Delhi High Court Quashes ₹2000 Crore Tax Reassessment Notice Against Maruti Suzuki For Alleged Escapement Of Income In AY 2009-10

A division bench of Justices Yashwant Varma and Ravinder Dudeja observed that the company had made full and true disclosure of all facts in the course of the assessment and the Department did not have jurisdiction to reopen the assessment under Sections 147/148 of the Income Tax Act, 1961.

It observed, “the petitioner had unmistakably placed copious material on the record during the original assessment proceedings and which would have been relevant and determinative of the “four new issues” which constitute the basis for invoking Section 147...The respondents, therefore, cannot justifiably urge that the petitioner had failed to make full and true disclosure. Whether it be with regard to remittances to SMC, TDS, or long or short-term capital gains, the petitioner had not only made adequate disclosures, these aspects also appear to have been duly flagged and noticed by the AO in the course of the original assessment.”

Maruti Suzuki had filed a revised Return of Income declaring income of INR 12,62,60,79,909/-.

The Assessing Officer, however, computed the total taxable income at INR 20,71,04,18,575/-, following a communication of ACIT identifying four issues with respect to (i) company's status as Permanent Establishment of Suzuki Motor Corporation, (ii) Short Term and Long-Term Capital Gains, (iii) disallowance of Deductions under Section 35(2AB) and (iv) disallowance of Claim of warrant provision.

Maruti Suzuki argued that a concluded assessment cannot possibly be reopened on the basis of a different opinion that the AO may arrive at while assessing a subsequent AY. It further argued there was no independent application of mind by the AO as he was constrained to issue notice solely based on ACIT's communication.

The Department on the other hand contended that responses of Maruti to the four issues were wholly vague, and devoid of material details and consequently, the AO was deprived of complete information at the time when the final assessment order was framed.

It was further submitted that the law does not bar an AO from taking into consideration subsequent facts which may come to light in the course of an assessment which may have been undertaken.

Findings

At the outset, the High Court noted that 31 March 2016 constituted the last date by which a reassessment action for AY 2009-10 could have been initiated in terms of the timelines provided in Section 149. Notice was however issued to Maruti only on 01 April 2016.

It thus referred to the case of Suman Jeet Agarwal v. ITO where the High Court had discussed whether a notice, though generated on 31 March 2021 and yet issued after the said date, would survive the rigorous time frames which are erected by Section 149.

It was held that the mere generation of notice would not suffice and that for the purposes of evaluating whether a reassessment action had been initiated within the time stipulated by Section 149, it would be the date of issue which would be of critical significance.

In the present case, the Court said there was an abject failure on the part of the Department to controvert Maruti's claim that the notice was time-barred and thus, reassessment action was liable to be struck down on this ground alone.

Coming to the issue of reopening assessment on mere change of opinion, the High Court referred to its decision in CIT v. Usha International Ltd which took into consideration cases where fresh factual information may come to the knowledge of the AO and which may warrant a finalized assessment being reopened.

It was held therein that if new information comes to the knowledge of the AO in the course of undertaking an assessment for a subsequent period, the same could be validly taken into consideration and would not amount to a change of opinion. However, it had also cautioned that reopening of assessment would be subject to the caveat that material did not originally exist and the AO was thus powerless to have examined the issues emanating therefrom.

Applying the said ratio to the present case, the Court found that the nature of queries that were addressed in the course of the assessment undertaken initially as well as the material that was placed on the record, it is impossible to hold that the AO was unaware of remittances made to SMC, related party transactions and details of TDS deposited. It said:

“The record which has been analysed by us leads us to the inevitable conclusion that it would be wholly incorrect to hold that the AO was not cognizant of the relevant facts, the different heads of income and expenditure involved, the remittances made to SMC as well as the issue of short and long term capital gains...It is not the case of the respondent that what was disclosed by the petitioner in the earlier assessment had been found to be incorrect or wrong. It is also not their case that the material and information that came to light in the subsequent AY casts a doubt on the correctness or credibility of the responses which were submitted. It is these aspects which convince us to hold that the ―four new issues neither constituted fresh information nor could have validly formed the basis for commencement of action under Section 147 of the Act.”

As such, the reassessment action against Maruti was found to be unsustainable and was quashed.

Appearance: Mr. Ajay Vohra, Sr. Adv. with Mr. Vaibhav Kulkarni and Mr. Udit Naresh, Advs. for Petitioner; Mr. Shlok Chandra, SSC with Ms. Naincy Jain, Ms. Madhavi Shukla, JSCs and Mr. Sushant Pandey, Advs. for Respondent

Case title: Maruti Suzuki India Ltd v. Deputy Commissioner Of Income Tax

Citation: 2025 LiveLaw (Del) 230

Case no.: W.P.(C) 9786/2016

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