Escaped Income Below ₹50 Lakh: Delhi HC quashes Reassessment as Beyond 3-Year Time Limit [Read Order]

In a recent ruling, the Delhi High Court quashed an income tax reassessment, holding that reassessment proceedings could not be sustained beyond the three-year limitation period where the amount allegedly escaping assessment did not exceed Rs. 50 lakh.

Ankit Khandelwal, the petitioner, a resident individual, had filed his return of income for the Assessment Year 2014-15 declaring a total short-term capital gain of Rs. 9,43,944 from trading shares of PMC Fincorp Ltd. and had paid Rs. 1,20,337 as tax.

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The Income Tax Department issued a notice on 22.07.2022 under Section 148, alleging that the petitioner’s income had escaped assessment, relying on a claim that he had earned fictitious long-term capital gains of Rs. 61.95 lakh, a claim not reflected in his actual return or supported by any evidence.

In response, the petitioner submitted complete records including his income tax return, broker’s contract notes, bank statements, and documentary proof of receipt of only Rs. 9.43 lakh. Despite this, the Assessing Officer (AO) concluded that the transactions were bogus and insisted that the escaped income exceeded Rs. 50 lakh, justifying the extended limitation for reassessment.

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The bench comprising Justices Vibhu Bakhru and Tejas Karia found that the AO failed to substantiate the allegation that the petitioner received Rs. 61.95 lakh or that any such long-term capital gain was earned. The court observed that the entire reassessment rested on unverified information and that the petitioner had already disclosed and paid tax on the entire gain earned from the transaction., explained that reassessment under Section 148A requires a careful examination of actual material and not mere uncorroborated data.

Rejecting the Revenue’s argument that the value of alleged fictitious gains should govern limitation, the court clarified that the AO must assess the actual escaped income, not just rely on the information received. Since the income in question was below Rs. 50 lakh and the reassessment notice was issued beyond the three-year window, the court ruled that the action was unsustainable.

The writ petition was allowed, and the reassessment notice along with related proceedings was set aside.

To Read the full text of the Order CLICK HERE

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