SCARF FINANCIAL SERVICES PVT LTD,MUMBAI vs. ITO, MUMBAI

This appeal is filed by the assessee against the order dated 27.01.2025 passed by the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi for A.Y. 2017-18 arising from the assessment order passed u/s 147 r.w.s. 144 of the Income Tax Act, 1961 (“the Act”).

The assessee has raised various grounds challenging the validity of reassessment proceedings as well as the action of the Ld. CIT(A) in

Brief facts of the case are that the assessee company is engaged in the business of financial services. The assessee filed its return of income for the impugned assessment year on 04.11.2017 declaring total income at NIL. Subsequently, the case of the assessee was reopened u/s 147 of the Act on the basis of information that the assessee had deposited cash of Rs.12,00,000/- during the year, which according to the Assessing Officer was higher than the annual cash deposits in earlier years. Thereafter, assessment came to be completed u/s 147 r.w.s. 144 of the Act wherein the Assessing Officer treated the said cash deposits of Rs.12,00,000/- as unexplained money u/s 69A of the Act and added the same to the income of the assessee. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A).

During the appellate proceedings, the assessee had specifically challenged the validity of reassessment proceedings on various legal and jurisdictional grounds. It was submitted before the Ld. CIT(A) that the reasons recorded for reopening were never furnished to the assessee despite specific requests and therefore the reassessment proceedings were vitiated in view of the ratio laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO reported in 259 ITR 19. The assessee had further challenged the validity of notice issued u/s 148 on the ground that the reasons recorded were not supplied along with the notice and therefore the proceedings were contrary to principles of natural justice.

The assessee had also raised a specific ground that no notice u/s 143(2) of the Act was issued prior to completion of reassessment

The Ld. AR submitted before us that though the assessee had raised detailed jurisdictional objections before the Ld. CIT(A), the Ld. CIT(A) without adjudicating the same restored the matter to the file of the Assessing Officer for fresh adjudication by exercising powers u/s 251(1)(a) of the Act. The Ld. AR submitted that the action of the Ld. CIT(A) is contrary to settled principles of law inasmuch as the jurisdictional grounds go to the very root of the assessment proceedings and therefore the same were required to be adjudicated first before restoring the matter to the file of the Assessing Officer.

The Ld. AR further submitted that the Ld. CIT(A) has failed to discharge his appellate duty by not deciding the legal grounds raised before him. Reliance was placed on the decision of coordinate benches in the cases of M/s Ashta Vinayak Estate vs. ACIT in ITA Nos.16 & 17/RPR/2025 and Eyegear Optics India vs. CIT(A) in ITA Nos.1347/Hyd/2024 & 1291/Hyd/2024 wherein it has been held that although powers of remand are available under amended provisions of section 251(1)(a), jurisdictional objections raised by the assessee are required to be adjudicated before restoring the matter to the file of the Assessing Officer.

We have heard the rival submissions and perused the material available on record. We find that the assessee had specifically raised legal and jurisdictional grounds before the Ld. CIT(A) challenging the validity of reassessment proceedings on account of alleged non-supply of reasons recorded, invalidity of notice issued u/s 148 and non- issuance of statutory notice u/s 143(2) of the Act. These grounds admittedly go to the very root of the reassessment proceedings and require adjudication as a matter of law.

We observe that the Ld. CIT(A), instead of adjudicating the aforesaid legal grounds, restored the matter to the file of the Assessing Officer for fresh adjudication. In our considered opinion, once jurisdictional grounds challenging the validity of reassessment proceedings are specifically raised before the first appellate authority, the same are required to be adjudicated before restoring the matter for fresh consideration on merits. The appellate authority cannot bypass such foundational legal objections and remand the matter without recording findings thereon.

The Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) has laid down the procedure to be followed in reassessment proceedings including furnishing of reasons recorded to the assessee. Similarly, the requirement of issuance of notice u/s 143(2) where return filed by the assessee is treated as return filed in response to notice u/s 148 has been consistently held to be mandatory by various judicial forums. Therefore, the grounds raised by the assessee cannot be said to be merely academic or ancillary in nature.

Since we are restoring the matter to the file of the Ld. CIT(A) for adjudication of jurisdictional grounds, we are not expressing any opinion on merits of the addition made by the Assessing Officer and the same are left open.

In the result, the appeal filed by the assessee is allowed for statistical purposes.