Introduction
The Income Tax Appellate Tribunal (ITAT) Delhi Bench delivered a landmark ruling in Sunil Kumar Jain vs. ITO (ITA No. 2429/Del/2023) on April 15, 2025, quashing reassessment proceedings for the Assessment Year (AY) 2012-13 due to procedural irregularities. This case highlights the critical importance of adhering to statutory requirements under the Income-tax Act, 1961, particularly in reassessment proceedings under Section 147. For taxpayers, tax professionals, and legal practitioners, this ruling offers valuable insights into the procedural safeguards that protect against invalid reassessments. This blog provides an in-depth analysis of the case, its legal implications, and practical takeaways.
Case Background
Sunil Kumar Jain, a Chartered Accountant and proprietor of SKJ Associates, filed his income tax return for AY 2012-13 on July 31, 2012, declaring a total income of Rs. 4,24,560 from professional earnings, capital gains, and other sources. No regular assessment was conducted on this return at the time. However, in 2019, the Income Tax Officer (ITO), Ward-61(3), New Delhi, initiated reassessment proceedings under Section 147 of the Income-tax Act based on information received from the Deputy Director of Income Tax (Investigation), Sriganganagar.
The investigation alleged that Jain had received a 0.75% commission for arranging accommodation entries for the Supreme Group. These entries involved introducing unaccounted income through bogus share capital or share premium via shell companies, including M/s GRG MercantilesPvt. Ltd., M/s Disha Commercial Pvt. Ltd., M/s Balbir Investment Pvt. Ltd., and M/s Preet Milk Food Pvt. Ltd. During the investigation, Jain admitted that these companies were used for accommodation entries, facilitated primarily by his partner, Shri Satish Monga, a fellow Chartered Accountant. Monga also confirmed receiving a 2.2% commission, of which 1.5% was shared with Jain.
Based on this information, the ITO issued a notice under Section 148 on March 19, 2019, to reopen the assessment. Jain responded by refiling his return on November 4, 2019, declaring the same income of Rs. 4,24,560. The reassessment order, passed on December 12, 2019, under Sections 147 and 143(3)/144, was challenged by Jain before the Commissioner of Income Tax (Appeals)-27, New Delhi, and subsequently appealed to the ITAT.
Key Issue Before the ITAT
The primary issue before the ITAT was whether the ITO had validly assumed jurisdiction under Section 147 to reopen the assessment. Jain’s counsel, Dr. Kapil Goel, argued that the reassessment was procedurally flawed, citing two critical lapses:
- The reasons recorded for reopening the assessment were undated and lacked quantification of the income that allegedly escaped assessment.
- The approval obtained under Section 151, mandatory for initiating reassessment, was not furnished to Jain along with the reasons for reopening.
Additionally, Jain initially raised a ground that the reassessment order lacked a Document Identification Number (DIN), as required by CBDT Circular No. 19/2019. However, this ground was not pressed during the hearing and was dismissed by the ITAT.
ITAT’s Analysis and Ruling
The tribunal’s findings and ruling were grounded in legal precedent and statutory interpretation, as outlined below:
- Undated and Vague Reasons: The ITAT noted that the reasons recorded for reopening the assessment, provided to Jain, were undated and failed to specify the amount of income that had allegedly escaped assessment. This lack of clarity violated the principles of transparency and specificity required for valid reassessment proceedings. The absence of a date further undermined the procedural integrity of the reasons, rendering them defective.
- Non-Disclosure of Section 151 Approval: The ITAT emphasized that the ITO’s failure to provide the approval obtained under Section 151 was fatal to the reassessment. Section 151 mandates that reassessment proceedings require prior approval from a specified authority, depending on the time elapsed since the original assessment year. The Delhi High Court’s ruling in Tia Enterprises Pvt Ltd vs. ITO (468 ITR 5) was pivotal in this context. The court held that:
“13. To our minds, the approval granted by the statutory authorities, as requiredunder the provisions of the Act, has to be furnished to an assessee along withthe reasons to believe. The statutory scheme encapsulated in the Act providesthat reassessment proceedings cannot be triggered till the Assessing Officer hasreasons to believe that income, which is otherwise chargeable to tax, hasescaped assessment and the reasons recorded by him are placed before thespecified authority for grant of approval tocommence the process ofreassessment.”
The ITAT observed that the ITO’s failure to supply the Section 151 approval alongside the reasons violated this mandatory requirement, rendering the reassessment proceedings invalid.
- Supreme Court’s Affirmation: The Delhi High Court’s decision in Tia Enterprises was challenged by the revenue before the Supreme Court, which dismissed the Special Leave Petition (468 ITR 10) with a speaking order:
“2. In view of the categorical finding recorded in para 13 of the impugnedjudgement and in the facts of the case, no case for interference is made out inexercise of ourjurisdiction under article 136 of the Constitution of India. Thespecial leave petition is accordingly dismissed.”
This dismissal reinforced the binding nature of the Delhi High Court’s ruling, solidifying the precedent that procedural compliance, including furnishing Section 151 approval, is non-negotiable.
- Quashing of Reassessment: Based on these findings, the ITAT held that the ITO’s assumption of jurisdiction under Section 147 was fundamentally flawed. The tribunal quashed the entire reassessment proceedings, stating that the procedural lapses were sufficient to invalidate the process. Other grounds raised by Jain were not adjudicated, as the technical defects were decisive.
Final Words
During the hearing on 11th February 2025, the assessee’s counsel, Dr. Kapil Goel, argued that the reassessment was void ab initio due to non-compliance with procedural requirements. He emphasized that:
- As per the Delhi High Court ruling in Tia Enterprises Pvt Ltd v. ITO [468 ITR 5 (Del)], approval under Section 151 must be shared with the assessee.
- The absence of quantification and date in the reasons rendered the entire notice defective.
- The Supreme Court had upheld the High Court’s view by dismissing the SLP (468 ITR 10 SC), reinforcing that failure to share statutory approvals with the assessee is a fatal flaw.
After considering the submissions and relying on the above precedents, the ITAT concluded that the jurisdictional requirement under Section 147 was not met. The failure to provide mandatory documents such as the approval under Section 151 along with the reasons to believe led the Tribunal to quash the reassessment proceedings.
The ITAT, in its order dated 15th April 2025, ruled in favor of the assessee, stating:
Respectfully following the aforesaid decisions, I hold that the entireassumption of jurisdiction under section 147 of the Act in the instant case isflawed and accordingly the reassessment proceedings are hereby quashed.Since the entire re-assessment is quashed on technical ground, the othergrounds need not be gone into and they are left open. Accordingly, thegroundsraised by the assessee are allowed.
Since the reassessment was quashed on technical grounds, other substantive grounds raised in the appeal were not adjudicated.
