Statements made to UK Revenue Authorities without any Material Evidence cannot be a Sole basis for Re-Assessment: Delhi HC [Read Judgment]

Re-Assessment Notice - Delhi High Court - Tax Scan

Recently, the division bench of the Delhi High Court observed that re-assessment under the provisions of the Income Tax Act cannot be made solely on the basis of statements made by the assessee to the UK Revenue authorities.

In the instant case, re-assessment was made against the assessee on the basis of a statement made by him to the UK revenue officials, who had suspected evasion of income of one of the relative of the assessee. It was alleged that the assessee had made statements regarding his interest income on various bank accounts in UK. The assessee urged that the statements so made are not a sufficient ground to attract re-assessment in the absence of any objective or cogent material, or even bank statements. The Revenue, on the other hand, contended that these statements were made in the course of proceedings that should be treated as regular having regard to the nature of revenue loss in UK.

The ITAT, on second appeal, opined that since UK revenue authorities did not accept the assessee’s explanation, particularly, that the amounts deposited belonged to him, there could be no question of assessing him since such amounts have been brought to tax in the UK. The order of the ITAT quashing the order was impugned by the Revenue before the High Court.

Diving deeply into the facts of the case, the division bench comprising of Justice S. Ravindra Bhat and Justice Najimi Waziri observed that, “No doubt, the letters received from the UK authorities were sufficient to trigger a reassessment proceedings but exactly that is where the Revenue, in our opinion, faltered. Having received information, it could well have proceeded through a reassessment proceeding at the earliest opportunity, i.e. in October 1989 or latest by December of that year, the revenue chose to wait for three years and sought to reopen at least a decade-late completed assessment. By then the assessee had died. There are certainly pointers to interesting omissions and in any event, leads that could have been developed by the AO, such as queries to the Bank of India, for foreign inward remittances and their source. If the assessee were alive, upon receipt of such information, he might well have been confronted with them. The lack of any probe in this regard and almost exclusive reliance upon the UK revenue information, in our opinion, was not sufficient to conclude that the amount which was attributed to the deceased assessee, i.e. UK £2 million in fact belonged to him. In fact, the materials show that these amounts were brought to tax in the hands of Sh. Kumar. Rather than accepting what ought to be the correct standard, this Court is of the opinion that the tax authorities did not do what they could have and had not done what they should have when they did get information in September 1989 and woke-up far too late.”

Read the full text of the Judgment below.