Income Tax Reassessment Beyond 6 Years Invalid Without Existence of ‘Asset’: Delhi HC Quashes Notice [Read Order]

The Delhi High Court has held that income tax reassessment beyond six years is invalid in the absence of any allegation regarding the existence of an “asset” and quashed the notice issued under Section 148 along with all consequential proceedings.

The case arises from a writ petition filed by Deepak Nagar challenging the notice dated 31 August 2024 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2016-17 and the subsequent assessment proceedings.

The Assessing Officer had initiated reassessment proceedings on the ground that income of more than Rs. 14 crore had escaped assessment, which was stated to be in the nature of unexplained cash expenses in relation to a project. The notice was issued beyond a period of six years from the end of the relevant assessment year.

Before the High Court, the petitioner’s counsel argued that the reopening was without jurisdiction as the conditions required for invoking the extended limitation period of ten years under Section 149 were not satisfied. It was argued that the reasons recorded by the Assessing Officer did not contain any allegation regarding the existence of an “asset,” which is a necessary condition for extending the limitation period.

The Revenue’s counsel argued that the assessment proceedings had already been completed and that the petitioner should avail the statutory remedy available under the Act. It was also argued that the issue of limitation had not been raised before the Assessing Officer and should not be entertained at this stage.

The Division Bench of Justice Dinesh Mehta and Justice Vinod Kumar observed that the issue of limitation is a jurisdictional matter and can be examined even if it was not raised before the Assessing Officer. The court also observed that the reasons recorded for reopening only referred to unexplained expenditure and did not contain any reference to the existence or creation of an asset.

The court explained that for invoking the extended limitation period of ten years under Section 149, the escaped income must be represented in the form of an asset. It pointed out that in the absence of such a finding, the Assessing Officer could not rely on the extended period and was restricted to the normal limitation period of six years.

The court held that since the notice was issued beyond six years and the jurisdictional requirement of existence of an asset was not satisfied, the reassessment proceedings were without jurisdiction. The High Court quashed the notice issued under Section 148, the assessment order, and all consequential proceedings, and allowed the writ petition.

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