[Delhi High Court]: Quashed Reassessment Proceedings Due to Violation of Section 149 of the Income-tax Act

Introduction

In the case of ARN Infrastructures India Ltd. v. Assistant Commissioner of Income-tax Central Circle-28 Delhi & Ors.[i], the Delhi High Court ruled on the validity of reassessment proceedings initiated under s. 148 of the Income-tax Act, 1961 (‘Act’). The key issue before the Court was whether the reassessment proceedings were time-barred under the amended regime introduced by the Finance Act, 2021, particularly the first proviso to s. 149(1) of the Act.

Brief Facts

• A search was conducted at the premises of ARN Infrastructures India Ltd. (‘Assessee’), a successor entity of Abhisar Buildwell Private Limited (‘ABPL’), on 21.01.2011, and consequently, notice under s. 153A of the Act was issued on 09.01.2012. Further, the Assessing Officer (‘AO’) passed an assessment order disallowing the depreciation claimed by ABPL.

• Subsequently, ABPL filed an appeal challenging the assessment order, which was allowed by the Commissioner of Income Tax (Appeals) (‘CIT (A)’) as no incriminating material was found during the search.

• Thereafter, the Assistant Commissioner of Income-tax (‘Revenue’) challenged the CIT(A) order before the ITAT, which was also dismissed on the basis of the similar decision given in the case of Kabul Chawla[ii]. The Revenue subsequently challenged the ITAT’s decision before the Delhi High Court, which was dismissed.

• Consequently, the Revenue filed a Special Leave Petition before the Supreme Court, which upheld the High Court’s decision in ABPL, affirming that no additions can be made to completed or unabated assessments without any incriminating material found during the search.

• Furthermore, the Supreme Court observed, in obiter, that the AO may initiate reassessment under Sections 147/148, subject to fulfilment of statutory conditions, where no incriminating material is found so that the Revenue is not rendered remediless.

• Thereafter, on 27.09.2023, the notices under s. 148A(b) of the Act were issued to ABPL on the basis of the special audit report and, consequently, the impugned notices under ss. 148 and 148A(d) of the Act were issued on 30.11.2023.

• The Assessee argued that the reassessment action was wrongly initiated by the Revenue on the basis of the Supreme Court’s decision in the ABPL case. The Assessee contended that the impugned notices were barred by limitation under s. 149 of the Act and would not fall under the ambit of s. 150 of the Act.

Held

• The High Court ruled that the reassessment notices were issued beyond the statutory time limits prescribed under s. 149(1) of the Act.

• Further, the High Court clarified that the Supreme Court’s ruling in Abhisar Buildwell P Ltd.[iii] does not override the explicit limitation period prescribed under the first proviso to s. 149 of the Act, and only provided limited rights to the Revenue to initiate reassessment in compliance with law and subject to fulfilling the conditions of ss. 147 and 148 of the Act.

• The High Court also interpreted ss. 153A, 153C, and 149(1)(b) of the Act, holding that they contain a ‘sunset clause’, clarifying that for assessment years preceding 01.04.2021, any reassessment must comply with the limitation regime as it stood prior to the amendments introduced by the Finance Act, 2021.

• The High Court observed that the impugned notices under s. 148 of the Act were issued by the Revenue beyond the limitation period provided under s. 149(1)(b) of the Act, and thus, allowed the writ petition in favour of the Assessee and quashed the impugned notices issued under s. 148 of the Act.

Conclusion

The Delhi High Court clarified that reassessment under s. 153C of the Act is permissible only where incriminating material directly pertains to the relevant assessment year. It held that the Supreme Court’s ruling in Abhisar Buildwell (supra) does not override the statutory limitations under ss. 147, 148, or the first proviso to s. 149, and reassessment must strictly comply with those provisions.

The Court also underscored the binding nature of the sunset clauses in ss. 153A, 153C, and 149(1)(b), which impose definitive time limits. It conclusively ruled that Abhisar Buildwell (supra) does not constitute a ‘finding or direction’ under s. 150(1), and cannot be used to bypass limitation. Accordingly, the impugned notices under s. 148 were quashed as time-barred.

End Notes

[i] 2024 SCC OnLine Del 6738 dated 26.09.2024.

[ii] Commissioner of Income-tax v. Kabul Chawla - 2015 SCC OnLine Del 11555.

[iii] Principal Commissioner of Income Tax v. Abhisar Buildwell Private Limited - (2024) 2 SCC 433.

Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.