ITAT Deletes Protective Addition for Foreign Assets; Assessee Held Not Beneficial Owner in Black Money Act Order

ITAT Deletes Protective Addition for Foreign Assets; Assessee Held Not Beneficial Owner in Black Money Act Order

Issue

Whether a “protective addition” made under the Income-tax Act for undisclosed foreign assets can be sustained when the Assessing Officer himself, in a subsequent order passed under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015 (BMA), has categorically held that the assessee is not the beneficial owner of those assets.

Facts

• Assessee: Ms. Shriti Verma.

• Search: A search was conducted on 17.12.2015 on the Ritu Verma group.

• The Allegation: Foreign bank accounts with Bank Julius Baer & Co. (in the name of Master Expert Investment Ltd.) were discovered. The AO alleged that the assessee (Shriti Verma) and her mother (Ritu Verma) were the beneficial owners based on passport copies found in the account opening forms.

• Assessment (Income Tax Act): The AO made a protective addition of Rs. 45.17 Crores in the hands of the assessee for AY 2013-14 (and similar additions for other years), stating that the substantive addition would be made under the Black Money Act.

• Assessment (Black Money Act): Subsequent to the income tax assessment, the AO passed an order under Section 10(3) of the Black Money Act on 06.12.2021.

• Finding in BMA Order: After a detailed examination, the AO concluded that the assessee (Shriti Verma) was NOT the beneficial owner. The assets were held to be beneficially owned solely by her mother, Ms. Ritu Verma. No addition was made in the hands of the assessee under BMA.

• CIT(A)’s Order: The CIT(A) deleted the protective income tax addition, relying on the AO’s own finding in the BMA order that exonerated the assessee.

Decision

• The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeals and upheld the deletion of the additions.

• Contradictory Findings: The Tribunal noted that the findings in the income tax assessment (based on surmises) were directly contradicted by the detailed findings in the BMA assessment (based on evidence).

• Binding Effect of BMA Order: Since the AO himself concluded under the substantive law (BMA) that the assessee was not the beneficial owner, the basis for the protective addition under the Income-tax Act collapsed.

• Outcome: The protective additions for all assessment years (2011-12 to 2014-15) were deleted.

Key Takeaways

• Protective Assessment Limits: A protective assessment survives only as long as the issue of ownership is in doubt. Once the department itself determines (in another proceeding) that the assessee is not the owner, the protective demand must be dropped.

• Black Money Act vs. Income Tax Act: Findings under the specific BMA regarding foreign assets carry significant weight and can override preliminary findings made under the general Income-tax Act.

• Beneficial Ownership: Being named in an account document (e.g., as a future beneficiary or authorized signatory) does not automatically make one the “beneficial owner” for tax purposes if the control and source of funds lie elsewhere (e.g., with the parent).