Neither Rational Nexus Nor Fresh Material To Believe Escapement Of Income: Delhi High Court Quashes Reassessment Notice
Mariya Paliwala
7 March 2022 11:06 AM GMT
The Delhi High Court has quashed the reassessment notice issued under Section 148 of Income Tax Act, 1961 on the grounds that the reason to believe was invalid, had no rational nexus to the belief for escapement of income and there was no fresh material on record to initiate reassessment proceedings. The division bench of Justice Manmohan and Justice Sudhir Kumar Jain has opined that...
The Delhi High Court has quashed the reassessment notice issued under Section 148 of Income Tax Act, 1961 on the grounds that the reason to believe was invalid, had no rational nexus to the belief for escapement of income and there was no fresh material on record to initiate reassessment proceedings.
The division bench of Justice Manmohan and Justice Sudhir Kumar Jain has opined that the reasoning "the contingent liability has been claimed as revenue expense" is contrary to the concept of contingent liability which is only required to be disclosed by way of a note in accordance with the requirement of applicable Accounting Standards.
The petitioner/assessee has stated that the reopening of assessment was done on the sole ground that the petitioner has made a claim of deduction; when, in fact, no such claim has ever been made. The Petitioner had only claimed expenses as mentioned in the audited accounts.
As per the audited profit & loss account the petitioner has not made any claim of contingent liabilities as revenue expense. It was disclosed by way of a written note in accordance with the requirements of applicable Accounting Standards i.e. AS-29.
Counsel for the Petitioner submitted that reopening is initiated on the basis of review and re-appreciation of the same material i.e. audited accounts which were subject to verification in the course of original assessment proceedings under Section 143(3) which is not permissible in law.
Counsel for the respondents referred to the audited accounts and stated that the Assessing Officer wished to ascertain as to how the contingent liability on account of statutory forms-Central Sales Tax had increased from Rs.1,17,51,217/- in the last financial year to Rs.1,51,05,798/- in the current financial year. Counsel has further sought time to file a counter affidavit.
The court found that no useful purpose would be served by giving an opportunity to file a counter affidavit. Accordingly, the request of counsel for the respondent was declined and the impugned notice was quashed.
"However, in the event the Assessing Officer has some fresh material, he shall be at liberty to take action in accordance with law. In the event such an action is taken, the petitioner shall be at liberty to file appropriate proceedings in accordance with law," the court added.
Case Title: Kurz India Private Limited Versus Principal Commissioner of Income Tax-5, New Delhi
Citation: Citation: 2022 LiveLaw (Del) 174
Counsel For Petitioner: Advocate Piyush Kaushik
Counsel For Respondent: Advocate Pratyaksh Gupta
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