No Reopening Is Permitted U/s 148 On Issues Which Were Answered In Favour Of Taxpayer During Course Of Revision U/s 263: Delhi HC

The High Court held so, after finding that the reasons for issuing notice u/s 148A(b) were exactly similar to the reasons on which the PCIT had invoked Section 263.

Section 263 of Income tax Act is a proactive step taken by tax authority to rectify potential errors in the original assessment, where the Commissioner issues a notice to taxpayer, informing them of the intention to revise the order.

The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “at the time of initial assessment, as also while conducting proceedings u/s 263, the authorities were aware of shares held by the assessee for a consideration which was considered to be less than fair market value. However, Revenue still proceeded further to purpose initiation of reassessment proceedings by issuing notice u/s 148A(b)”. (Para 17)

Facts of the case

During scrutiny assessment proceedings, the petitioner/ assessee was asked about the share holding pattern of M/s Centrodorstory (India) Pvt. Ltd., where petitioner has invested two crores in shares. The assessment was completed after accepting the income of petitioner at Nil. Later, the petitioner received a notice u/s 263 on the issue of share subscription. In response, the petitioner stated that he was already an existing subscriber and had received the shares as “Right Issue”, and therefore, provisions of Section 56(2)(viia) does not applies to its case. Accepting the same, the PCIT dropped the proceedings initiated vide SCN u/s 263.

However, after more than two years, a notice was issued to petitioner u/s 148 on the same issue was concluded u/s 263 proceedings, resulting in issuance of order u/s 148A(d). Hence, the assessee approached the High Court.

Observation of the High Court

The Bench noted that the assessee had submitted the share holding pattern of M/s. Centrodorstory (India) in whose shares investment of two crores were made, when requested by the AO.

Assessment order clearly reveals that the details called for were filed, examined, and placed on record and after considering them, the income was assessed as 'Nil', added the Bench.

Since the PCIT had dropped the proceedings u/s 263, after considering the reply of assessee, the Bench pointed that at the time of initial assessment, as also while conducting proceedings u/s 263, the authorities were aware of shares held by the assessee for a consideration which was considered to be less than fair market value.

The Bench observed that the reasons for issuing notice under Section 148A(b) were exactly similar to the reasons on which the PCIT invoked Section 263 of the Act.

Since the PCIT had decided in favour of petitioner, the AO cannot reopen the assessment u/s 148, and hence, the Bench opined that the present is a clear case of “change of opinion” and the reassessment proceedings are in the nature of review of the previous assessment.

The Bench explained that grant of approval by the senior authority i.e. PCCIT would not confer legitimacy to the initiation of the reassessment action as the point on which the reassessment was initiated, had already been considered in the previous proceedings.

The higher authority cannot grant approval which is in violation of the settled principles on the basis of which reassessment action can be initiated, added the Bench.

Thus, the High Court allowed Assessee's petition and quashed the notice u/s 148 as well as the order u/s 148A.

Counsel for Petitioner/ Assessee: Ruchesh Sinha and Monalisa Maity

Counsel for Respondent/ Revenue: Debesh Panda, Zehra Khan, Vikramaditya Singh, Ojaswa Pathak, Anauntta Sarkar and Vineet Gupta

Case Title: Chandra Global Finance Ltd versus ITO

Case Number: W.P.(C) 359/2023

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