Facts of the Case

The assessee, M/s K.R. Pulp and Papers Ltd., a public limited company engaged in manufacturing kraft and brown paper, filed its return of income for Assessment Year 2009–10 on 26.09.2009 declaring income of ₹1,95,97,146/-. The assessment was completed under Section 143(3) on 22.11.2011, wherein deduction claimed under Section 80IA was disallowed. The said disallowance was subsequently deleted by the Commissioner of Income Tax (Appeals) and affirmed by the Income Tax Appellate Tribunal.

Thereafter, pursuant to a search conducted in group cases on 08.07.2015, the Assessing Officer reopened the assessment by issuing notice under Section 148 on 29.03.2016. Reassessment proceedings culminated in an order dated 31.12.2016 passed under Section 147 read with Section 143(3), making an addition of ₹25,32,35,000/- under Section 68 on account of alleged unexplained share capital and share premium.

Issues Involved

Whether reassessment proceedings initiated beyond four years from the end of the relevant assessment year were valid in the absence of any allegation or material showing failure on the part of the assessee to disclose fully and truly all material facts, and whether the Assessing Officer had validly assumed jurisdiction under Section 147.

Petitioner’s Arguments (Revenue)

The Revenue contended that reopening was based on tangible material received from the Investigation Wing pursuant to search and post-search enquiries, which revealed that the assessee had received share capital at exorbitant premium from accommodation entry providers. It was argued that mere furnishing of PAN, bank statements, and confirmations during original assessment did not amount to true disclosure and that subsequent information justified reopening. Reliance was placed on various judicial precedents to argue that sufficiency of material is not to be examined at the stage of reopening.

Respondent’s Arguments (Assessee)

The assessee submitted that all primary facts relating to share capital were fully disclosed during the original assessment proceedings, including details of shareholders, PAN, bank statements, and income tax returns. It was argued that the reasons recorded for reopening were vague, general, factually incorrect, and did not specify any failure to disclose material facts. The assessee further contended that no incriminating material relating to share capital was found during search and that reopening amounted to a mere change of opinion.

Court Order / Findings

The Delhi High Court upheld the concurrent findings of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The Court held that the reasons recorded for reopening did not disclose how the assessee had failed to make a full and true disclosure of material facts, which is a mandatory jurisdictional requirement under the first proviso to Section 147 when reopening is sought beyond four years.

The Court noted that the Assessing Officer had relied mechanically on information from the Investigation Wing without independent application of mind and without confronting the assessee with the alleged material or statements. It was also observed that the reasons contained factual inaccuracies, lacked specific details of alleged accommodation entries, and did not refer to any incriminating material found during search.

The Court further held that issues relating to share capital had already been examined during the original assessment under Section 143(3), and in the absence of new tangible material, reopening amounted to impermissible review on change of opinion.

Important Clarification

The Court clarified that for reopening beyond four years, it is not sufficient to merely reproduce the language of the proviso to Section 147. The reasons must clearly indicate which material facts were not disclosed and how such failure led to escapement of income. Vague investigation inputs and unverified third-party statements cannot confer jurisdiction for reassessment.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal and held that the reassessment proceedings and the assessment order passed under Section 147 read with Section 143(3) were void ab initio and unsustainable in law.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769676999_PR.COMMISSIONEROFINCOMETAXCENTRAL2VsMSK.R.PULPANDPAPERSLTD..pdf

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