DCIT, Circle-16(1), New Delhi vs Nature Pearls Pvt. Ltd.

PER M. BALAGANESH, A. M.:

This appeal of the Revenue arises out of the order passed by the Commissioner of Income Tax (Appeals) NFAC, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 7425/Del/2025 for A.Y. 2021-22 dated 04.09.2025 which in turn arises out of the order passed by the Assessing Officer, DCIT, Circle-16 (1), Delhi (hereinafter referred to as ‘ld. AO’) passed u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.03.2025.

The revenue has raised grounds challenging the deletion of addition of Rs 3 crores of amount received from M/s Star Rice Land Pvt Ltd and commission expenditure of Rs 9 lacs. The assessee in its cross-objections had challenged the validity of assumption of jurisdiction under Section 147 of the Act and consequential framing of reassessment as void ab initio.

We have heard the rival submissions and peruse the materials available on record. The assessee is a company engaged in the production of organic foods in India. The return of income for the assessment year 2021-22 was filed by the assessee company on 10-1-2022. A search action was conducted on 8-12-2021 in the case of Omkara Aerion Group. The assessee received a notice under section 148 of the Act on 22-3-2024 along with copy of reasons recorded which are placed in pages 52 to 55 of the paper book. The reasons recorded states that the assessee has obtained an accommodation entry amounting to Rs 3 crores from M/s. Kalpataru Fincap Ltd, which is controlled by the entry operators. For this recorded reason, approval under section 151 of the Act has been granted by the Learned PCIT. It was clarified by the assessee during the course of reassessment proceedings that assessee had not received any money from M/s. Kalpataru Fincap Ltd. for Rs 3 crores. Instead the assessee had paid a sum of Rs 3 crores to M/s Kalpataru Fincap Ltd. and assessee furnished all the relevant documentary evidences to support the same. The Learned AO agreed with the said contention of the assessee. However, the Learned AO proceeded to make a separate addition of Rs 3 crores on account of amount received from M/s Star Rice Land Pvt. Ltd. treating the same as an accommodation entry and further added Rs 9 lakhs as commission expenditure under section 69C of the Act and completed the reassessment. This addition of Rs 3 crores was deleted by the Learned CITA by holding that it is a genuine transaction of receipt by the assessee in a routine manner and assessee had satisfactorily explained the nature and source of credit thereon. The Learned CITA also held that assessee had given loan of Rs 3 crores to Kalpataru Fincap Ltd out of sufficient sources available with it in the form of reserves and surplus. Since the core addition of Rs 3 crores was deleted by the Learned CITA, the addition made on account of commission expenditure of Rs 9 lacs under section 69C of the Act was also deleted by the Learned CITA. Aggrieved by the said action, the revenue is in appeal before us on deletion of addition on merits and assessee has preferred cross objections on invalid assumption of jurisdiction under section 147 of the Act and consequential framing of reassessment.

The reasons recorded for reopening the assessment for assessment year 2021-22 states that assessee had received amount of Rs 3 crores during the year under consideration from M/s Kalpataru Fincap Ltd. This fact has been found to be incorrect by the Learned CITA in Para 6.3.4. of his order. The Learned CITA had noted that assessee had only paid a sum of Rs 3 crores to M/s Kalpataru Fincap Ltd. Hence the Learned AR stated that the entire reasons recorded for assuming jurisdiction under Section 147 of the Act are based on incorrect assumption of fact, which would become fatal to the reassessment proceedings. Further, he stated that the reopening under Section 147 of the Act is invalid as no addition has been made on the issue for which the reasons were recorded i.e. alleged accommodation entry of Rs 3 crores stated to be received from M/s Kalpataru Fincap Ltd and the additions ultimately made was on account of amounts received from M/s Star Rice Land Private Ltd in the sum of Rs 3 crores under Section 68 of the Act and alleged commission of Rs 9 lakhs under Section 69C of the Act which are totally unconnected with the recorded reasons. Per contra, the Learned D.R. vehemently relied on the orders of the lower authorities qua the grounds raised in the cross objections and supported the order of the Learned AO in support of the grounds of appeal raised in revenue’s appeal.

We find the assessment of the assessee has been reopened on the ground that assessee had received a sum of Rs 3 crores from M/s Kalpataru Fincap Ltd which was sought to be treated as accommodation entry. Factually the assessee had only paid Rs 3 crores to M/s Kalpataru Fincap Ltd and not received money from the said party. Hence it stands clearly established that the reopening of reasons had been made based on incorrect assumption of fact which would be fatal to the very assumption of jurisdiction under section 147 of the Act and consequential framing of reassessment. Accordingly , the grounds raised in the Cross objections of the assessee are hereby allowed and reassessment proceedings are quashed for invalid assumption of jurisdiction.

Since the entire reassessment is quashed, the adjudication of grounds raised by the revenue become academic in nature and they are left open.

In the result, the cross objections of the assessee is allowed and the appeal of the revenue is dismissed as infructuous.