Reassessment Quashed: Delhi High Court Upholds Full Disclosure in Share Capital Case:

Reassessment Quashed: Delhi High Court Upholds Full Disclosure in Share Capital Case K.R. Pulp & Papers Ltd., a public company that manufactures kraft paper. The company filed its income tax return for the year 2009-10, where it disclosed an income of Rs. 1,95,97,146. An assessment order was passed under Section 143(3), where income was increased to Rs. 5,84,39,170 as a deduction under Section 80IA was disallowed. However, this was later allowed by CIT(A) and ITAT.

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Years later, when this case was reopened on March 26, 2016, the Income Tax Department claimed that Rs. 25.32 crore of share capital and premium was unexplained and the assessing officer passed a reassessment order, adding Rs. 25,32,35,000 to the income under Section 68. On receiving the order, the company filed an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)].

CIT(A) Decision

The Commissioner of Income Tax (Appeals) cancelled the reassessment, stating that:

• The reasons for reopening were vague.
• There was no solid proof found during the search.
• The funds were from NBFCs that were filing regular returns.

The Income Tax Department appealed to the ITAT as it was not satisfied with this decision.

ITAT Decision

The Income Tax Appellate Tribunal also agreed with CIT(A) and stated that:

• The case was opened after 4 years and the original assessment was already done under Section 143(3).
• The AO did not prove that the Assessee failed to disclose relevant facts in the original assessment, which violated the first proviso to Section 147.

High Court Verdict

The high court rejected the appeal of the income tax department, agreeing with CIT(A) and ITAT. It ruled that the reassessment under Section 147 of the Act was invalid. The Department should have proved that the Assessee failed to disclose relevant facts in the original assessment if the assessment was reopened after 4 years. Additionally, the court held that the assessing officer cannot use vague reasons to reopen the case.