Protective Addition Under Section 153A Invalid Without Surviving Substantive Assessment: Rules ITAT

The present appeal has been filed by the DCIT under the Income Tax Department in the ITAT Delhi against a taxpayer named Shri Vikram Kumar Bajaj, challenging an order dated March 22, 2023, passed by the CIT(A). The case is related to the Assessment Year 2017-18.

The assessee company had filed its income tax return (ITR) for the year in consideration, declaring the total income at Rs. 7.50 lakh. Previously, a search and seizure operation was conducted by the tax department against the Bajaj Group, and the assessee company was also covered under the operation. During the operation, the department had recovered several incriminating documents, books of accounts, and digital evidence; the department confiscated them all and recorded statements.

In conclusion of the operation, the tax department issued a notice against the assessee under Section 153A of the Income Tax Act 1961, because the assessee was involved in illegal “satta,” or election betting, and did not disclose income generated from the same. The tax department concluded the assessment, making a major protective addition of about Rs. 65.35 crore, taking the assessed income to Rs. 80.15 crore.

The aggrieved assessee approached the CIT(A). When CIT(A) analysed all the facts of the case, it deleted the protective additions, holding that they were not legally sustainable by the tax department. Thereafter, the assessee filed an appeal before the ITAT Delhi. The assessee argued that the protective addition could not survive because the substantive addition in the case of another related person, Shri Ram Narayan Bajaj, had already been quashed by the Tribunal under Section 153D due to lack of valid approval. The assessee claimed that once the substantive assessment fails, the protective assessment automatically collapses.

The tribunal endorsed the argument of the assessee and held that a protective addition can exist only when a valid substantive addition survives in another case, and since the substantive assessment had already been quashed in an earlier case, the protective addition in the assessee’s case had no legal basis and was unjustified as per the law. As a result, the tribunal quashed the impugned CIT(A)’s order and dismissed the appeal of the tax department, ruling in favour of the assessee.