Reassessment Cannot Survive Once Recorded Reasons Fail: Delhi HC [Read Order]
The Court’s ruling was based on the reasons recorded for reopening, which were central to establishing that the foundation for reassessment was invalid.
Reassessment - Survive - Recorded Reasons Fail - Delhi HC - taxscan
Reassessment - Survive - Recorded Reasons Fail - Delhi HC - taxscan
The bench of the Delhi High Court held that reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, cannot be sustained once the very reasons recorded for reopening are found unsupportable on merits. The Court clarified that when the foundational grounds for reopening assessment under Section 148 fail, no further additions or variations can survive, rendering the entire reassessment void in law.
The appellant, Valmik Thapar, had filed his income tax return for Assessment Year 2010-11 declaring income of ₹2.91 crore, which included long-term capital gains from the sale of a 50% share in his property at Kautilya Marg, New Delhi. The Assessing Officer (AO) reopened the assessment under Section 147 read with Section 148 of the Income Tax Act, 1961, alleging that the appellant had claimed excess deductions of ₹1 crore under Section 54EC and ₹3.77 crore under Section 54 in respect of two separate residential investments.
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After reassessment, the AO determined long-term capital gains at ₹10.03 crore and rejected the appellant’s claim for the Mumbai property purchase and capital gains bonds. The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed relief, deleting the disallowance under Section 54EC but upholding the AO’s finding on Section 54. Both parties appealed before the Income Tax Appellate Tribunal (ITAT).
The Appellant, represented by Salil Aggarwal, Madhur Aggarwal, Uma Shankar, and Mahir Aggarwal, contended that the reassessment proceedings were jurisdictionally invalid since none of the reasons recorded for reopening were ultimately sustained. It was argued that once the original grounds of reopening had failed, the AO could not retain jurisdiction to make other additions.
The Revenue, represented by Debesh Panda, Zehra Khan, Vikramaditya Singh, Kanishk, Nivedita, Anavntta, and Yashika, argued that once the AO had validly reopened the assessment, he could reassess any other income that had escaped assessment during the proceedings, citing Explanation 3 to Section 147 of the Income Tax Act, 1961.
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The Income Tax Appellate Tribunal upheld the validity of the reopening under Section 147, holding that tangible material was unnecessary where the original return had been processed under Section 143(1). However, it partly allowed the appellant’s appeal on deductions, concluding that Section 54 was not confined to one residential house and that the claim under Section 54EC was admissible.
The Delhi High Court comprising of Justice Vibhu Bakhru and Justice Tejas Karia ruled that the reassessment itself was void. The bench held that the AO can assess “such income” and “any other income” under Section 147 only when the additions based on the recorded reasons survive. Since the reasons for reopening were rejected by the ITAT and not appealed further by the Revenue, the entire reassessment lacked legal foundation.
The Court relied on Ranbaxy Laboratories Ltd. v. CIT (2011) to hold that reassessment cannot proceed independently of the original reasons recorded.
Accordingly, the Court allowed the appeal and quashed the reassessment order.
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