Sun Aero Ltd vs Principal Commissioner Of Income Tax on 8 July, 2026

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    Delhi High Court

    Sun Aero Ltd vs Principal Commissioner Of Income Tax on 8 July, 2026

                              $~13
                              *         IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                                               Date of decision: 08th July, 2026
                              +         ITA 527/2017
                                        SUN AERO LTD                                         .....Appellant
                                                           Through:      Mr. Jayant Bhushan and Mr. Sachit
                                                                         Jolly, Senior Advocates with Mr.
                                                                         Siddharth Garg, Advocate.
                                                           versus
                                        PRINCIPAL COMMISSIONER OF INCOME TAX.....Respondent
                                                           Through:      Mr. Siddhartha Sinha, Senior Standing
                                                                         Counsel.
                                        CORAM:
                                        HON'BLE MR. JUSTICE DINESH MEHTA
                                        HON'BLE MR. JUSTICE RAJNEESH KUMAR GUPTA
                                                           JUDGMENT
    

    Per DINESH MEHTA, J. (Oral)

    1. The instant appeal under Section 260(A) of the Income Tax Act, 1961
    (hereinafter referred to as ‘the Act of 1961’) is directed against the order
    dated 20.09.2016 passed by the Income Tax Appellate Tribunal (hereinafter
    referred to as ‘the Tribunal’) in appeal bearing No. IT(SS)A No.
    06/DEL/2004, that was filed by the Revenue.

    SPONSORED

    2. The following questions have been framed vide order dated
    13.05.2019:

    (i) Whether it was mandatory for the Assessing Officer(‘AO’) to
    have issued a notice under Section 143 (2) of the Income Tax Act,
    1961 (‘Act’) within one year from the date of filing of the return of
    income for the block period and only thereafter complete the
    assessment under Section 158 BC of the Act?

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    (ii) Whether the additions for undisclosed income in the block
    assessment under Section 158 BC of the Act can be made
    notwithstanding that the issue has already been adjudicated in the
    original assessment under Section 143 of the Act?

    (iii) Whether the ITAT was right in deleting the addition of Rs.21
    crores made by the AO under Section 45 read with Section 47 (v)
    of the Act?”

    3. Before adverting to adjudication of the questions of law so framed, it
    would be apt to lay down the factual foundation giving rise to the present
    appeal.

    4. The appellant – M/s. Sun Aero Ltd. (hereinafter referred to as ‘Sun
    Aero’), claims itself to be a wholly owned subsidiary of a company known as
    Sun Air Hotels Ltd. (hereinafter referred to as ‘Sun Air’), which was
    conferred right to develop a hotel at Bangla Sahib Road by the New Delhi
    Municipal Corporation (hereinafter referred to as ‘NDMC’) in the year 1970.
    However, in the year 1990, due to some difference which arose between the
    Sun Air and NDMC and the NDMC cancelled the development rights. Sun
    Air challenged the action of the NDMC before the Delhi High Court. During
    the pendency of the suit, Sun Air transferred its rights as per the license deed
    to Sun Aero-respondent/assessee herein for nil consideration. However, the
    rights were transferred back to Sun Air in 1995 for a consideration of Rs. 21
    crores.

    5. The Appellants filed a return of income for Assessment Year 1995-96
    claiming the amount of Rs. 21 crores as exempt from capital gains under
    Section 47(v) of the Act of 1961, which claim of the appellant, was accepted
    by the Assessing Officer while passing assessment order dated 09.02.1998,
    under Section 143(3) of the Act of 1961 after due scrutiny in the matter.

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    6. A search was conducted on 21.11.2000 at the appellant’s premises,
    during which no incriminating material (as claimed by the appellant) in
    relation to the appellant’s status being wholly owned subsidiary of the
    company known as Sun Air Hotels Limited was found.

    7. Be that as it may. The assessment order records that, after the search,
    certain material came to the notice of the Assessing Officer on the basis
    whereof, he formed an opinion that the appellant – assessee is not the wholly
    owned subsidiary of said company (Sun Air Hotels Limited) and an order for
    the block period under Section 158BC of the Act of 1961 and made addition
    of Rs. 21 crores in appellant’s hands came to be passed. By way of appeal, the
    appellant assailed the said order of the Assessing Officer (dated 29.11.2002)
    before the Commissioner of Income Tax (Appeals) [hereinafter referred to as
    ‘CIT (A)’], who allowed the same vide order dated 31.10.2003, while
    observing thus:

    “3.20. In the letter dt. 20/2/2003, it is submitted that the issue
    regarding taxability of capital gain has already been examined
    earlier by the Assessing Officer, Special Range-5, New Delhi while
    passing the order u/s 143(3) for the relevant assessment year
    1995-96. Hence, the addition made is beyond the scope of Chapter
    XIV-B of the Act
    as it is a completely disclosed transaction in the
    regular books of account.”

    8. The addition so made by the Assessing Officer was set aside by CIT
    (A). Against the order of the CIT (A). dated 31.10.2003, the Revenue
    preferred an appeal bearing No. IT(SS)A No. 06/DEL/2004 before the
    Income Tax Appellate Tribunal, which rejected the appeal filed by the
    Revenue vide its order dated 26.10.2007.

    9. Thereafter, the revenue brought the matter before this Court by way of

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    an appeal under Section 260(A) of the Act of 1961, bearing ITA No.
    562/2008, in which the following questions of law were framed by the High
    Court :

    “(i) Whether the Income Tax Appellate Tribunal was right in
    deleting the addition of Rs. 21 crores made by the Assessing
    Officer under Section 45 read with Section 47(v) of the Income
    Tax Act, 1961?

    (ii) Whether the impugned order passed by the Income Tax
    Appellate Tribunal is perverse ?”

    10. The High Court heard the appeal and,vide its order dated 01.06.2012,
    remitted the matter back to the Tribunal, holding the order of the Tribunal to
    be perverse. In other words, the High Court decided the question no. 2 only
    and left all the questions, including the ground relating to question no. 1
    recorded hereinabove in para No. 5, to be dealt with and decided afresh by the
    Tribunal.

    11. When the matter went before the Tribunal pursuant to the remand, the
    Tribunal allowed the appeal filed by the Revenue vide its order dated
    20.09.2016, which is impugned in the present appeal before this Court. The
    appellant’s legal grounds, more particularly, the ground that no incriminating
    material was found during the search was not entertained by the Tribunal by
    observing that the assessee had not filed any cross-appeal. The arguments
    advanced on behalf of the assessee were brushed aside by the Tribunal by
    observing that unless an additional ground was raised or a cross appeal was
    filed, the legal issue could not be gone into. Against the said order of the
    Tribunal, the present appeal has been preferred and the questions quoted in
    paragraph 1 hereinabove have been framed.

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    12. Mr. Jayant Bhushan, learned Senior Counsel appearing for the
    appellant, at the outset, submitted that while dealing with the present appeal, a
    crucial and important fact has to be borne in mind that the CIT (A) had
    already allowed the assessee’s appeal holding the assessment order to be bad
    in the eye of law, as there was no material to invoke Chapter XIV-B of the Act
    of 1961 and that the assessment was completely beyond the scope of Chapter
    XIV-B of the Act
    of 1961, as no incriminating material was found during the
    search, and that it was a completely disclosed transaction. In this regard, he
    referred to paragraph 3.20 of the order (as quoted above in para No. 7).

    13. Mr. Bhushan, learned Senior Counsel submitted that in an appeal filed
    by the Department, an assessee can always support the order passed by the
    authorities below on the grounds mentioned therein or otherwise and no
    separate appeal or cross-objection reiterating the very same grounds is
    necessary. He argued that the Tribunal has, therefore, clearly erred in not
    considering the appellant’s arguments in relation to the fact that no
    incriminating material was found during the search and seizure and that the
    appellant’s assessment had been made on the very same material, which
    clearly stood disclosed and had already been considered during assessment
    under Section 143(3) of the Act of 1961.

    14. Learned Senior Counsel then made submissions in regard to question
    nos. 1 and 2 framed by this Court and argued that, notwithstanding his
    contention aforesaid, the appeal deserves to succeed on question no.3 as well.
    He submitted that first two questions, which are jurisdictional questions, are
    considered, the assessment order passed by the Assessing Officer is liable to
    be set aside or annulled in light of the judgments of this Court and of Hon’ble
    the Supreme Court.

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    15. In relation to the first question, he submitted that while proceeding
    under Section 158BC of the Act, it is incumbent upon the Assessing Officer to
    issue a notice under Section 143(2) of the Act, as has been held by Hon’ble
    the Supreme Court in the case of Assistant Commissioner of Income Tax vs.
    Hotel Blue Moon
    , 2010 3 SCC 259 and by this Court in the case of Principal
    Commissioner of Income Tax vs. Silver Line
    , 2016 383 ITR 455.
    He invited
    Court’s attention to paragraph 22 of the Hotel Blue Moon (supra) and
    paragraph 16 and 18 of the Silver Line (supra). The relevant paragraphs are as
    follows :

    In Hotel Blue Moon (supra), Hon’ble the Supreme Court observed as
    under :

    “22. Clause (b) of Section 158-BC by referring to Sections
    143(2)
    and (3) would appear to imply that the provisions of
    Section 143(1) are excluded. But Section 143(2) itself
    becomes necessary only where it becomes necessary to check
    the return, so that where block return conforms to the
    undisclosed income inferred by the authorities, there is no
    reason, why the authorities should issue notice under Section
    143(2)
    . However, if an assessment is to be completed under
    Section 143(3) read with Section 158-BC, notice under
    Section 143(2) should be issued within one year from the date
    of filing of block return. Omission on the part of the assessing
    authority to issue notice under Section 143(2) cannot be a
    procedural irregularity and the same is not curable and,
    therefore, the requirement of notice under Section 143(2)
    cannot be dispensed with.”

    In Silver Line (supra), this Court has observed as under:

    “16. As regards the objection of the Revenue to the
    Income-tax Appellate Tribunal permitting the assessee to
    raise the point concerning non-issuance of notice under
    section 143(2) of the Act for the first time in the appeal before

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    the Income-tax Appellate Tribunal, the court is of the
    considered view that in view of the settled legal position that
    the requirement of issuance of such notice is a jurisdictional
    one, it does go to the root of the matter as far as the validity
    of the reassessment proceedings under section 147/148 of the
    Act is concerned. It raises a question of law as far as the
    present cases are concerned since it is not in dispute that
    prior to finalisation of the reassessment orders, notice under
    section 143(2) of the Act was not issued by the Assessing
    Officer to the assessee. With there being no fresh evidence or
    disputed facts sought to be brought on record, and the issue
    being purely one of law, the Income-tax Appellate Tribunal
    was not in error in permitting the assessee to raise such a
    point before it. This finds support in the decision of the
    Supreme Court in National Thermal Power Co. Ltd. v. CIT
    (supra) and the decision of this court in Gedore Tools (P.)
    Ltd. v. CIT (supra).

    18. The wording of section 143(2)(ii) of the Act, which is
    applicable in the present case, requires the Assessing Officer
    to be satisfied on examining the return filed that prima facie
    the assessee has “understated the income” or has “computed
    excessive loss” or has “underpaid the tax in any manner”.
    The Assessing Officer has the discretion to issue a notice
    under section 143(2) if he considers it “necessary or
    expedient” to do so. This exercise by the Assessing Officer
    under section 143(2) of the Act is qualitatively different from
    the issuance of a notice under section 142(1) of the Act,
    which as noted hereinbefore, is in a standard pro forma.”

    16. In relation to the other question, that unless incriminating material is
    found during the search, an order under Section 158 BC cannot be passed,he
    relied upon and invited Court’s attention to paragraph 18 of the Hotel Blue
    Moon
    (supra). The relevant paragraph is as follows :

    “18. Chapter XIV-B provides for an assessment of the
    undisclosed Income unearthed as a result of search without

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    affecting the regular assessment made or to be made. Search
    is the sine qua non for the block assessment. The special
    provisions are devised to operate in the distinct field of
    undisclosed income and are clearly in addition to the regular
    assessments covering the previous years falling in the block
    period. The special procedure of Chapter XIV-B is intended
    to provide a mode of assessment of undisclosed income,
    which has been detected as a result of search. It is not
    intended to be a substitute for regular assessment. Its scope
    and ambit is limited in that sense to materials unearthed
    during search. It is in addition to the regular assessment
    already done or to be done. The assessment for the block
    period can only be done on the basis of evidence found as a
    result of search or requisition of books of accounts or
    documents and such other materials or information as are
    available with the assessing officer. Therefore, the income
    assessable in block assessment under Chapter XIV-B is the
    Income not disclosed but found and determined as the result
    of search under Section 132 or requisition under Section
    132-A
    of the Act.

    17. Mr. Siddharth Sinha, learned Senior Standing Counsel for the
    respondent, on the other hand, submitted that the arguments, which have so
    vociferously been put forth by learned Senior Counsel, though framed by this
    Court, cannot be entertained and decided, as they do not flow from the order
    of the Tribunal. He argued that these two questions were never agitated or
    raised by the assessee, when the matter was remitted by the High Court to the
    Tribunal. He submitted that since the matter had travelled up to the High
    Court, these questions, unless agitated and argued before the Tribunal, cannot
    be allowed to be raised for the first time before this Court. In support of his
    aforesaidcontentions, Mr. Sinha relied upon the judgment of the Appellate
    Tribunal of Electricity, Damodar Valley Corporation, DVC Towers, VIP
    Road, Kolkata-700054 vs. Central Electricity Regulatory Commission and

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    Others, 2010 SCC Online APTEL 47 and the judgment of Hon’ble the
    Supreme Court in Damodar Valley Corporation vs. Central Electricity
    Regulatory Commission and Others
    , (2020) 6 SCC 795.

    18. Learned Senior Standing Counsel for the respondent, invited Court’s
    attention towards the relevant part of the assessment order dated 29.11.2002
    and submitted that during the course of search, certain material was seized
    from the premises of the assessee which created a genuine doubt about the
    appellant’s claim as a wholly owned subsidiary of the holding company
    namely ‘Sun Air’. The relevant part of the assessment order is reproduced
    thus:

    “During the course of search and seizure operation the fact came
    to light that M/s Sunaero Ltd. had declared Rs. 21 Crores as their
    profit for assessment year 1995-1996 and claimed exemption u/s 47

    (v) of the Income Tax Act, 1961 on the ground that it was wholly
    owned subsidiary of M/s Sunair Hotels Ltd. However seizure
    operations conducted at the Reg. office of the assessee company,
    certain materials were seized from the premises of the assessee
    company which indicated that the claim regarding the status of the
    company as wholly owned subsidiary of the holding company M/s
    Sunair Hotels Ltd. was not correct. Investigations regarding this
    fact that whether this company was actually a wholly owned
    subsidiary of M/s Sunair Hotels Ltd. were carried out during post
    search investigation. Vide reply of the assessee dated 29.08.2002 it
    was stated that “the assessee company is a 100% subsidiary of
    Sunair Hotels Ltd. right from its incorporation till date because as
    per the Company Act, minimum seven registered, shareholders
    should be there in any public limited company and therefore seven
    such persons were appointed as nominees to hold shares on behalf
    of the holding company M/s Sunair Hotels Ltd. It was also stated
    that the said nominee, shareholders did not make any investment to
    acquire the share of M/s Sunaero Ltd., but the entire investment
    was made by Sunair Hotels Ltd. Therefore, the consideration of Rs.

    21 Crores so received by the assessee company was exempt from

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    tax as it was a wholly owned subsidiary of M/s Sunair Hotels Ltd.
    for the reasons given above.”

    19. Having read the above quoted portion of the assessment order, learned
    counsel submitted that the fact that certain material was found is evident from
    the above part of the assessment order and therefore, the assessee’s claim that
    no material was found during the search is untenable. In relation to assessee’s
    contention that notice under Section 143(2) of the Act of 1961 was not issued
    to the appellant, learned Senior Standing Counsel argued that this contention
    was never raised by the assessee and the same was not the basis for setting
    aside the Assessing Officer’s order by the CIT(A). He argued that the same
    cannot be entertained by this Court, simply because it appears or happens to
    be a question of law.

    20. He was, however, not in a position to refute/controvert the assessee’s
    assertion that no notice under Section 143(2) of the Act of 1961 was issued to
    the appellant. He submitted that during the pendency of the present appeal, he
    has tried to ascertain this fact from the Assessing Officer but since the matter
    is an old one, he could not lay his hands on relevant record/material, so as to
    apprise the Court in this regard.

    21. Heard learned Counsel for the parties and perused the relevant material
    including the judgments cited.

    22. Before moving to the questions which have been framed by this Court,
    we would like to first deal with the preliminary objection raised by Mr. Sinha
    that Question Nos. 1 & 2, though framed, cannot be gone into and decided by
    this Court.

    23. True it is, that the Question Nos. 1 & 2 in the manner as framed, had
    never been argued by the assessee. But so far as substance of issue of

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    Question No.2 is concerned, the same was very much raised before the
    CIT(A) and he, as a matter of fact, had annulled the assessment order
    essentially on such ground but maybe with a different expression holding that
    the case is beyond the scope of Chapter XIV-B of the Act of 1961. While
    holding so, he had observed that it was a completely disclosed transaction in
    the regular books of account.

    24. However, if the appellant’s contentions noted in the previous round of
    litigation (in paragraph No. 30 of judgment dated 01.06.2012) is taken into
    account, we find that such argument had been raised by the assessee. We
    deem it appropriate to reproduce the assessee’s arguments as noted by this
    Court during the previous proceedings i.e., ITA 562/2008:

    30. At this stage, we may notice two contentions of the respondent.

    The first contention is that block assessment proceeding are bad as
    no material or evidence was found in the search. This aspect has
    not been examined and dealt with by the tribunal. A reading of the
    order passed by the Assessing Officer would show that he has
    referred to the evidence and material which was found during the
    search and thereafter, he has referred to the post search
    investigation and verification. As per the assessment order, the
    evidence/material found during the search and post search
    investigation had revealed that the respondent assessee was not
    100% subsidiary of Sunair Hotels Ltd. As we are passing order or
    remit, this question, if raised, will be examined and considered by
    the tribunal. The second contention of the respondent relying upon
    the assessment order dated 9th February, 1998, does not help or
    assist the respondent for the said order has proceeded on the
    assumption that the respondent assessee was 100% subsidiary of
    Sunair Hotels Ltd. However, as per the case of the appellant,
    material and evidence found during the search and subsequent
    enquiries had revealed that the respondent assessee was not a
    100% subsidiary of Sunair Hotels Ltd. It is, therefore, the
    contention of the appellant that the assessment order dated 9th
    February, 1998 does not help or protect the respondent assessee as

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    the said order had proceeded on the basis of premise and
    assumption that the respondent assessee was not a 100%
    subsidiary of Sunair Hotels Ltd. This aspect will be examined by the
    tribunal. We refrain from deciding this aspect/question. Order of
    the tribunal we record is silent on this question.

    25. We feel that what has been observed by the High Court in its order
    dated 01.06.2012 was necessitated because the High Court found that various
    submissions advanced by the appellant and Revenue were neither dealt with
    by the CIT(A) nor by the Tribunal. A perusal of paragraph no.14 clearly
    reveals that High Court, having heard rival Counsel, found that various
    arguments have not even been noticed. It is in the backdrop of this fact
    situation, we are of the view that the High Court had left every issue open to
    be argued and agitated by both the parties before the Tribunal.

    26. We cannot be oblivious of the fact that the CIT(A) had set aside the
    assessment so framed by the Assessing Officer, maybe on a slightly different
    count, but once the CIT(A) had held in assessee’s favour, there was no
    occasion for the assessee to raise the grounds by way of cross appeal, as were
    orally raised before the High Court, because before the Tribunal, it was
    Revenue’s appeal.

    27. According to us, before the Tribunal, an assessee can always support
    the order passed by the Appellate Authority on all permissible grounds,
    including the ground on which the appeal had been allowed. In a bid to
    support an order passed by the Authority below, an assessee can raise oral
    contentions, if the same are not subservient to any additional evidence. In
    other words, an assessee can support an order of the CIT(A) on other grounds
    also, and contend that the order of the Assessing Officer is erroneous if the
    same is contrary to any subsequent judgment, passed by the jurisdictional

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    High Court or the Supreme Court, because ultimately it is the legal position
    which should triumph and prevail and not the procedural formalities of filing
    a cross appeal.

    28. On a perusal of the impugned order of the Tribunal, we find that though
    while remanding the matter, this Court had given a liberty to the assessee to
    raise all grounds before the Tribunal and the assessee did make an endeavour
    to advance such arguments but the same were not considered by the Tribunal
    taking a hyper technical view that the assessee had not filed any appeal or
    cross-appeal. We are of the firm view that the Tribunal has erred in not
    considering the appellant’s arguments that the assessment order was liable to
    be set aside or no proceedings could be taken against the appellant assessee,
    as no material was found during the search.

    29. In any event, the Question Nos.1 & 2 framed by this Court are purely
    legal issues and go to the root of the matter. It is a settled legal position that
    legal issues can be raised at any stage, and, if they are jurisdictional issues-
    they can be raised even before the High Court or before Hon’ble the Supreme
    Court.

    30. We, therefore, reject the preliminary objection raised by Mr. Sinha that
    Question Nos.1 and 2 cannot be gone into by this Court, at this stage.

    31. Moving on to Question No.2, a perusal of the assessment order gives an
    indication that during search, the Assessing Officer had found some material
    such as share certificate, etc. but the Assessing Officer did not record any
    finding about the material on the basis of which he had inferred that the
    appellant was not a fully owned subsidiary of Sun Air.

    32. A perusal of the above quoted part of the assessment order (Para
    No.14) clearly unravels that the Assessing Officer had found certain material

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    post-search investigation. According to us, the search continues only during
    the period mentioned in the warrant of authorization issued under Section 132
    of the Act of 1961. And once that period is over, any material which was
    found subsequently cannot be said to be a material found during search.

    33. According to us, what has been found after the search was a material
    collected during the course of assessment proceedings and not during the
    search. And since the impugned assessment order is based upon a material
    purportedly recovered post search, this cannot be made a basis for raising a
    demand against the appellant, as has been held by Hon’ble the Supreme Court
    in Hotel Blue Moon (supra), more particularly because appellant’s
    assessment had been made under Section 143(3) of the Act of 1961.

    34. Adverting to the Question No.1 in relation to issuance of notice under
    Section 143(2) of the Act of 1961, judgment of this Court in the case of Silver
    Lining
    (supra) is clear and categorical, wherein it has been held that a notice
    under Section 143(2) of the Act of 1961 is required to be issued.
    On a perusal
    of the judgment in the case of Silver Lining (supra), we find that even in that
    case
    , the question of issuance of notice was raised first time before the
    Tribunal as can be seen from paragraph no.16 of the order in the said case.
    And this Court has not only held that such legal issue or ground can be raised
    at the stage of Tribunal but has also held that a notice under Section 143(3) of
    the Act of 1961 is mandatory.

    35. A perusal of the assessment order and record does not show any
    evidence of issuance of any notice to the appellant assessee during the course
    of proceedings under Section 158BC of the Act of 1961.

    36. Mr. Sinha, learned Senior Standing Counsel for the Department, also is
    not in a position to place any notice issued to the petitioner under Section

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    143(2) of the Act of 1961. This leads us to conclude that no notice under
    Section 143(2) of the Act of 1961 was issued to the appellant during the
    proceedings under Section 158 BC of the Act of 1961.

    37. In view of the aforesaid, Question Nos.1 & 2 are decided in the
    affirmative and in favour of the assessee.

    38. The appeal, therefore, succeeds. The first two questions are thus
    decided in favour of the assessee.

    39. The impugned assessment order dated 29.11.2002 and the order of the
    Tribunal dated 20.09.2016 are quashed and set aside. Consequences to
    follow.

    40. As the assessment order has been annulled on jurisdiction aspect, we do
    not deem it necessary to go into the third question. The same is left
    undecided/open.

    41. The appeal stands disposed of.

    DINESH MEHTA
    (JUDGE)

    RAJNEESH KUMAR GUPTA
    (JUDGE)
    JULY 8, 2026/nd/kk

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