Courts Cannot Review if AO has Enough Material to Reopen Assessment: Delhi HC [Read Order]

In a recent ruling, the Delhi High Court observed that the sufficiency of the material available with the Assessing Officer (AO) to carry out reassessment is beyond the scope of judicial review.

R.S. Alloys, the petitioner, filed a writ petition challenging the reassessment proceedings initiated against it under Sections 147 and 148 of the Income Tax Act, 1961 for the assessment year 2019-20.

The petitioner, a partnership firm trading in ferrous and non-ferrous metals, had declared income of Rs. 40,90,533. The AO received information that the petitioner had entered into transactions worth Rs. 88,86,000 with Karthik Alloys Pvt. Ltd., alleged to be a paper company engaged in issuing bogus invoices.

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A notice under Section 148A(1) was issued, and the petitioner replied with documents such as purchase bills, GST returns, bank statements, transport documents, and NCLT orders.

The petitioner’s counsel argued that the AO had not properly considered the reply or supporting documents, and that reassessment was initiated solely on the basis of unverified third-party information. They further argued that the AO acted mechanically, without independent enquiry or application of mind, and in disregard of CBDT guidelines meant to protect taxpayers’ rights.

The department’s counsel argued that investigations by the GST authorities had shown Karthik Alloys to be a shell entity with no financial worth. They explained that the petitioner’s reliance on invoices and records did not prove genuineness, and that the AO had enough information to believe income had escaped assessment.

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The Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar observed that while the petitioner claimed the transactions were genuine, the department viewed them as sham transactions requiring further scrutiny.

The court explained that this was a question of fact to be examined in reassessment proceedings and not in writ jurisdiction. The court also observed that the sufficiency of the material relied upon by the AO cannot be tested in judicial review, and that the petitioner had been given a proper opportunity to respond.

The court held that the AO had adequate information to initiate reassessment proceedings and that there was no violation of natural justice. The writ petition was found to be without merit and was dismissed.

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