Facts of the Case

  • A search under Section 132 was conducted on Kouton Group.
  • During search, a Memorandum of Understanding (MOU) relating to share transactions was seized.
  • Based on this, proceedings under Section 153C were initiated against the assessee.
  • The assessee filed return declaring income, but assessment was enhanced substantially.
  • Before CIT(A), the assessee challenged:
    • Additions on merits
    • Validity of Section 153C proceedings (lack of satisfaction note & nexus)
  • CIT(A):
    • Rejected legal grounds
    • Allowed appeal on merits (deleted additions)
  • Revenue appealed before ITAT.
  • Assessee invoked Rule 27 to challenge jurisdictional findings.
  • ITAT:
    • Refused to entertain Rule 27 arguments on technical grounds
    • Allowed Revenue’s appeal and remanded matter

Issues Involved

  1. Whether Rule 27 allows a respondent to raise legal grounds without filing cross-appeal or cross-objections?
  2. Whether ITAT was justified in rejecting Rule 27 plea on technical grounds?
  3. Whether reassessment under Section 153C is valid without:
    • Satisfaction note
    • Nexus with incriminating material?

Petitioner’s Arguments (Assessee)

  • Rule 27 permits raising grounds decided against the respondent even without formal application.
  • No requirement of filing written application under Rule 27.
  • ITAT wrongly applied non-notified draft rules (2017).
  • Jurisdictional issues (like validity of Section 153C) go to root and must be adjudicated.
  • ITAT failed to exercise jurisdiction by ignoring settled legal principles.

Respondent’s Arguments (Revenue)

  • Assessee did not file cross-appeal or cross-objections under Section 253(4).
  • Rule 27 cannot be used to expand scope of appeal.
  • Validity issue had attained finality.
  • Allowing Rule 27 would prejudice Revenue’s position.
  • Relied on precedents like:
    • CIT vs Divine Infracon Pvt Ltd
    • CIT vs Edward Keventer (Successors) Pvt Ltd

Court Findings / Judgment

  • ITAT adopted an overly technical and incorrect approach.
  • Rule 27:
    • Does not mandate filing of written application
    • Is an enabling provision
  • A respondent can:
    • Support order on grounds decided against him
  • Jurisdictional issues:
    • Go to the root of the matter
    • Cannot be ignored
  • ITAT erred in:
    • Refusing to consider Rule 27 grounds
    • Misinterpreting procedural requirements
  • Appeal allowed
  • Matter remanded to ITAT
  • Direction to reconsider case including Rule 27 grounds

Important Clarifications

  • Rule 27 is independent of cross-appeal and cross-objection mechanisms.
  • No prescribed format or written application is mandatory.
  • A respondent can:
    • Defend favorable order
    • Even on grounds decided against him
  • However:
    • Cannot expand subject matter beyond appeal scope
  • Jurisdictional defects (like invalid Section 153C proceedings):
    • Must be examined at any stage

Sections Involved

  • Section 260A, Income Tax Act, 1961
  • Section 153C, Income Tax Act, 1961
  • Section 132, Income Tax Act, 1961
  • Section 142(1), Income Tax Act, 1961
  • Section 253(4), Income Tax Act, 1961
  • Rule 27, ITAT Rules, 1963
  • Rule 22, ITAT Rules, 1963
  • Rule 46A(3), Income Tax Rules, 1962

 Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:1935-DB/SVN18052020ITA8342019_201703.pdf


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