Source: Delhi High Court 

Why in News? 

A bench of Acting Chief Justice Vibhu Bakhru and Justice Tushar Rao Gedela set aside the order passed by Income Tax Appellate Tribunal which decided grounds that did not arise from the order passed by Commissioner of Income Tax (Appeals)     

• The Delhi High Court held this in the case of Divine Infracon Pvt. Ltd v. PR Commissioner of Income Tax 3 (2025). 

What was the Background of Divine Infracon Pvt Ltd v. PR Commissioner of Income Tax 3 Case?  

• The Assessee in this case was engaged in real estate development and hotel operations. 
• Search and seizure operations under Sections 132 and 133A of the Income Tax Act, 1961 (IT Act) were conducted in connection with the Jagat Group of cases, including the Assessee's business premises in Dwarka, New Delhi. 
• The Assessee's case was centralized with the Assessing Officer (AO), Central Circle-09, New Delhi, under Section 127 of the Act. 
• The AO issued a notice under Section 153A of the Act, requiring the Assessee to file returns, including for Assessment Year (AY) 2009-10. 
• The Assessee responded by stating that its original return filed under Section 139(1) on 28th October 2009 should be considered for AY 2009-10. The Assessee also objected to the Section 153A proceedings, claiming no incriminating material was found during the search. 
• The AO rejected the Assessee’s objections, determining an income of ₹4,30,00,000 for AY 2009-10 due to unsecured loans from three entities: 
  • Index Securities & Research Pvt. Ltd.: ₹1,00,00,000 
  • Attractive Finlease Ltd.: ₹30,00,000 
  • Trans National Growth Fluid Ltd.: ₹3,00,00,000 
• The AO added ₹4,30,00,000 as unexplained cash credits under Section 68 of the Act, concluding these were accommodation entries managed by Jain Brothers. 
• The Assessee appealed to Commissioner of Income Tax (Appeals) (CIT(A)), challenging the assessment on several grounds. The appeal was decided on a single ground, stating Section 153A was inapplicable as no incriminating material was found during the search. 
• The Revenue appealed to the Income Tax Appellate Tribunal (ITAT) against the CIT(A)'s order. The ITAT allowed the Revenue’s appeal, reinstating the AO's assessment order. 
• The Assessee has now challenged the ITAT's order dated 07.02.2024 in the present appeal. 

What were the Court’s Observations?  

• The Court observed that the CIT(A) decided the Assessee's appeal solely on the inapplicability of Section 153A of the Income Tax Act due to no incriminating material being found during the search and did not address the merits of the addition of ₹4,30,00,000 under Section 68. 
• The Court held that ITAT decided on the addition under Section 68, which did not arise from the CIT(A)’s order and was not argued before it. 
• The Court made the following observations: 
  • The Court held that ITAT erred in addressing the addition under Section 68 without the CIT(A) ruling on it. 
  • It was further held that the CIT(A) did not adjudicate whether the addition of ₹4,30,00,000 as unexplained credit was valid. 
• Finally, the following ruling was rendered by the Delhi High Court: 
  • The Delhi High Court Set aside the ITAT’s order concerning the addition of ₹4,30,00,000. 
  • The Court restored the Assessee’s appeal to the CIT(A) for adjudication on grounds not decided earlier. 

What are the Types of Taxes in India? 

• There are two types of taxes: direct tax and indirect tax.  
• Direct Taxes: Direct taxes are levied directly on an individual's or organization's income or wealth. These are paid directly to the government by the taxpayer. These are as follows:  
  • Income Tax: Imposed on individuals, Hindu Undivided Families (HUFs), and businesses based on their income.  
  • Corporate Tax: Levied on the net income or profits of companies.  
  • Capital Gains Tax: Charged on profits earned from the sale of capital assets like property, stocks, or bonds. It can be:  
    • Short-term capital gains tax (STCG)  
    • Long-term capital gains tax (LTCG)  
  • Securities Transaction Tax (STT): Tax on transactions in the stock market, like the sale or purchase of equity shares.  
  • Dividend Distribution Tax (DDT): Paid by companies distributing dividends (abolished in 2020 and shifted to shareholders).  
  • Wealth Tax: (Abolished in 2015) Previously levied on an individual's net wealth exceeding a certain threshold.  
• Indirect Taxes: Indirect taxes are levied on goods and services and are included in the price of goods and services, paid indirectly by the consumer. Following are the types of indirect taxes:  
  • Goods and Services Tax (GST): A comprehensive tax on the supply of goods and services, subsuming several other indirect taxes. It includes:  
    • CGST: Central Goods and Services Tax  
    • SGST: State Goods and Services Tax  
    • IGST: Integrated Goods and Services Tax  
    • UTGST: Union Territory Goods and Services Tax  
  • Customs Duty: Levied on goods imported into or exported from India.  
  • Stamp Duty: Charged on legal documents such as property sale deeds.  
  • Entertainment Tax: (Subsumed under GST in most cases) Previously levied on movie tickets, events, etc.

What is Income Tax Act, 1961?

• Taxation in India is based on two precepts: 
  • Firstly, based on the mandate of COI that no tax shall be levied or collected except by authority of law. 
  • Secondly, it is based on the principle of sureness, that any tax levied ought not to be vague, must be consistent and predictable. 
• The Income Tax Act 1961 is a comprehensive legislation in India that governs the taxation of income for individuals and businesses.  
• It came into effect on April 1, 1962, and provides the framework for calculating, levying, and collecting income tax and super-tax in the country.  
• The Act defines important concepts like the previous year (when income is earned) and assessment year (when income is taxed) and establishes the structure for tax authorities, assessments, and appeals to higher courts.

What is Section 68 of the Income Tax Act, 1961?

• Any sum credited in the assessee's books for a previous year, without a satisfactory explanation regarding its nature and source, can be taxed as the assessee's income for that year. 
• For companies (excluding those substantially owned by the public), share application money, share capital, share premium, or similar amounts will be deemed unexplained unless: 
  • The resident in whose name the credit is recorded also provides an explanation about the nature and source of the credited sum. 
  • The explanation provided is found satisfactory by the Assessing Officer. 
• The above rule does not apply if the credited person is a venture capital fund or venture capital company as defined under Section 10(23FB) of the Act.