Escaped Assessment in Different Years Cannot Be Consolidated to Meet Threshold Limit u/s 149 of Income Tax Act: Delhi HC [Read Order]

The Delhi High Court has held that to reach the ₹50 lakh threshold set forth in Section 149(1)(b) of the Income Tax Act 1961 for starting a reassessment action after three years, an Assessing Officer is not permitted to include income that purportedly eluded assessment in several prior years.

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The petitioner, L-1 Identity Solutions Operating Company Private Limited, is a private business that offers certain services to its international affiliated businesses. The main requirement outlined in Section 149(1)(b) of the Act is not met, according to the reassessment action for AY 2018–19, which is barred by time and claims that the revenue that allegedly eluded assessment is less than ₹50 lakhs.

According to the AO, the Assessee undercharged its AE for R&D services by ₹73 lakhs [in the series of years, i.e., Rs. 0.18 Cr. in FY 2016-17, Rs. 0.27 Cr. in FY 2017-18, and Rs. 0.28 Cr. in FY 2018-19]. Since the total amount of money that is alleged to have escaped assessment exceeds ₹50 lakhs, it was argued that the AO is not prohibited from issuing a reassessment notice.

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"The threshold amount of ₹50 lakhs of the income that has escaped assessment or is likely to escape assessment, is to be reckoned in respect of the specified assessment year," the High Court ruled, disagreeing with the Revenue.

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If three years have passed since the conclusion of the applicable assessment year, the clause prohibits the issue of a reassessment notice under section 148. According to its subclause (b), if the Assessing Officer has proof that the income that is owed to taxes but has not been assessed amounts to or is expected to amount to ₹50 lakh rupees or more, reassessment may be started if ten years have not passed.

The Court explained that if the income subject to tax is portrayed as a "asset" or "expenditure in relation to an event or occasion," the total amount that has eluded assessment for more than one assessment year may satisfy the ₹50 lakhs criterion.

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Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

A division bench of Justices Vibhu Bakhru and Tejas Karia in the facts of the case observed that it was incorrect for the AO to proceed on the grounds that it was within its rights to issue a notice under Section 148 of the Act, taking into account the total amount of income that had eluded assessment for FYs 2016–17, 2017–18, and 2018–19. In order to determine the threshold amount of ₹50 lakhs as stipulated by Section 149(1)(b) of the Act, the AO is not permitted to include income that is purported to have eluded assessment for various prior years.

The bench concluded that no single incident or occurrence had caused the revenue from more than one prior year to surpass ₹50 lakhs. According to the aforementioned, the Assessee is accused of undercharging its AE for the R&D services it provided; as a result, ₹27 lakhs in income must be corrected. Furthermore, it is claimed that the Assessee overpaid by ₹21 lakhs for specific managerial and group-related services. It is not possible to claim that any of these two changes was a part of a single event or occasion that occurred over more than one year ago.

The court allowed the petition and set aside the impugned notices and all proceedings.

To Read the full text of the Order CLICK HERE

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