Understanding the Judgment: Raj Kumar Prop. M/s Raj Cotton & Oil Mills vs. DCIT, CC-1, Gurgaon (ITA No. 807/Del/2022)

The Income Tax Appellate Tribunal Delhi Bench ‘F’ delivered a crucial judgment on 9th February 2023, regarding the appeal filed by Raj Kumar, the proprietor of M/s Raj Cotton & Oil Mills, against the decision of the Commissioner of Income Tax (Appeals) – 3, Gurgaon, pertaining to the assessment year 2011-12.

Background of the Case

Raj Kumar, through his legal representatives, contested multiple grounds relating to the initiation of proceedings under section 147 of the Income-tax Act, 1961, and the subsequent assessment under section 147/143(3). Central to their argument was the contention that the proceedings were initiated without jurisdiction, lacking concrete, relevant, and tangible material that would justify the belief that the appellant’s income had escaped assessment. Additionally, the appellant argued that the requisite approval under section 151 of the Act was not obtained, rendering the proceedings under section 147 and the assessment under 147/143(3) as void ab initio. Another vital dispute was regarding the issuance and serving of notice under section 143(2) after the appellant’s response to notice under section 148, which, according to the appellant, compromised the legality of the assessment order framed.

The appellant also challenged the addition of Rs. 10,48,420 to his income for AY 2011-12, out of an initial addition of Rs. 1,12,83,338, claimed to be resultant from purported sales with M/s Sh. Shyam Trading Company. This company was alleged to be a paper entity associated with money laundering activities under the purview of Sh. Vipin Garg. Furthermore, Raj Kumar’s adherence to statutory bookkeeping requirements and his opposition to the rejection of his books of accounts under section 145(3) and the imputation of income under section 144 were contested points.

The Tribunal’s Decision

In a resonant judgment, the tribunal partly allowed the appeal, instigating a meticulous re-examination of the jurisdictional premise behind the initiation of proceedings under section 147. The tribunal acknowledged the appellant’s contention regarding the non-issuance of notice under section 143(2) subsequent to his response to the notice under section 148, calling into question the legality of the assessment order framed thereafter.

This directive necessitated a fresh examination by the Commissioner of Income Tax (Appeals) to ascertain the accuracy of the appellant’s claims regarding the jurisdictional validity of the reassessment proceedings. However, the tribunal refrained from delivering a conclusive verdict on the merits of the additions to the appellant’s income. It underscored the necessity for a thorough re-evaluation, suggesting that the eventual determination regarding the jurisdictional issues could potentially invalidate the reassessment process altogether.

Implications of the Judgment

The tribunal’s decision in ITA No. 807/Del/2022 marks a significant procedural clarification concerning the reassessment proceedings under the Income Tax Act. It emphasizes the critical necessity for adherence to the procedural safeguards provided by the Act, especially concerning the issuance of notices and the establishment of jurisdiction before proceeding with reassessment. The judgment, by remanding the issue to the CIT(A) for a re-assessment of the jurisdictional facts, opens avenues for a thorough procedural check on reassessment proceedings, potentially affecting similar cases across the board.

In conclusion, while the tribunal’s decision to partly allow the appeal does not conclude the substantive issues of the case, it sets a pivotal precedent on the procedural aspects of tax reassessment, underscoring the importance of jurisdictional compliance. The outcome of the CIT(A)’s re-evaluation following the tribunal’s directive remains to be seen, promising substantial implications for the appellant and the jurisprudence of income tax reassessment.