INCOME TAX OFFICER WARD 6 (1), MOHALI vs. SKYCITY BUILDERS AND PROMOTERS PRIVATE LIMITED, KHRAR PUNJAB

1. Whether, on the facts and in the circumstances of the case, the CIT(A) was correct in law in deleting the addition of Rs.77,29,69,000/- made under Section 68 of the Income-Tax Act, 1961 when the assessee had failed to establish the creditworthiness of creditors and the genuineness of loan transactions despite adverse findings of the Assessing Officer?

2. Whether, in law, the mere production of confirmations, PAN details, and audited financial statements of creditors can be treated as sufficient compliance with the requirements of section 68, without the assessee demonstrating actual financial capacity of lenders and genuineness of transactions?

3. Whether the CIT(A) erred in deleting the addition by not appreciating that the bank statements of creditors revealed heavy cash deposits immediately prior to advancing loans and that many creditors operated through cash credit accounts which turned into NPAs, thereby establishing that the transactions were not genuine? 4. Whether, on the facts and in law, the CIT(A) was justified in deleting the addition of Rs.2,02,41,851/- made on account of unexplained expenditure merely on the basis that the same was reflected as “pre-operative expenses” in the balance sheet, without verification of supporting vouchers, bills, OR other documentary evidence? 5. Whether, in law, book entries made by the assessee can be treated as conclusive evidence of genuineness of expenditure, without the assessee discharging the onus of establishing actual source and business nexus of such cash withdrawals with contemporaneous records. 6. Whether the deletion of addition of Rs.2,02,41,851/- by the CIT(A), without examination of material evidence, overlooks the principle that self-serving entries in books cannot substitute proof of genuineness of transactions? 7. The appellant craves leave or add OR amend any grounds of appeal

before the appeal is heard OR disposed off?

8. It is prayed that the order of the Hon'ble ITAT be cancelled and that of Assessing Officer may be restored? As is evident, the assessee challenges reopening of the case on legal grounds whereas the revenue is challenging deletion of twin quantum addition on merits. 1.4 The Ld. AR advanced arguments on legal grounds assailing reopening of the assessment. The Ld. CIT-DR also advanced arguments on merits of the case and pleaded for restoration of assessment order. The Ld. CIT-DR controverted the legal grounds as urged by Ld. AR. The written submissions have been filed by Ld. CIT- DR on 12-03-2026 which has duly been considered while adjudicating the appeals. Having heard rival submissions and upon perusal of case records, the appeals are disposed-off as under. Assessment Proceedings 2.1 The assessee filed regular return of income on 05-10-2013 vide acknowledgement No.814729751051013 which was processed u/s 143(1). Subsequently, the case was reopened pursuant to receipt of AIR information that the assessee purchased certain property for consideration of Rs.9 Crores during the period under consideration and in the absence of any Income-tax return as filed by the assessee, the income to that extent had escaped assessment. Accordingly, a notice u/s 148 was issued to the assessee by Ld. AO on 30-03-2019 after obtaining necessary administrative approval of Ld. Pr. CIT-2. In response to notice u/s 148, the assessee offered original return of income. The Ld. AO noted that though the assessee had filed return of income on 05-10-2013, but no scrutiny assessment was done for the year. The property in question was stated to be purchased out of unsecured loans. The Ld. AO proceeded to examine these loans and sought assessee’s explanations with respect to the same. 2.2 During the course of assessment proceedings, it transpired that the assessee obtained unsecured loans from nine lenders entities as tabulated below: - No. Name of Entity Loan taken Closing during the balance period 1. Bhola Trading Co. 10000000 5500000 2. Binus Trading Co. 15000000 15000000 3. H.R. Rice Industries 216069000 136659000 4. N.B. Traders 45000000 9500000 5. Sandeep Trading Co. 10000000 10000000 6. Shiv Shakti Exporters P. Ltd. 35000000 25000000 7. Sunrise City Prom. & Dev. P. Ltd. 35850000 35850000 8. Surinder Verma 246750000 272750000 9. Westron Homes P. Ltd. 159300000 159300000 Total 77,29,69,000 66,95,59,000 Accordingly, the veracity of these loans was enquired into by Ld. AO at the threshold of provisions of Sec. 68 and the assessee furnished detailed reply for each of the lender entity. 2.3 The Ld. AO, upon examination of assessee’s submissions and documentary evidences alleged that the onus as required u/s 68 was not discharged by the assessee. The findings with respect to each of the lender were summarized by Ld. AO at para 4.10 as under:- PARTY-WISE DISCREPANCIES ESTABLISHING THE NON-GENUINENESS AND NON-CREDITWORTHINESS OF THE LOAN IS SUMMARISED AS UNDER:- No. Name of the Amount of Loan Discrepancy noted Party received 1 Westron Homes 159300000 a. Non-filing of the ITR by M/s Western Buildcon (P) Ltd. and no comments regarding the non- Pvt. Ltd. filing of ITR by the assessee in its reply to the show-cause b. Report of the inspector about non-existence of M/s Western Buildcon (P) Ltd. and its directors. c. No comments from the assessee regarding the non-existence of M/s Western Buildcon (P) Ltd. and its directors even in reply to the show-cause issued to the assessee. d. Furnishing wrong particulars like name, bank account details by the assessee in respect of M/s Western Buildcon (P) Ltd. and no comments by the assessee in its reply to the show-cause regarding the same. e. Cash trail of Rs.2.88 cr found in the bank account of various concerns preceding to the advancement loan to the assessee company by M/s Western Buildcon (P) Ltd. 2 Binus Trading 15000000 a. M/s Binus Trading Co. is a partnership firm having partners Smt. Binus Verma D/o Sh. Co. Surinder Verma who is one of the directors of the assessee which point towards the closeness and accessibility of the assessee to Binus Trading Company and further giving an opportunity to the assessee to introduce its unaccounted money into its books of account. b. Both the bank accounts of Binus Trading Company which were operating from the same bank account as that of the assessee company have been found to be a classic case of routing money from one entity to another giving a proper resemblance of a colourable device and a mere conduit to introduce unaccounted money in the books of account of the assessee. c. Loan remaining outstanding even after a gap of 8 years. d. Non-payment of interest and non-deduction of TDS by the assessee after A.Y. 2014-15 till date. e. Finding a cash trail of Rs. 70 lakhs preceding to the advancement of loan to the assessee company. f. Turning into a defaulter of a nationalized Bank (PNB). 3 H.R. Rice 2160690000 a. Sh. Sudarshan Verma, one of the directors of M/s H.R. Rice Industries (P) Ltd. is also one of Industries the directors of the assessee company which point towards the closeness and accessibility of the assessee to M/s H.R. Rice Industries (P) Ltd. to introduce its unaccounted income through bank accounts of M/s H.R. Rice Industries (P) Ltd. b. Both the bank accounts of H.R. Rice Industries (P) Ltd. which were operating from the same bank account as that the assessee company have money from one entity to another giving a proper resemblance of a colourable device and a mere conduit to introduce unaccounted money in the books of account of the assessee. c. Loan remaining outstanding even after a gap of 8 years. d. Non-payment of interest and non-deduction of TDS by the assessee after A.Y. 2014-15 till date e. Finding cash trail of Rs. 4.08 cr. Preceding to the advancement of loan to the assessee company. f. Furnishing of two different copy of account of the assessee by M/s H.R. Rice Industries (P) Ltd. One during the course of its own assessment proceedings and another in reply to the summons u/s 131 issued during the course of assessee’s assessment proceedings further highlighting the non-reliability and non-dependability on the evidences furnished by the party in response to the summons u/s 131. g. Turning into a defaulter of a nationalized Bank (PNB) 4 N.B. Traders 45000000 a. Non-payment of interest and non-deduction of TDS by the assessee after A.Y. 2014-15 till date. b. Both the bank accounts of N.B. Traders which were operating from the same bank account as that of the assessee company have been found to be a classic case of routing money from one entity to another giving a proper resemblance of a colourable device and a mere conduit to introduce unaccounted money in the books of account of the assessee. c. Loan remaining outstanding even after a gap of 8 years. d. Furnishing of three completely different copies of account of N.B. Traders and Skycity Builders & Promoters Pvt. Ltd. in their books of account respectively have been furnished by these assessee’s on three different occasion as follows:- a) Copy of account of Skycity Builders & Promoters submitted by N.B. Traders in response to summons u/s 131. b) Copy of account of N.B. Traders submitted by a Skycity Builders & Promoters during its own assessment proceedings. Further highlighting the non-reliability and non-dependability on the evidences furnished by the party in response to the summons u/s 131 e. Turning into a defaulter of a nationalized Bank (PNB) 5 Sandeep 10000000 a. Both the bank accounts of Sandeep Trading Co. which were operating from the same bank Trading Co. account as that of the assessee company have been found to be a classic case of routing money from one entity to another giving a proper resemblance of a colourable device and a mere conduit to introduce unaccounted money in the books of account of the assessee. b. Loan remaining outstanding even after a gap of 8 years. c. Non-payment of interest and non-deduction of TDS by the assessee after A.Y. 2014-15 d. Finding of cash trail of Rs.17 lakh preceding to the advancement of loan to the assessee company. e. Turning into a defaulter of a nationalized Bank (PNB) 6 Shiv Shakti 35000000 a. Sh. Surinder Verma & Sh. Hitesh Verma, both are the directors of M/s Shiv Shakti Exporters Exporters Pvt. (P) Ltd. and have been the directors of the assessee company which point towards the Ltd. closeness and accessibility of the assessee to M/s Shiv Shakti Exporters (P) Ltd. and further giving an opportunity to the assessee to introduce its unaccounted money into its books of account. b. c. Both the bank accounts of Sandeep Trading Co. which were operating from the same bank account as that of the assessee company have been found to be a classic case of routing money from one entity to another giving a proper resemblance of a colourable device and a mere conduit to introduce unaccounted money in the books of account of the assessee. d. Loan remaining outstanding even after a gap of 8 years. e. Non-payment of interest and non-deduction of TDS by the assessee after A.Y. 2014-15 till date. f. Finding of cash trial of Rs. 15 lakh preceding to the advancement of loan to the assessee company. g. Turning into a defaulter of a nationalized Bank (PNB) 7 Sunrise City 35850000 a. Non-filing of the ITR by M/s Sunrise City Promoters and Developers Pvt. Ltd. and no Promoters comments regarding the non-filing f ITR by the assessee in its reply to the show-cause. b. Report of the inspector about non-existence of M/s Sunrise City Promoters and Developers Pvt. Ltd. and its directors. c. No comments from the assessee regarding the non-existence of M/s Sunrise City Promoters and Developers Pvt. Ltd. and its directions even in reply to the show-cause issued to the assessee. d. Immediate cash deposits of Rs. 90 lakhs found in the bank account of M/s Sunrise City Promoters and Developers Pvt. Ltd. and no comments in reply to the show-cause. 8 Surinder Verma 246750000 a. Finding of cash trail of Rs.6.22 cr preceding to the advancement of loan to the assessee company. b. Sh. Surinder Verma is one of the directors of the assessee company which point towards the closeness and accessibility of the assessee to Sh. Surinder Verma and further giving an opportunity to the assessee to introduce its unaccounted money into its books of account. c. Bank account of Sh. Surinder Verma operating from the same bank account as that of the assessee company have been found to be a classic case of routing money from one entity to another giving a proper resemblance of a colourable device and a mere conduit to introduce unaccounted money in the books of account of the assessee. d. Loan remaining outstanding even after as gap of 8 years. 9 Bhola Trading 10000000 a. No justification or submission in case of loan received from M/s Bhola Trading Co. has been Co. furnished by the assessee. b. Both the bank accounts of Sandeep Trading Co. which were operating from the same bank account as that of the assessee company have been found to be a classic case of routing money from one entity to another giving a proper resemblance of a colourable device and a mere conduit to introduce unaccounted money in the books of account of the assessee. c. Loan remaining outstanding even after a gap of 8 years d. Non-payment of interest and non-deduction of TDS by the assessee after A.Y. 2014-15 till date. e. Turning into a defaulter of a nationalized Bank (PNB)

2.4 The Ld. AO thus summarized his conclusion for each of the lender party and alleged that the primary ingredients of Sec.68 remained to be fulfilled for these lender entities and accordingly, the unsecured loans thus received by the assessee were held to be lacking creditworthiness as well as genuineness. All these entities advanced loans which remained outstanding even after a gap of almost eight years especially when no interest was charged by these parties and no financial benefit accrued to these parties in spite of advancing such huge loans and keeping it outstanding for a period of more than eight years. All the lenders turned into bank defaulter. The entries were routed in such a manner so as to create illusion of genuineness but the loans were ultimately found to be originating from a bank account where cash had been deposited. There had been five to six layers of routing of entries through different bank accounts after cash deposit in the first bank account. The fact of cash deposits coupled with layering of entries through different bank accounts would be nothing but a case of introduction of unaccounted money in the books of the assessee. Applying the test of preponderance of human probability as expounded by Hon’ble Apex Court in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 as well as in Sumati Dayal (214 ITR 801), the assessee’s claim qua genuineness of unsecured loans was to be rejected. It was alleged by Ld. AO that the assessee used its related / family concerns to route its unaccounted money by creating number of layers of transactions and using them as colorable device to finally introduce its own unaccounted money. Finally, the assessees’ evidence / explanation were rejected and aforesaid loans were added to assessee’s income u/s 68 of the Act. 2.5 Another addition as made by Ld. AO was on account of unexplained expenditure which stem from the fact that the assessee deposited cash of Rs.351.40 Lacs which was sourced out of earlier withdrawals for Rs.644.40 Lacs. The assessee was asked to explain the expenses incurred for the differential amount of Rs.293 Lacs. Some amount was stated to be spent on execution of sale deed which was accepted by Ld. AO. The amount of Rs.202.41 Lacs was stated to be spent on certain development work. The Ld. AO observed that in the financial statements, these expenses were not booked and therefore, the expenditure remained unexplained though the assessee contended that the entries were shown under the head ‘pre-operative expenses’. Finally, the amount of Rs.202.41 Lacs was added to assessee’s income as unexplained expenditure and the assessment was framed which was subjected to assessee’s further challenge in first appeal wherein the assessee challenged the reopening of the assessment on legal grounds and also challenged quantum additions on merits. Appellate Proceedings 3.1 On legal ground assailing reopening of the assessment, the assessee contended that the findings of Ld. AO were in the nature of ‘reasons to suspect’ and not‘reasons to believe’. The case was reopened on borrowed satisfaction. There was no link between the tangible material and formation of reason to believe that the income had escaped assessment. However, Ld. CIT(A) rejected the same on the ground that there exists reasonable ground to form the belief of escapement of income. Accordingly, the legal grounds as urged by the assessee were rejected. 3.2 On merits, the findings of Ld. AO with respect to each of the lender entities were noted. In the case of M/s Westron Homes Pvt Ltd, the assessee had furnished copy of account in the books of the assessee and also submitted copy of bank account of that party for FY 2011-12 contending that all the amount were received by cheque through banking channels. Out of the amount of Rs. 15.93 crores as received during the year under consideration, the amount of Rs. 14.13 crores had been returned back immediately in the next year through banking channels as per copy of the account as submitted by the assessee. However, Ld. AO noted that though the return of income was filed by this party for AY 2011-12, no return of income was filed for AY 2012-13. The summons issued to the director of that entity remained unresponsive. Therefore, these loan credits were rejected by Ld. AO. With respect to Binus Trading Co., the assessee had filed confirmation of amount mentioning PAN and Income Tax Return of the lender entity for AY 2012-13 along with copy of its bank account and copy of accounts for the next year in support of the fact that interest was paid. However, the summons issued by Ld. AO remained unresponsive and also there were certain cash deposits and clearing in the bank accounts of the lender and therefore, the claim was rejected. With respect to remaining 7 lender entities, the assessee furnished respective confirmations & bank statements, copy of the Income Tax Returns and established payment of interest in some cases but Ld. AO rejected the same on the ground that there were credit and cash entries in respective bank accounts of lender entities. Though all the parties were being assessed to tax, Ld. AO pointed out that all the parties had CC limit from the same bank as that of the assessee. It was alleged that there was routing of entries from one account to another bank account and none of the party had appeared before the Ld. AO. The majority of the loans were still outstanding. 3.3 As against the findings of Ld. AO, the assessee furnished detailed paper-book which include bank statements, Ledger account, copies of Income Tax Returns along with supporting case laws to establish the satisfaction of primary ingredients of Sec.68. These details, with respect to each of the party, has been tabulated by Ld. CIT(A) at para 4.4.1 of the impugned order. For all the lender parties, the assessee had furnished confirmation from lender entities, details of PAN, copies of Bank Account and Income Tax Returns of these lender entities. The copy of accounts for subsequent years were also filed which established that interest was charged by them in succeeding years and taxed in their hands. The substantial loans were repaid back to M/s Sunrise City Promoters and Developers Pvt Ltd. and also to M/s Westron Buildcon Pvt. Ltd. in AY 2013-14. By furnishing these documents, it was contended by the assessee that the amounts were received from identifiable parties through banking channels and all lender entities were duly assessed to tax. Further, except for two parties namely M/s. Sunrise City Promoters and Developers Pvt Ltd and M/s. Westron Buildcon Pvt Ltd, all the other parties had duly responded to the enquiries made by Ld. AO during the course of assessment proceedings wherein they had furnished the confirmed copy of account in their books of account quoting their PAN Numbers, copy of their bank account statements for FY 2011-12 from where the amounts were advanced to the assessee and also explained by way of separate letter giving details of the other particulars as desired by Ld. AO. 3.4 The Ld. CIT(A) concurred that with respect to M/s Bhola Trading Co., the assessee submitted confirmation from the lender party with PAN details, copy of ITR, copy of bank account statement, evidence of filing of return of income for the AY 2012-13. The interest was charged by that lender in subsequent year. This entity was engaged in trading of rice and the source of loan as advanced to the assessee was out of CC limit of PNB. The assessment for this entity was completed by Ld. AO u/s 143(3) for AYs 2012-13 & 2013-14 wherein Ld. AO did not doubt the source of funds of the lender entity. On the date of advancement of loan, there was sufficient balance in the bank account of lender. The assessee maintained proper books of account and a sum of Rs.45 Lacs was already returned back through banking channel during the year under consideration. The assessment of that entity was completed u/s 143(3) without any adverse remarks. Therefore, there was no justification to make addition for this lender entity. Accordingly, the impugned addition for this lender party was directed to be deleted. 3.5 For Binus Trading Co., the assessee furnished confirmation of loan, PAN details, copy of Income Tax Return & bank statement of lender entity. In subsequent years, interest was charged on the loan. The assessment of lender entity stood completed by Ld. AO u/s 143(3) without any adverse view. The lender was regularly filing ITR with huge turnover and there was CC limit for the lender entity. Therefore, there was no justification in making addition for this lender entity. 3.6 In the case of M/s H.R. Rice Industries, the assessee had furnished confirmation of the lender, PAN details, copy of ITR and bank statement of that party. Interest was charged on the loans in subsequent years. The substantial loan stood repaid back to this party during this year itself through banking channels. The lender entity was assessed u/s 143(3) in the same range without any adverse view. Therefore, the addition for this lender was held to be not justified. 3.7 For M/s N.B. Traders, the assessee furnished confirmation of the lender, PAN details, copy of ITR and the bank account of the lender and copies of accounts for later years wherein interest was credited. The substantial loan stood repaid back during this year itself. Therefore, the addition for this party was deleted. Similar were the findings for M/s Sandeep Trading Co. as well as for M/s. Shiv Shakti Exporters Pvt Ltd. The individual lender viz. Shri Surinder Verma acted as a director in the company and he was regularly been assessed to tax. Therefore, there was no justification in making the addition for these lenders. 3.8 For Sunrise City Promoters and Developers Pvt Ltd., this amount was not ‘unsecured loan’ but the amount was received against the proposed sale of some stock of land as possessed by the assessee. The assessee received amount of Rs.358.50 Lacs out of which the amount of Rs.350 Lacs was returned back immediately in the next year. In support, the assessee furnished confirmation, PAN details & copy of the bank account of that party. Since the deal did not materialize, the amount was returned back immediately in succeeding year which was evident from bank statement. Therefore, the addition for this party was deleted. Similarly, the amount was received from M/s Westron Homes Pvt Ltd, for sale of land. Since the deal did not materialize, the said amount was returned back in the immediately succeeding year which was evident from supporting documents. Therefore, Ld. AO was directed to delete the addition for these entities. 3.9 While adjudicating the appeal, Ld. CIT(A) referred to the decision of Agra Tribunal in the case of Sh. Agarsen Logistic (ITA No. 108/Agra/2025 dated 24-06-2025) which was having similar facts and the appeal of the department was dismissed by the Tribunal. In the case of M/s Sunrise City Promoters and Developers Pvt Ltd and M/s Westron Homes Pvt Ltd, substantial amount was repaid back in immediately next year. Therefore, these credits could not be doubted as per the decision of Hon’ble Gujarat High Court in the case of PCIT Vs Ojas Tarmake Pvt. Ltd. (158 Taxmann.com 176) and the decision of Jurisdictional Punjab & Haryana High Court in the case of CIT Vs Karaj Singh (15 Taxmann.com 70). The Agra Tribunal in the case of Sh. Agarsen Logistic (supra) held that the additional onus to prove the source of source of unsecured loans / borrowings as introduced by Finance Act, 2022 would apply only from AY 2023-24 and subsequent assessment years. The bench further held that addition u/s 68 could not be made on preponderance of probability and there has to be some evidence and substance in the contention put forward by Ld. AO. It is settled position of law that no matter how strong the suspicion is, it cannot take place of evidence. Therefore, in the absence of any evidence showing that the assessee exchanged cash in lieu of unsecured loans, no such addition could be made merely on the basis of suspicion. One the assessee has filed all the details, the burden of proving the genuineness and creditworthiness of the creditor stood discharged by the assessee. The bench also referred to the decision of Hon’ble Gujarat High Court in the case of PCIT Vs. Ojas Tarmake Pvt.Ltd. (supra) holding that where a major portion of the credit stood repaid during the year, no addition was justified. The bench also referred to the decision of Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Karaj Singh (supra) to support its conclusions. 3.10 In the light of above factual findings and after considering the ratio of various judicial decisions, the addition as made by Ld. AO u/s 68 was deleted for all the lender entities. Aggrieved, the revenue is in further appeal before us. 3.11 On the issue of addition of Rs.202.41 Lacs as stated to be incurred by the assessee on development work, it was contended by the assessee that the whole basis of making this addition was uncalled for and unreliable and deserves to be annulled. The assessee was maintaining the regular books of accounts which were subject to audit and the return of income was filed on the basis of audited books of accounts. The books were never rejected u/s 145(3) and no discrepancy was noted by Ld. AO in the same. When all the deposits and withdrawals stood considered in the regular books of accounts and there was no dispute about the same, the impugned addition was unjustified. Upon perusal of assessee’s financial statements, Ld. CIT(A) concurred that the impugned amount was reflected as pre-operative expenditure under the heard ‘non-current assets’ as per Annexure-H of the Balance Sheet. Since the expenditure stood well explained, Ld. AO was directed to delete the impugned addition. Aggrieved, the revenue is in further appeal before us. The assessee, in its cross-appeal, challenges reassessment jurisdiction of Ld. AO. Our finding and Adjudication 4. From the fact, it emerges that the assessee filed regular return of income on 05-10-2013 which was initially processed u/s 143(1). However, the case of reopened on the allegation that the assessee had purchased certain property for consideration of Rs.9 Crores during the period under consideration and it was also alleged in the reasons for reopening that no return of income was ever filed by the assessee. Accordingly, opinion of escapement of income has been formed by Ld. AO. Pertinently, before reopening the case of the assessee, certain information was called for by DIT (I&CI) qua transaction of purchase of property vide letters dated 26-11-2013 & 26-12-2013. The same were duly been responded to by the assessee along with financial statements. The attention was drawn to the fact that Income Tax Return was already filed by the assessee on 05-10- 2013. Thereafter, the case of the assessee has been reopened and reasons for reopening have been recorded by Ld. AO as late as on 30-03-2019 after obtaining necessary administrative approval of Ld. Pr. CIT-2, Chandigarh. These documents have been placed on record. In the opening paragraph of recorded reasons, Ld. AO, at para-1 has stated that “As per ITD database, the assessee has not filed any return of income for the year under consideration. No scrutiny assessment u/s 143(3) has taken place in the case of the assessee for the relevant year”. In para-3 also, it has been recorded by Ld. AO that “On physical verification as well as from the ITD database, it is gathered that no return has been filed by the assessee for the A.Y.2012-13…”. Similar fact has been reiterated at paras 4 & 5. In para-6, considering the fact that the assessee did not file return of income, Ld. AO invoked the provisions of clause (a) of Explanation-2 to Sec.147 which are specifically applicable only in case where no return of income is furnished by the assessee. This explanation provide that it would be a deemed case of escapement of income where no return of income had been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax. The said explanation is clearly not applicable to the case of the assessee. In contrast to this, while taking administrative approval of Ld. Pr. CIT-2, Chandigarh, the Ld. AO, in column 7(a) & (b) has stated that return of income was duly filed on 05-10-2013. In paras 8 to 11, the fact that the return was processed u/s 143(1) has been mentioned. The Ld. Pr. CIT-2, while granting the approval has stated that “income has escaped assessment due to failure by taxpayer to file its return and disclose fully and truly all material facts necessary for its assessment for assessment year 2012-13 including purchase of property at Rs.9.00 Crores.” The same would clearly highlight the fact that reopening proceeded on wrong / erroneous set of facts.

5. Upon combined reading of these documents, it could very well be concluded that the reopening of the assessment is without due application of mind and reopening proceeds on wrong facts. The return of income was already filed by the assessee on 05-10-2013. However, the recorded reason proceeds on the assumption that no return of income was ever filed by the assessee for this year. The approval has also been given on erroneous facts. The Ld. AO has invoked the provisions of clause (a) of Explanation-2 to Sec.147 which are specifically applicable only in case where no return of income is furnished by the assessee. These provisions are clearly not applicable to the case of the assessee and accordingly, assumption of reassessment jurisdiction by Ld. AO stood vitiated in law. Similar legal ground has been decided in assessee’s favor by this Tribunal in the case of ITO vs. Taj Land Developers & Promoters (P) Ltd. (ITA No.606/Chd/2024 dated 22-09-2025). The co-ordinate bench, on similar facts, at para-7, held that when Ld. AO proceeded on fundamentally wrong facts to come to the reasonable belief / conclusion that income chargeable to tax had escaped assessment, the reopening could not be sustained on legal grounds. It was further held by the bench that the opinion of AO should be based on reasonable application of mind exhibiting the escapement of income. The AO formed his belief on wrong foundation of facts. The approval granted by approving authority was also mechanical in nature since the authority was not apprised with complete facts. This case law duly supports the legal ground as urged by the assessee in its appeal. Facts being pari-materia the same, taking the same view, we would hold that since formation of belief of escapement of income as well as approval for reopening of the case proceeded on wrong foundation of facts, the reassessment proceedings could not be sustained in law. The Ld. CIT-DR, in the written submissions, has stated that the case was reopened on specific, reliable and relevant information. The mentioning of ‘non-fling of return; in the textual narration of the reasons was merely an inadvertent factual error in the body and it does not destroy the valid tangible material recorded in the proforma itself. However, we have already noted that there are not only factual errors but the approval has been granted by approving authority on the ground that there was failure by taxpayer to file its return and disclose fully and truly all material facts necessary for its assessment which is clearly not the case. Another argument is that the assessee never raised objections to reopening during assessment. However, the challenge to the jurisdiction of Ld. AO is a legal ground which could be taken at any time during the course of proceedings. Until and unless, Ld. AO has valid jurisdiction to reopen the case of the assessee, he could not proceed to assess the income of the assessee. If the primary jurisdictional conditions are shown to be not satisfied / fulfilled and the reopening proceeds on erroneous facts, the Ld. AO could not even proceed to make an assessment on the assessee. Therefore, this argument could not be accepted. Finally, in the light of above facts and circumstances, we would hold that the impugned assessment is liable to be quashed on this first and foremost legal ground alone. We order so. The assessee succeeds in its appeal.

6. Copy of the reply to the show cause notice dated 24.12.2019 as filed to the Assessing Officer.