Introduction
The Hon’ble Delhi High Court has, in the case of Experion Hospitality Pvt. Ltd. & Connected Matters v. Income Tax Officer & Ors.[i], delivered a significant judgment pertaining to the validity of notices issued under s.148 of the Income-tax Act, 1961 (‘Act’) and the subsequent reassessment proceedings initiated by the department for the assessment year (‘AY’) 2008-09 and 2011-12. The High Court adjudicated the sustainability of such reassessments, especially when they were based on repetitive grounds, unverified suspicions, and a lack of fresh material, particularly when similar transactions were accepted previously.
Brief Facts
A batch of five writ petitions filed under as. 226 and 227 of the Constitution of India were addressed through common judgment due to similarities in the reasons for reopening and the grounds for challenge. These petitions challenged the separate notices issued under s.148 of the Act, whereby the assessments were reopened based on an investigation conducted by the Directorate of Income Tax (Intelligence & Criminal Investigation).
In Experion Hospitality Pvt Ltd. v Income Tax Officer & Ors.[ii], the petitioner filed its income tax return for AY 2008-09, declaring a loss of Rs. 9.91 crore. The return was initially accepted under s.143(1) of the Act and later scrutinized under s.143(3) without any additions or disallowances.
On 31.03.2015, the Assessing Officer (‘AO’) issued a notice under s.148. The petitioner responded on 27.04.2015, stating that the original return filed on 30.09.2008 under s.139(1) should be treated as the return filed in response to the notice under s.148 of the Act and also requested the AO to provide the ‘reasons to believe’ that income chargeable to tax had escaped assessment, as required under s.147 of the Act.
The AO acceded to the petitioner’s request and provided the recorded reasons for reopening the assessment on 17.09.2015, along with a notice issued under s.143(2) of the Act. The reason for reopening the assessment was that Gold Hotels & Resorts Pvt. Ltd. (Gold Singapore) had invested Rs. 39.271 crore in the petitioner’s company, which was alleged to be income that had escaped assessment.
The petitioner filed objections to the reassessment proceedings. Still, the objections were dismissed on 23.10.2015, leading to the filing of the present writ petition, challenging the validity of the reassessment notice and proceedings.
In M/S Experion Developers Pvt Ltd vs Income Tax Officer & Anr.[iii], Experion Developers Pvt Ltd. vs Assistant Commissioner of Income Tax & Ors.[iv], Experion Developers Pvt Ltd. Ltd [Successor-Ininterest-Of-Erstwhile Experion Developers (International) Pvt. Ltd.] vs Assistant Commissioner of Income Tax Circle 8 & Ors.[v], and Experion Hospitality Pvt Ltd (Earlier Known As Gold Resorts And Hotels Pvt. Ltd.) vs Assistant Commissioner of Income Tax & Ors.[vi], the facts were strikingly similar to W.P.(C) 10542/2015. The petitioners had filed their income tax returns, which were initially accepted under s. 143(1). However, reassessment notice(s) under s.148 of the Act were subsequently issued because investments received from Gold Singapore had allegedly escaped assessment. The petitioners filed objections to the reassessment proceedings, which were subsequently dismissed, leading to the filing of the present petitions.
Held
The High Court quashed the reassessment proceedings and notices issued under s. 148 of the Act for AYs 2008–09 and 2011–12, deeming them unwarranted and invalid while further observing that there was no fresh material to justify the reassessment and that there was non-application of mind on behalf of the AO. While the primary basis for reopening the assessments was the alleged lack of creditworthiness of Gold Singapore, in subsequent assessments for AYs 2012–13, 2015–16, and 2020–21, similar transactions involving Gold Singapore had been thoroughly scrutinized and accepted as genuine. These included cross-verification with Singaporean authorities, which confirmed the legitimacy of such alleged transactions.
The High Court highlighted that reassessment notices for AY 2012–13, which were issued on similar grounds, had already been dismissed and stressed the fact that how inconsistent treatment of identical facts across different years undermines the principles of natural justice and tax certainty. The respondent had failed to produce any additional evidence to counter the petitioners' detailed explanations regarding the genuineness of the transactions and their acceptance in subsequent assessments. The reasons for reopening the assessments were based on generalized assumptions and lacked concrete evidence of income escapement.
Our Analysis
The present case affirms the established principle that tax authorities must consistently treat taxpayers across assessment years, barring compelling evidence necessitating deviation. A cornerstone of reassessment proceedings is the discovery of ‘tangible material’ that justifies a belief that income has escaped assessment. The same principle has been applied in various judgements, including the CIT v. Kelvinator of India Ltd[vii].
In the current case, the High Court emphasized that the reassessment was largely based on suspicions regarding Gold Singapore's financial credibility and operational status. However, these concerns had already been resolved in subsequent assessments without any adverse findings.
The judgment by the Hon’ble Delhi High Court reestablishes that reassessment cannot be initiated on the basis of mere assumptions or unsubstantiated allegations, particularly when similar transactions have been scrutinized and accepted in other assessment years. It bolsters taxpayers' position by reinforcing the foundational principles of fairness, consistency, and transparency in tax governance.
End Notes
[i] 2024 SCC OnLine Del 7471 dated 28.10.2024.
[ii] W.P.(C) 10542/2015.
[iii] W.P.(C) 10543/2015.
[iv] W.P.(C) 11140/2015.
[v] W.P.(C) 10288/2018.
[vi] W.P.(C). 10324/2018.
[vii] [2010] 2 SCC 723.
Authored by Shreya Manchanda, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.