Facts of the Case

The assessee, Sunlight Tour and Travels Pvt. Ltd., had originally filed its return for Assessment Year 2007–08, which was scrutinised and assessed under Section 143(3). Subsequently, the Assessing Officer reopened the assessment by issuing notice under Section 148 on the basis of information received from the Investigation Wing alleging that the assessee had received accommodation entries aggregating to ₹88,00,000/- from certain entities controlled by an entry operator.

During reassessment proceedings, the Assessing Officer did not make any addition on account of the alleged accommodation entries forming the basis of the recorded reasons. However, the Assessing Officer noticed an amount of ₹6,01,00,000/- reflected as share premium in the balance sheet and made an addition under Section 68 on the ground that the assessee failed to establish its genuineness.

The CIT(A) rejected the assessee’s challenge to jurisdiction but deleted the addition on merits. The Revenue appealed before the ITAT. The assessee, by invoking Rule 27 of the ITAT Rules, supported the deletion on the additional ground that no addition could be made once the original reason for reopening failed. The ITAT accepted this contention and deleted the reassessment.

Aggrieved, the Revenue filed an appeal before the Delhi High Court.

Issues Involved

Whether reassessment proceedings under Section 147 can survive when no addition is made on the issue forming the basis of the recorded reasons for reopening, and whether independent additions under Section 68 are permissible in such circumstances.

Petitioner’s Arguments (Revenue)

The Revenue argued that Explanation 3 to Section 147 empowers the Assessing Officer to assess any other income that comes to notice during reassessment proceedings, even if it was not part of the original reasons for reopening. It was contended that the ITAT erred in quashing the reassessment without examining the merits of the addition under Section 68.

Respondent’s Arguments (Assessee)

The assessee contended that the jurisdiction under Section 147 is conditional upon assessment or reassessment of the income for which reasons were recorded. Since no addition was made on the alleged accommodation entries, the Assessing Officer could not travel beyond the recorded reasons to make an independent addition. Reliance was placed on binding precedents including Ranbaxy Laboratories Ltd. and Jet Airways (I) Ltd.

Court Order / Findings

The Delhi High Court examined the scope of Section 147 as it stood during the relevant assessment year and reiterated that the words “and also any other income” in Section 147 are conjunctive. The Court held that reassessment must necessarily involve assessment or reassessment of the income which formed the basis of the “reason to believe”.

The Court noted that in the present case, the Assessing Officer did not make any addition in respect of the alleged accommodation entries of ₹88,00,000/- which were the sole basis for reopening. Consequently, the jurisdiction to make any other addition, including under Section 68, did not survive.

The Court relied upon and reaffirmed its earlier decisions in Ranbaxy Laboratories Ltd., ATS Infrastructure Ltd., PCIT v. Jaguar Buildcon Pvt. Ltd., and the Bombay High Court judgment in Jet Airways (I) Ltd. The Court clarified that Explanation 3 to Section 147 does not override the substantive requirement that the original reason for reopening must result in an addition.

Important Clarification

The Court clarified that Explanation 3 to Section 147 merely removes the restriction that reassessment must be confined only to issues mentioned in the recorded reasons, but it does not permit reassessment to continue where the foundational reason for reopening itself fails.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the ITAT’s order and held that in absence of any addition on the issue forming the basis of reopening, the reassessment proceedings and the consequential addition under Section 68 were without jurisdiction and unsustainable in law.

 

Link to download the order – https://www.mytaxexpert.co.in/uploads/1769851035_PR.COMMISSIONEROFINCOMETAX7VsSUNLIGHTTOURANDTRAVELSPVT.LTD..pdf

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