Once unaccounted income is admitted & attains finality, no protective addition can be made

Once unaccounted income is admitted and issue attains finality, no addition can be made on a protective basis for the same income on other assessee.

In a recent judgment, ITAT Visakhapatnam has held that once the searched person admitted the unaccounted cash receipts as its income, and the said issue had attained finality, no parallel addition can be made on a protective basis on other assessee.

ABCAUS Case Law Citation:
4885 (2025) (11) abcaus.in ITAT

Important Case Laws relied upon by Parties:
CIT v. Durga Prasad More (1971) 82 ITR 540 (SC)
Sumati Dayal v CIT (1995) 214 ITR 801 (SC)
Chuharmal v. CIT [1988] 38 Taxman 190/172 ITR 250 (SC)

What is protective assessment in income tax?
A protective assessment in income tax is a precautionary measure taken by the tax authorities to safeguard potential revenue when there is uncertainty about the true owner or recipient of an income.

In the instant case, the Revenue had challenged the order passed by the CIT(A) in vacating the addition made in the hands of the assessee firm on a protective basis. 

The respondent firm was engaged in the real estate business had filed its return of income for the relevant Assessment Year. A search and seizure operations were conducted in the case of a business group wherein a pen drive was found from the business premises of the searched concern, which was seized. The said pen drive contained the details of the unaccounted cash transactions made by the afore mentioned searched concern.

The pen drive contained details of unaccounted cash receipts. In his sworn statement recorded under section 132 of the Act, the Managing Director of the searched company stated that the above mentioned cash transactions in his unaccounted cash book pertained to the on money received by one of his group concerns, viz., the assessee’s firm.

The respondent assessee in his statement recorded under section 132(4) of the Act, on being confronted that the seized material, claimed that the aforesaid unaccounted cash amount was the on money received by one of its group concern.

The respondent assessee firm in the course of the assessment proceedings in reply to the show cause notice (SCN) inter alia, submitted before the AO that the aforesaid amount had already admitted as income in the case of searched concern. However, the AO assessed the amount of unaccounted cash in the hands of the assessee firm on a protective basis.

The CIT(A) CIT(A) took cognizance of the fact that the unaccounted cash amount was already admitted in the hands of the search person and thus, the issue had reached finality. As a result, the CIT(A) vacated the addition made in the hands of the assessee firm on a protective basis. 

The Tribunal observed that admittedly, the AO after taking cognizance of the fact that the searched firm (i.e. the main firm) had admitted the unaccounted cash receipts as its income for the subject year, had assessed the said amount in the hands of the assessee firm on a protective basis.

The Tribunal concurred with the view taken by the CIT(A) that once the searched person admitted the unaccounted cash receipts as its income, and the said issue had attained finality, the addition in the hands of the assessee firm on a protective basis could not be sustained and had rightly been deleted.

In the result, appeal filed by the revenue was dismissed.  

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