INCOME TAX OFFICER, DELHI vs. ALLEGIANCE MANAGEMENT SERVICES PRIVATE LIMITED, DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE MS MADHUMITA ROY, JUDICIAL MEMBER AND SMT. RENU JAUHRI, ACCOUNTANT MEMBER ITA No.4585/Del/2025 (A.Y 2012-13) Income Tax Officer Vs. Allegiance Management Room No. 375, Central Services Private Limited Revenue Building, I. P. Estate, MU 68, D, Pitampura, New Delhi, New Delhi (Appellant) (Respondent) PAN: AAJCA5423B Assessee by : Shri Sanjay Aggarwal, CA and Shri Sumaksh Mahajan, CA Revenue by: Shri Rajesh Kumar Dhanesta, SR. DR Date of Hearing 13/07/2026 Date of pronouncement 01/09/2026

O R D E R PER MADHUMITA ROY, JM.: The instant appeal filed by the Revenue is directed against the

order dated 18.06.2025 passed by the Ld. Commissioner of Income-

tax (Appeals)-27, Delhi under Section 250 of the Income Tax Act, 1961

(hereinafter referred to as ‘the Act’) arising out of the Assessment

Order dated 21.12.2019 passed by the Assessment Unit, Income-tax

Department under Section 147/143(3) of the Act for Assessment Year

2012-13.

object of providing consultancy and other allied business services,

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filed its original return of income on 31.03.2013 declaring an income

at Rs. 5,63,150/- under the normal provision and Rs. 9,23,115/-

under Section 115JB of the Act (Minimum Alternate Tax provision) for

A.Y 2012-13. Initially, the case of the assessee was selected for

scrutiny under (CASS) System and upon issuance of notice under

Section 143(2) of the Act dated 12.08.2013 followed by notices under

Section 142(1) of the Act accompanied by questionnaires details

regarding share application money and share premium received by the

company during the relevant Financial Year and the details regarding

the purchase of property in Mumbai and reserves and surplus shown

in the balance sheet were called for. A comprehensive documentation

was furnished including confirmation from the investors, copies of

their respective income tax returns, their balance sheets and relevant

excerpts from their bank statements. Copies of Board Resolutions

authorizing the allotment of shares and proof of filing of PAS-3

(Return of Allotment) with Registrar of Companies (ROC) were duly

filed which ultimately encompassed the particulars of share capital

and premium receipt from five distinct parties, amounting to Rs.

3,25,00,000/- and upon thorough examination and consideration of

all the relevant documents submitted by the Assessee, the assessment

under Section 143(3) was completed by the Assessing Officer on

22.12.2014 accepting their original return filed by the Assessee.

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Assessing Officer from the office of the DCIT, Investigation, New Delhi

dated 20.03.2019 alleging appellant had purchased immovable

property in Mumbai of Rs. 3,00,00,000/- during the Financial Year

2011-12, andupon reviewing the companies ITR and other details, the

Ld. AO noted that the appellant had paid up of capital of Rs. 8.71

lakhs and had shown general reserves of Rs. 3.17 Crore during the

relevant assessment years. The Ld. AO observed that the company

has received substantial share premium of Rs. 3.17 crore on the issue

of 77,500/-shares at premium of Rs. 990/- per share. The Ld. AO

considered the valuation to be usually high and unsupported by

companies financial standing and profitability at that time.

parties from whom these share premium was received in order to

ascertain the identity and creditworthiness of those parties and the

genuineness of the transactions. On the basis of the statement made

by the Directors of these Companies, the Assessing Officer formed the

reason to believe that income amounting to Rs. 3,17,16,000/- has

escaped for A.Y 2012-13 and suspected the appellant issued shares to

non existing companies and created bogus general reserves. While

recording reason of reopening of assessment it was specifically stated

by the Ld. AO that no assessment has been made in the case of the

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assessee for A.Y 2012-13 under Section 147 of the Act and, therefore,

the first proviso to Section 147 of the Act is not applicable to the case

in hand. Such reassessment under Section 147 r.w. Section 143(3)

was culminated in making addition of Rs. 3,25,00,000/- in the case in

hand of the assessee under Section 68 of the Act which was in turn

deleted by the Ld. CIT(A). Hence, the instant appeal filed by the

Revenue before us.

of the matter has drawn our attention to this ground of appeal raised

before the Ld. CIT(A) challenging the order of Ld. AO on facts and in

law as the reason to believe containing reference to the facts that no

assessment under Section 143(3) of the Act was made for the A.Y

2012-13 is wrong as assessment was duly completed under Section

143(3) of the Act by and under its order dated 22.12.2014. Since

there is a critical factual error in the very ‘reason to believe’ recorded

by the Ld. AO, the legality of reopening of assessment specially beyond

four years fails and thus, liable to be quashed as was the crux of

submissions made by the Ld. AR. It was further argued by the Ld. AR

that issuance of notice under Section 148 of the Actnot in compliance

with the proviso of Section 147 of the Act, as ‘reason to believe’ does

not allege any failure on the part of the assessee to disclose fully or

truly all material facts necessary for his assessment as per the first

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proviso to Section147 of the Act since such notice of reassessment was

issued beyond four years from the end of the relevant assessment

year. As re-assessment initiated by the Ld. AO is without jurisdiction

the same is liable to be quashed. As the Ld. CIT(A) considered this

particular aspect of the matter and granted relief to the assessee, the

Ld. AR supported the same. In this regard, he has drawn our

attention to the following relevant observations made by the Ld.

CIT(A)in the order impugned itself:

“5.1 Factual Incorrectness of Reasons Recorded (Existence of 143(3) Assessment) - (Grounds 1, 2, 3) The Assessing Officer's jurisdiction to initiate reassessment proceedings u/s 147 is predicated upon having a "reason to believe" that income has escaped assessment. In this case, a pivotal element of the AO's recorded reasons was the explicit statement that "no assessment has been made in this case for AY 2012-13 u/s 143(3) or u/s 147, the first proviso to section 147 is not applicable to the case". This assertion was foundational to the AO's belief that the reassessment could be initiated beyond the four-year period without the stringent conditions of the proviso to Section 147 being met. The appellant has vehemently contended that this foundational statement by the AO is factually incorrect and demonstrably false. The appellant provided clear evidence, including the original assessment order dated 22.12.2014, to show that a full-fledged scrutiny assessment u/s 143(3) of the Act was indeed completed for A.Y. 2012-13, wherein the returned income was accepted after thorough examination. The appellant had also specifically highlighted this factual inaccuracy in its objections filed against the reopening. The legal position on reopening of assessment based on factually incorrect premises is well-settled by judicial pronouncements. The Hon'ble Gujarat High Court in the case of Mumtaz Haji Mohmad Memon v. ITO (2018) 408 ITR 268 (Guj)(HC), held that if an Assessing Officer reopens an assessment on an incorrect factual

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premise, such as the assessee not having filed a return, the reopening itself is rendered invalid. The court emphasized that even if there might be an alternative justifiable reason for income escaping assessment, it cannot cure the jurisdictional defect if the recorded reasons do not explicitly refer to that specific justification and are instead based on a factually erroneous premise. Similarly, the Income Tax Appellate Tribunal (ITAT), Delhi, in Tarun Verma vs. ITO ITA No.2496/DEL/2018 dt.15.11.2019, ruled that if the Assessing Officer records facts that are incorrect, contradictory, and vague, indicating a failure to apply independent mind, the reassessment proceedings are invalid. The AO's "reason to believe" for reopening the assessment is thus built upon a demonstrably false premise. This is not a minor procedural oversight but a fundamental flaw that strikes at the very root of the jurisdiction to initiate reassessment proceedings. The AO's erroneous belief that no Section 143(3) assessment had been carried out directly led to the incorrect conclusion that the proviso to Section 147 was inapplicable. This chain of events, starting from a factual misstatement, directly undermines the validity of the entire reassessment. The principle here is that the jurisdiction to reopen, especially after the expiry of four years, is strictly conditional upon the validity of the reasons recorded. If the underlying fact forming the belief is incorrect, then the belief itself is flawed, and consequently, jurisdiction is not properly invoked. Therefore, the reassessment proceedings are invalid ab initio due to this fundamental factual incorrectness in the reasons recorded. 5.2 Non-Compliance with Proviso to Section 147 (Failure to Disclose Material Facts) - (Ground 4) This ground of appeal centers on the applicability of the first proviso to Section 147 of the Act. As the notice u/s 148 was issued on 25.03.2019, which is beyond four years from the end of the relevant assessment year (A.Y. 2012-13 ended on 31.03.2013), the proviso becomes directly relevant. This proviso stipulates that where an assessment u/s 143(3) has already been made for the relevant assessment year, no action shall be taken u/s 147 after the expiry of four years from the end of that assessment year, unless any income chargeable to tax has escaped assessment by reason of the assessee's failure to make a return or to disclose fully and truly all material facts necessary for assessment. The AO's reasons for reopening, by stating that the proviso is inapplicable, implicitly suggest that there was such a failure to disclose, or that new information came to light which the assessee had not disclosed.

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The appellant has consistently asserted that during the original Section 143(3) assessment, all material facts pertaining to the share capital and share premium received were fully and truly disclosed. This comprehensive disclosure included providing confirmations from the investors, copies of their Income Tax Returns, their Balance Sheets, and relevant bank statements. Furthermore, the appellant had submitted copies of the Board Resolutions authorizing the allotment of shares and proof of filing Form PAS-3 (Return of Allotment) with the Registrar of Companies (ROC). The fact that the original assessment order, passed after a thorough scrutiny, accepted the returned income, implicitly confirms that the Assessing Officer at that time was satisfied with the disclosures made by the appellant. Judicial precedents strongly support the appellant's position on this matter. The Full Bench of the Hon'ble Delhi High Court in Usha International Ltd. (2012) 348 ITR 485 (Del), held that if an assessee furnishes full and true particulars during the original Section 143(3) assessment, and no addition is made on a particular issue, it implies that the Assessing Officer formed an opinion on that issue. Any subsequent reassessment on the same issue would constitute a "change of opinion" and would be deemed invalid. This principle was further reinforced by the Hon'ble Supreme Court in ACIT v. Securities Primary Dealership Ltd (2012) 348 ITR 299 (SC), which affirmed that reopening an assessment based on a mere change of opinion on facts already disclosed is not maintainable. Furthermore, the Hon'ble Delhi High Court in Qualcomm Incorporated v. ACIT (2012) 26 taxmann.com 242 (Delhi), emphasized that for reopening beyond four years, the escapement of income must be directly attributable to the assessee's failure to disclose fully and truly all material facts. If an issue was already examined and dealt with during the original assessment, any subsequent allegation of non-disclosure lacks a factual basis, and the reopening would be barred by limitation. This view was reiterated in CIT v. Suren International Pvt. Ltd 357 ITR 24 (Delhi), which held that for reopening after four years, it is imperative to establish that income escaped assessment due to the assessee's failure to disclose material facts. The Hon'ble Gujarat High Court in Gujarat Power Corporation Ltd. v. ACIT (2012) 77 DTR 89 (Guj), also held that reopening an assessment on the same claims and material that were already examined in detail during the original assessment amounts to a mere change of opinion and is therefore unsustainable.

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The reopening in this case appears to be a clear instance of a "change of opinion" by a successor Assessing Officer, rather than the discovery of new facts arising from the appellant's non- disclosure. The principle of finality of assessment, especially after a scrutiny assessment, is paramount in tax jurisprudence. The stringent conditions of the proviso to Section 147 are designed to prevent endless re-examination of issues. The Assessing Officer cannot simply re-evaluate issues already scrutinized and accepted without demonstrating a specific failure on the assessee's part to disclose material facts. Given that the notice u/s 148 was issued beyond the four-year period and the appellant had made comprehensive disclosures during the original assessment, the condition of "failure to disclose fully and truly all material facts" is not met. Therefore, the reassessment proceedings are invalid for noncompliance with the proviso to Section 147. 5.3 Disposal of Objections by Non-Speaking Order - (Ground 5) The appellant had submitted detailed objections against the initiation of reassessment proceedings on 11.10.2019. These objections specifically highlighted crucial jurisdictional flaws, including the factual error regarding the prior Section 143(3) assessment and the absence of any failure on the appellant's part to disclose material facts. The Assessing Officer disposed of these objections through an order dated 15.11.2019, claiming it to be a "speaking order". However, the appellant contends that this order was merely a "repetitive submission" and "devoid of any new findings or genuine truth," effectively making it a non-speaking order. The appellant's submissions explicitly point out that the AO's order was "silent about the completion of original assessment on 22.12.2014 u/s 143(3) of the Act" and merely stated that the objections, including the fact of prior scrutiny, did not negate the escaped income under Explanation 2(c) to Section 147. The Hon'ble Supreme Court, in the landmark case of GKN Drive Shafts India Ltd vs ITO (2003) 259 ITR 19 (SC), unequivocally mandated that an Assessing Officer must dispose of any objections filed by an assessee against the reasons for reopening by passing a speaking order before proceeding with the assessment. This requirement ensures transparency, accountability, and adherence to the principles of natural justice. A "speaking order" implies a reasoned decision that addresses the contentions raised by the assessee and provides clear justifications for rejecting them. The Hon'ble Delhi High Court, in Scan Holding P. Ltd. v. ACIT (2018) 402 ITR 290 (Delhi) (HC), allowed an appeal where the

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Assessing Officer had merely observed that the assessee's objections were untenable without properly elucidating and dealing with the specific contentions raised. The court found that such an approach indicated a failure on the part of the AO to apply their mind to the assertions and core issues, thereby rendering the reassessment proceedings invalid. The failure of the Assessing Officer to pass a proper speaking order addressing the appellant's detailed jurisdictional objections, particularly the fundamental factual error regarding the previous Section 143(3) assessment, signifies a mechanical approach and a denial of natural justice. This procedural lapse, in itself, can be a sufficient ground for quashing the reassessment proceedings. The AO's perfunctory response to the objections, without engaging with the core factual inaccuracy and merely relying on a general statement about Explanation 2(c), demonstrates a lack of judicious consideration. This procedural flaw further undermines the validity of the reassessment, irrespective of the merits of the reasons to believe. 5.4 To summarize – a. The Assessing Officer's fundamental premise for reopening the assessment, namely that no Section 143(3) assessment was previously completed for A.Y. 2012-13, is demonstrably false. A scrutiny assessment u/s 143(3) was indeed completed on 22.12.2014. This factual error vitiates the very foundation of the "reason to believe" and, consequently, the jurisdiction to initiate reassessment proceedings. A belief based on incorrect facts signifies a non-application of mind and renders the entire proceedings invalid ab initio. Accordingly, the assessment order is quashed for these reasons and the Ground Nos. 1, 2, and 3 on Factual Incorrectness of Reasons Recorded are allowed in favor of the appellant. b. The reassessment notice was issued beyond the four-year period from the end of the relevant assessment year. The appellant had made full and true disclosure of all material facts related to share capital and premium during the original scrutiny assessment, which was duly accepted. The AO's attempt to re-examine these already disclosed and accepted facts constitutes a "change of opinion," which is not permissible for reopening beyond four years in the absence of any failure to disclose by the assessee. The mandatory condition of the proviso to Section 147 has not been satisfied. Accordingly, the assessment order is quashed for these reasons and the Ground No. 4 on Non-Compliance with Proviso to Section 147 is allowed in favor of the appellant.

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c. The Assessing Officer failed to pass a proper speaking order addressing the detailed jurisdictional objections raised by the appellant. This procedural lapse, which includes ignoring the fundamental factual error regarding the prior 143(3) assessment, indicates a mechanical approach and a denial of natural justice, further invalidating the reassessment proceedings. Accordingly, the assessment order is quashed for these reasons and the Ground 5 on Disposal of Objections by Non-Speaking Order is allowed in favor of the appellant.

further considered the reason to believe recorded by the Ld. AO

appearing at page No. 114 to 115 of the Paper Book filed before us, the

contents whereof is as follows:

“Recording of reason for reopening the case of M/s Allegiance Management Service Pvt. Ltd. u/s 147 of the Income Tax Act 1961 In this case the information was received from the office of the Deputy Director of Income Tax, (Investigation), Unit-7(2), New Delhi vide F.No. DDIT (Inv)/U-7(2)/2018-19/OCM/07/563 dated 20.03.2019 in the case of M/s Allegiance Management Services Pvt. Ltd. The details are as below.

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As per information received This Company purchased a property in Mumbai during F.Y. 2011-12 for Rs. 3,00,00,000/-. Income Tax Returns of this Company were downloaded from e-filling portal and other details were examined from ITBA portal. As observed from the information gathered from the ITBA/E-filling portal, this Company has paid up capital of Rs. 8.71 Lakh only and has shown General Reserves of Rs. 3.17 Cr. during the relevant financial year. Further, the Company has not shown any turnover (only rental income of Rs. 12 Lakh only) for FY 2011-12 Open enquiries were initiated and the subject Company i.e. M/s Allegiance Management Services Pvt. Ltd. was asked to submit the requisite information in support of the properties purchase dung the FY 2011-12. In response thereto, some details were provided by the above Company. During the course of investigation, the source of money used to acquire this property could not be verified. It was noticed that the Company has received a share premium of Rs. 3.17 Cr. on issue of 77,500 shares at a premium of Rs. 990/- share. The financials of the Company do not support such huge valuation of the shares. Thus, to find out the identity and creditworthiness of the parties from whom share premium was received and establish genuineness of the transaction, summons u/s 131(1A) were issued to both the directors of the Company. The investigation has pointed out that in her statement. Smt Anupma Agarwal, no shares were issued by M/s Allegiance Management Services Pvt. Ltd. after its incorporation. Further when she was asked about the four entities, mentioned in the table above, from whom share premium was received, she stated that she has heard the name of M/s Energy Tradcomm Pvt. Ltd. And has never heard the names of other three entities. it was further stated by her that she did not know anything about the Company M/s Energy Tradecomm Pvt. Ltd. the name of M/s Energy Tradecomm Pvt. Ltd. and has never heard the names of other

Allegiance Management Services Pvt. Ltd. are Smt. Anupma Agarwal, M/s Energy In his statement. Sh. Naveen Khatri slated that the shareholders of M/s Tradecomm Pvt. Ltd. M/s Symbolic Finance Pvt. Ltd., Mis Shoveller Infracon Ltd., M/s Swarna Buildwell Ltd. and himself. He also stated that though he is a Director in Mis Energy Tradecomm Pvt. Ltd. but he is not related to it in any way. On asking about remaining three companies from whom share premium was received, he stated that he knew

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nothing about these companies. At one point he even stated that shares were allotted to these companies at a premium of Rs. 90/- share.

I have examined the above information. On perusal of Balance sheet of the assessee for AY 2012-13, it is noticed that the assessee has shown general reserve Rs.3,17,16,000/- as against Rs. NIL from the last year. So there is prima facie evidence that the assessee has issued shares to the non-existing companies and created bogus general reserve. Therefore I have reason to believe that income Rs. 3,17,16,000/- has escaped assessment for AY 2012-13. The assessment/reassessment proceedings in this case for AY 2012-13 pertain to period beyond four years but before the expiry of six years from the date of issue of notice. In view of the same, as no assessment has been made in this case for AY 2012- 13, u/s 143(3) or u/s 147, the first proviso to section 147 is not applicable to the case. Moreover, as the case pertains to a period beyond four years from the end of relevant assessment years at the time of issue of notice, necessary sanction has to be obtained from the Chief Commissioner of Income Tax or Pr. Commissioner of Income Tax. In view of the amended provisions of section 151 w.e.f. 01.06.2015. The necessary sanction in this regard is being obtained separately from the Pr. Commissioner of Income Tax, Delhi-1, New Delhi before the issue of notice u/s 148 of the Income Tax Act, 1961. Sanction may kindly be granted to issue notice u/s 148 r.w. provisions of section 149(1)(b) of the Income Tax Act, 1961 for assessment year 2012-13.”

scrutiny assessment under Section 143(3) of the Act was completed on

22.12.2014 the fundamental premise for reopening of assessment by

the Ld. AO that no assessment under Section 143(3) of the Act was

previously completed for Assessment Year 2012-13 is admittedly

incorrect and belief based on such incorrect finding of facts signifies a

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non-application of mind which renders the entire proceeding invalid,

ab-initio is, thus, found to be just and proper.

was duly made by the Ld. AO and finalized the same on 22.12.2014

copy whereof is annexed to 108 of the Paper Book filed before us where

from it is evident that the return of income of Rs. 5,63,150/- and taxes

paid of Rs. 1,75,907/- under Section 115JB on book profits of Rs.

9,23,150/-had been accepted by the Ld. AO. The factual incorrectness

of reason recorded cannot justify the reason to believerecorded by the

Ld. AO is at all application of mind and assessment on an incorrect

factual premise such as assessee not filed the return, the reopen itself

is thus, bad and liable to be quashed. Once assessment under Section

143(3) is completed the same cannot be reopened in the absence of any

failure to disclose all material facts necessary for assessment which is

the precondition of initiation of reopening of assessment beyond four

years from the end of the relevant assessment year and the reason

recorded by the Ld. AO is found to be not only on incorrect finding of

fact but also does not justify assumption of jurisdiction to reassess the

income of the assessee in the absence of allegation of failure on the part

of the assessee as indicated above rather clearly demonstrate change of

opinion by the Ld. AO and therefore, rightly quashed by the Ld. CIT(A).

Thus, reopening of assessment after the expiry of four years under the

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present facts and circumstances of the matter without complying the

statutory conditions renders the entire proceeding vitiated and,

therefore, the order passed by the Ld. CIT(A) in our considered opinion,

is just and proper so as not to warrant any interference, Revenue’s

appeal is, therefore, found to be devoid of any merit and thus,

dismissed.

Order pronounced in the open court on 01/09/2026. Sd/- Sd/- (RENU JAUHRI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 01/09/2026 R. Naheed, Sr PS Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

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