During the subject year, a search and seizure operation u/s 132 was conducted by the Investigation Wing in M/s. Focus Energy Group of cases, which resulted in notice u/s 153A. In reply to the said notice, the Assessee filed her return. During assessment proceeding, the AO did not made any addition on substantive basis, however on protective basis and held that profits of all the overseas companies were taxable in India since, these overseas company were treated as 'Resident' under Indian law and in accordance with the provisions laid in section 6(3). The AO further held that in order to protect the interest of the Revenue, protective addition in respect to the income of the overseas companies for AY 2006-07 was made in the hands of the Assessee and thereby passed an order u/s 153A/143(3). On appeal, the CIT(A) deleted the protective additions made by AO.
Tribunal held that,
++ the AO in the assessment order admitted that the entire amount which was added to the income of the Assessee on 'protective basis' was already assessed in the hands of the overseas companies on 'substantive basis'. It was further noted that the AO did not consider the details filed by the Assessee in the course of the assessment proceedings but made the assessment of the Assessee on the basis of the assessment orders of the overseas companies and also that of her husband Sh. Ajay Kalsi. Further, addition which was made on substantive basis in the hands of the overseas companies was also made in the hands of Sh. Ajay Kalsi on protective basis and also the same amount was added to the Assessee's income on protective basis. Therefore, addition of the same amount was made by the AO in the hands of three persons i.e. (a) the overseas companies, (b) Sh. Ajay Kalsi and (c) Smt. Mala Kalsi which was unwarranted and unjustified;
++ the additions made in case of the overseas companies u/s 6(3) is not relevant to the Assessee's case as she is only a shareholder, and was not entitled to derive any benefit. During the relevant AY, the Assessee did not derive any benefit for which she is liable to pay taxes thereon as per the Indian Tax Laws. It is not out of place to mention that when addition was already made in the hands of the overseas companies on substantive basis treating them as residents in India, there is no justification for the AO to make such an addition in the hands of a shareholder on protective basis, when no benefit was derived by her from these companies to protect the interest of Revenue;
++ it is noted that without assessing the Assessee's income for the year under consideration, the AO simply transferred the addition made in case of the overseas companies to the assessment order of Sh. Ajay Kalsi on the ground that he exercised control and management of the affairs of the overseas companies as laid down in section 6(3) without brining on record a concrete and substantial evidence to prove his role. Based on the assessment of Sh. Ajay Kalsi, by virtue of being a 50% shareholder in Multi Asset Holdings Ltd., the AO made an addition of similar amount in Assessee's case meaning thereby that the AO did not assess the income of the Assessee based on the details filed in her return u/s 153A, but assessed the income of the overseas companies in her hands without any basis;
++ in the case of the Assessee's husband Sh. Ajay Kalsi, a protective addition was also made on identical facts. In that case, the CIT(A) vide his order dated 27.04.2015 in Appeal No. 346/14-15 discussed the facts pertaining to the protective addition in detail and deleted the entire protective addition made by the AO in his case. Since, the facts of the Assessee's case are similar to those of her husband, the reasons given by the CIT(A) in his said order in the case of Sh. Ajay Kalsi will apply mutatis mutandis in the case of the Assessee also. Therefore, the addition made by the AO on protective basis amounting to Rs. 3,71,32,83,664/- was rightly deleted by the CIT(A), which does not need any interference.