In a recent judgment, the Delhi High Court struck down reassessment proceedings under Section 148 of the Income Tax Act, 1961 stating that there were no valid grounds and procedural lapses.
The petitioner, Subash Chander Dabas, moved the High Court against a reassessment order passed by the Assistant Commissioner of Income Tax for the 2012-13 assessment years(AY) under section 148 of the Act.
During the initial assessment, it was alleged that the assessee, a builder, had failed to disclose ₹24 Crore transactions from the Delhi States Newspaper Employee Cooperative Group Housing Society in the 2011-12 Financial Year even though the assessee acknowledged such an income. Upon seeing this income receipt, the assessing officer formed the opinion that the petitioner had failed to fully and truly disclose its income.
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Based on information from the Income Tax Investigation Wing, the revenue suspected other unaccounted cash in the assessee’s accounts, which led to the reassessment being invoked. The revenue suspected the petitioner of using benami transactions to sell flats at inflated prices and divide funds among his other firms, such as Tirupati Construction and Tirupati Constwell Pvt Ltd.
Regarding these allegations, the petitioner argued that the reassessment was based on mere assumptions and lacked conclusive evidence. The petitioner further contended that the transactions cited had already been disclosed in earlier assessments, which needed no reassessment.
On hearing both sides, the High Court held that the reassessment must be based on concrete evidence and no speculation. The court further held that it noticed a shift in the revenue claims in the middle of proceedings. The revenue relied on incomplete inquiries and failed to prove that the transactions had escaped earlier assessment.
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The court pointed out that the petitioner had been assessed under Section 143(3) and had met all the disclosure requirements. However, the reassessment notice that followed such an assessment failed to meet the legal requirements under Section 147 for reopening an already closed assessment.
The two-judge bench of the Delhi High Court, consisting of Justice Yashwant Varma and Justice Dharmesh Sharma, held that the reassessment powers could not be used to rectify oversights from earlier reviews. Any fresh notice must be based on solid materials and records, and the reasons must comply with all procedural safeguards provided in the Income Tax Act.
As a result, the petition was allowed, and the court struck down the reassessment notice and order under Sections 147 and 148 of the Income Tax Act.
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