Protective tax assessments collapse once independent black money proceedings establish the assessee lacks beneficial ownership.

By | June 5, 2026
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Protective tax assessments collapse once independent black money proceedings establish the assessee lacks beneficial ownership.

Issue

Whether a protective assessment addition made under Section 69 of the Income-tax Act, 1961 regarding foreign assets can be sustained if parallel proceedings under the Black Money Act, 2015 definitively conclude that the assessee is not the beneficial owner of those assets.

Facts

  • Protective Assessments: The Assessing Officer (AO) subjected the respondent-assessee to protective income tax assessments for the assessment years 2011-12 to 2014-15 regarding certain foreign assets.

  • Parallel Black Money Proceedings: Concurrently, substantive tax proceedings were initiated against the assessee under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

  • Dual Taxation Restriction: The original AO explicitly recorded in the income tax orders that the same foreign asset income could not be taxed under both Acts, explicitly keeping the Income-tax Act assessments “protective” pending the outcome of the Black Money Act case.

  • Beneficial Ownership Clarified: In the final Black Money Act proceedings, the jurisdictional authority concluded that the respondent-assessee was not the beneficial owner of the foreign assets.

  • Lower Appellate Relief: Citing the Black Money Act finding, the Commissioner (Appeals) deleted the protective income tax assessments. The Income Tax Appellate Tribunal subsequently upheld this deletion.

  • Revenue’s Appeal: The Revenue appealed to the High Court under Section 260A, arguing that the assets were slated to vest in the assessee after her mother’s demise (the alleged actual beneficial owner), creating a risk that the mother might later alter her testimony to blame the daughter.

Decision

  • Future Inheritance Is Not Current Ownership: The High Court held that the mere expectation of inheriting a foreign asset after a parent’s demise does not alter the current legal position of ownership, nor does it justify making an income tax addition in the assessment years under consideration.

  • Rejection of Speculative Apprehensions: The court dismissed the Revenue’s concern that the mother might alter her statement in the future, ruling that hypothethical fears cannot override concluded legal findings on beneficial ownership.

  • Tribunal Order Upheld: Because the Black Money Act proceedings officially determined the assessee was not the beneficial owner, the foundational basis for the protective income tax assessment ceased to exist.

  • No Substantial Question of Law: The High Court declined to interfere with the lower appellate orders, holding that no substantive legal error existed within its limited appellate jurisdiction under Section 260A.

Key Takeaways

  • Dependent Status of Protective Assessments: A protective tax assessment is inherently temporary and conditional; it cannot survive or be made substantive if the primary investigation under a specialized statute (like the Black Money Act) completely exonerates the taxpayer from ownership.

  • Timing and Accrual of Additions: Unexplained investment additions under Section 69 require clear, present beneficial ownership during the relevant financial year. Potential future inheritance or a deferred right of vesting cannot be retroactively taxed as current unexplained wealth.

  • Evidentiary Thresholds: Tax assessments must rely on established, present-day facts. Speculative fears regarding a witness or co-noticee changing their narrative in the future do not constitute valid legal grounds to sustain an addition.

HIGH COURT OF DELHI
Principal Commissioner of Income-tax
v.
Shriti Verma*
Dinesh Mehta and Vinod Kumar, JJ.
IT APPEAL Nos. 395, 402, 404 & 412 OF 2026
MAY  19, 2026
Puneet Rai, SSC, Rishabh Nangia, JSC and Ashvini Kumar, Adv. for the Appellant.
ORDER
CM APPL. 31909/2026 (exemption) in ITA 395/2026
CM APPL. 32451/2026 (exemption) in ITA 402/2026
CM APPL. 32742/2026 (exemption) in ITA 404/2026
CM APPL. 33733/2026 (exemption) in ITA 412/2026
1. Exemptions are allowed, subject to all just exceptions.
2. The applications stand disposed of.
CM APPL. 31910/2026 (delay in filing) in ITA 395/2026
CM APPL. 32452/2026 (delay in filing) in ITA 402/2026
CM APPL. 32743/2026 (delay in filing) in ITA 404/2026
CM APPL. 33734/2026 (delay in filing) in ITA 412/2026
3. For the reasons stated in the applications, the delay of 3 days in filing the appeals is condoned.
4. The applications stand disposed of.
CM APPL. 31911/2026 (delay in re-filing) in ITA 395/2026
CM APPL. 32453/2026 (delay in re-filing) in ITA 402/2026
CM APPL. 32744/2026 (delay in re-filing) in ITA 404/2026
CM APPL. 33735/2026 (delay in re-filing) in ITA 412/2026
5. For the reasons stated in the applications, the delay of 16 days in refiling the appeals is condoned.
6. The applications stand disposed of.
ITA 395/2026
ITA 402/2026
ITA 404/2026
ITA 412/2026
7. By way of the instant appeals, the appellant has challenged the order dated 04.11.2025 passed by the Income Tax Appellate Tribunal, Delhi Bench: ‘G’, New Delhi (hereinafter referred to as ‘the Tribunal’) in Dy. CIT v. Shriti Verma ITA No. 4483/Del/2024 Assessment Year: 2013-14, ITA No. 4484/Del/2024 Assessment Year: 2012-13, ITA No. 4485/Del/2024 Assessment Year: 2011-12 and ITA No. 4486/Del/2024 Assessment Year: 2014-15.
8. The facts lie in a very narrow compass. The Assessing Officer (AO) initiated the proceedings to frame assessment in hands of the respondent on protective basis, by observing that he had initiated the proceedings under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter referred to “the Act of 2015”).
9. At the time of passing the assessment order, the AO made it clear that since the income cannot be taxed under both the Acts, namely, the Act of 2015 and the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), the assessment made under the Act of 1961 shall remain protective. 10. It is an admitted fact that subsequently by way of an order dated 06.12.2021, another AO under the Act of 2015 concluded the proceedings against the respondent-assessee by observing thus:
“7.4 In view of the totality of circumstances, it is clear that for STEL, Ms. Shriti Verma is clearly not the beneficial owner. In-fact, as per the express instruction of Ms. Ritu Verma, the assessee, Ms. Shriti Verma would have become the beneficiary only in the event of the death of Ms. Ritu Verma.
7.4.1 Even for the case of Master Experts Investments Ltd, the control and ownership of the assets clearly lies with Ms. Ritu Verma. Assets have been received in the entity Master Experts Investments Ltd from STEL, an entity clearly beneficially owned by Ms. Ritu Verma. The inclusion of the name of Ms. Shriti Verma in the list of beneficial owners of Master Experts Investments Ltd, in addition to Ms. Ritu Verma clearly stems from the intention of Ms. Ritu Verma to bestow the assets held in Master Experts Investments Ltd to Ms. Shriti Verma, an intention clearly expressed through her letter dated 09.06.2009 issues in respect of STEL. This however does not make such assets taxable in the hands of Ms. Shriti Verma. It is clear that such undisclosed foreign assets in the form of assets held in STEL, and Master Experts Investments Ltd have Ms. Ritu Verma as the beneficial owner.
7.4.2 In view of the above, I find that the various foreign assets forming the basis of issue of the notice u/s 10(1) dated 30.12.2020 in the case of the assessee are actually not held by the assessee Ms. Shriti Verma as the beneficial owner but are held by Ms. Ritu Verma as the beneficial owner. Accordingly, no addition is being made herein so far as the assessee Ms. Shriti Verma is concerned.”
10. In view of the above observations made by the AO in the order passed under the Act of 2015 that the respondent-assessee was not a beneficial owner, the Commissioner of Income Tax (Appeals)-31, New Delhi so also the Tribunal set aside the assessment order dated 27.12.2018.
11. Mr. Puneet Rai, learned Senior Standing Counsel for the appellant argued that the Appellate Authority was not legally justified in setting aside the assessment order dated 27.12.2018.
12. He further submitted that the appeal filed by the mother of the assessee, namely Ms. Ritu Verma is still pending and until such proceedings attain finality, no clean chit could be given to the respondent-assessee, who is the daughter of said Ms Ritu Verma.
13. He argued that according to the submissions made by the respondent-assessee during the proceedings under the Act 2015, the property would vest in the respondent after demise of Ms. Ritu Verma.
14. Having heard learned counsel for the appellant and upon perusal of the material available on record, we are of the view that no interference is warranted under this Court’s limited appellate jurisdiction under Section 260A of the Act of 1961.
15. The assessee’s mother Ms. Ritu Verma took the plea before the Authority under the Act of 2015 that firstly, she is not the beneficial owner of the subject property while also taking an alternative plea that if the property is held to be owned by her as the beneficial owner, then the property would ultimately devolve in Shriti Verma-assessee after her demise.
16. The mere fact that she stated that the property would vest in the respondent-assessee after her demise, cannot change the legal position. In other words, simply because the respondent-assessee is likely to inherit such property, the addition cannot be made, that too in the year under consideration.
17. We do not find any substance in the apprehension expressed by Mr. Puneet Rai, learned Senior Standing Counsel for the appellant that tomorrow Ms. Ritu Verma can change her version and take the plea that the property belong to her daughter namely, the respondent-assessee.
18. The appeals are, therefore, rejected.