No protective addition required when additions is confirmed in hands of searched person – ITAT

No protective addition required in the hand of a third party when additions have been confirmed in the hands of the searched person – ITAT

In a recent judgment, ITAT Delhi has held that when additions have been confirmed in the hands of the searched person therefore, no protective addition is required to be made in the hands of the third party.

ABCAUS Case Law Citation:
5164 (2026) (06) abacus.in ITAT

A search and seizure action was carried out in the case of two brothers. During the course of search, from the possession of one employee of the said Brothers a tally data (hard disk), ledger were found and seized.

As the documents found during the course of search pertained to the assessee, therefore, satisfaction note was recorded by the AO of the person searched  and on receiving the same, the AO of the assessee recorded his satisfaction and initiated the proceedings u/s 153C of the Act.

In response, the assessee filed return of income declaring the same income as was declared in the original return of income filed u/s 139(1) of the Act. The AO based on the documents found and seized during the course of search in the case of said Brothers concluded that the assessee had been used as one of the conduit for providing accommodation entries by said Brothers and various individuals and companies were identified as beneficiaries by the Investigation Wing. The funds were received by the assessee company from one of the company/individual managed and controlled by said Brothers and thereafter funds were transferred to various beneficiaries after charging commission.

The AO accordingly, held that the assessee company had received large amount of funds from 17 such companies which were paper companies managed and controlled by said brothers and therefore, credits so received remained unexplained and made the addition u/s 68 of the Act on protective basis.  The AO further made addition being commission @ 0.25% on the total credits as income of the assessee on substantive basis.

The CIT(A) observed that the respondent company had received the funds from various concerns and immediately thereafter transferred the same to the beneficiarie, therefore the respondent was not a beneficiary company. Accordingly, when the beneficiaries were identified the addition in such cases can at best be that of commission earned on such accommodation entries. Accordingly, the CIT(A) deleted the additions made by holding that the substantive additions had been confirmed in the hands of said brothers which were the persons admittedly, managed and controlled the assessee company and funds credited in the bank accounts of the assessee was actually pertained to them and further deleted the income added as commission by holding that the said commission was received and taxed in the hands of said brothers and thus, partly allowed the appeal of the assessee.

Aggrieved by the order of CIT(A), Revenue before the ITAT challenged the deletion of addition made on account of unexplained cash credit on protective basis and further deletion of alleged commission income on substantive basis.

The Tribunal observed that in an identical case, the Co-ordinate Bench of the Tribunal had observed that the additions have been confirmed in the hands of the searched person therefore, no protective addition is required to be made in the hands of the company.

Following the order of Co-ordinate Bench of Tribunal the ITAT dismissed the appeal of the Revenue.

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