Protective Addition becomes Substantive If No Appeal filed: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that if the Assessee do not challenge a protective addition by fileing an appeal, it becomes a substantive addition.

Two assessees, NHPL and NDPL are companies in Nirala Group, engaged with the business of real estate.. Assessments were passed aginst the assessees after a search operation conducted in the premises of the companies.

After search, the Assessing Officer passed order against both the entities. NHPL does not challenge the order on appeal. The department also initiated penalty proceedings against these entities.

The penalty proceedings were challenged by the NHPL by contenting that no penalty can be levied either U/s 271(1)(c) or U/s 271AAA in respect of additions made on protective basis.

Rejecting the contentions, the Tribunal held that when a protective addition is made because an assessee changes its stand leading to uncertainty about the year in which the income is to be assessed, the assessee cannot be permitted to benefit from uncertainty created by its own conduct.

It was further said that when an assessee accepts the protective additions made in assessment order by not filing any appeal against it, the character of the additions changes from protective addition to substantive addition. A valid presumption can legitimately arrived at, that the same income, which is assessed in the hands of the assessee in one year and has been accepted by the assessee, will not be offered by the assessee in any subsequent year.

“Subsequent conduct of NHPL, is not recognizing any income under Project completion Method, in any subsequent year, despite substantial lapse of time imparts validity to this presumption. Thus, the character of the income assessed in the Assessment Orders, changed from protective additions (at the time of Assessment Order) to substantive additions at the time when penalty orders were passed by the AO because the NHPL has accepted the additions by not filing the appeals. As the character of the additions, at the time of penalty orders U/s 271AAA of I.T. Act had already undergone change from protective additions to substantive additions, the contentions raised by the Ld. Counsel for NHPL has no merit,” the Tribunal said.