Facts of the Case

The respondent-assessee, Spirit Global Construction Pvt. Ltd., filed its return declaring income of ₹1.04 crore, which was processed under Section 143(1). Subsequently, search and survey operations under Sections 132 and 133A were conducted on the KJS Group and related entities.

Based on alleged incriminating material, the Assessing Officer (AO) formed a belief that the assessee had received accommodation entries in the form of loans amounting to ₹7 crores from shell entities (Tanish Tradecom Pvt. Ltd. and Puneet Oils & Chemicals Ltd.), leading to reopening of assessment under Sections 147/148.

The AO added the amount under Section 68 as unexplained cash credit. The addition was upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal allowed the assessee’s appeal by admitting an additional ground challenging jurisdiction.

Issues Involved

  1. Whether the Tribunal was justified in admitting an additional ground relating to jurisdiction not raised earlier?
  2. Whether reassessment proceedings under Sections 147/148 were valid in absence of proper “reason to believe”?
  3. Whether vague and non-specific reasons recorded by the AO invalidate reassessment proceedings?

Petitioner’s Arguments (Revenue)

  • The Tribunal erred in admitting a new jurisdictional ground at appellate stage.
  • The assessee failed to prove genuineness and creditworthiness of loan transactions under Section 68.
  • The AO’s reference to a deleted provision was a curable defect under Section 292B.
  • The reassessment proceedings were validly initiated based on material found during search.

Respondent’s Arguments (Assessee)

  • Jurisdictional issues can be raised at any stage as they go to the root of the matter.
  • The AO failed to provide proper reasons showing nexus between material and belief of escaped income.
  • The reopening was based on borrowed satisfaction and lacked independent application of mind.
  • The defect was not procedural but substantive, hence Section 292B cannot cure it.

Court’s Findings / Order

  • The Tribunal rightly admitted the additional jurisdictional ground as it involved a pure question of law.
  • The AO failed to establish a “live link” between material and belief of escaped income, which is a mandatory condition under Section 147.
  • The reasons recorded were vague, lacked specificity, and did not disclose the basis for treating entities as “dubious.”
  • Mere suspicion cannot substitute “reason to believe.”
  • Reference to a deleted statutory provision further indicated non-application of mind.
  • Section 292B could not cure such fundamental jurisdictional defects.

Important Clarification

  • “Reason to believe” must be based on tangible material with a clear nexus, not mere suspicion.
  • Jurisdictional defects in reassessment can be raised at any stage.
  • Mechanical reopening based on investigation wing inputs without independent analysis is invalid.
  • Section 292B cannot cure substantive illegality affecting jurisdiction.

Link to download the order - 

https://delhihighcourt.nic.in/app/showFileJudgment/RAS18072023ITA1912018_151626.pdf

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