Reassessment U/S 150 Of Income Tax Act Can't Be Initiated On Mere 'Incidental' Findings Of Appellate Authority: Delhi High Court

Section 150 makes provision for cases where assessment is in pursuance of an order on appeal, etc. It empowers an Assessing Officer to issue reassessment notice under Section 148, to give effect to any finding or direction contained in an order passed by any authority in any appeal, reference or revision under the Act.

A division bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma observed that invocation of the provision requires a “strict and cautious application” of the terms 'findings' and 'direction' to prevent the reopening of assessments based on findings or directions that are only incidental, tangential, or beyond statutory authority.

It said,

“...the terms 'finding' and 'direction' have a confined and precise meaning under the Act. A 'finding' refers to a decision on a core issue directly necessary for resolving the specific case at hand, while a 'direction' is a statutorily empowered instruction that is indispensable for the disposal of the case. Both terms demand a direct and substantive nexus to the matter under adjudication and cannot extend to incidental or ancillary conclusions.”

In the case at hand, the Petitioner-assessee, Capital Power Systems Ltd., was aggrieved by invocation of Section 150 against it, following certain findings rendered by the ITAT in reassessment proceedings relating to its Director.

The Director had surrendered and disclosed an income of ₹7 crores, following a search conducted at the company's parent group- Capital Group of Companies. The ITAT had however deleted additions made to income of the Director based on such surrender, holding that assessment was required to be framed only with reference to the material which was seized during the search.

However thereafter, reassessment proceedings were initiated against the company by invoking Section 150, on the ground that the ITAT had concluded that “the income of Rs. 7 crores was disclosed by Capital Power Systems Ltd. and not by individuals”, and therefore, the said income was to be added in the hands of the assessee.

CIT(A) held that there was no finding by the ITAT that the income of ₹7 crores was to be brought to tax at hands of assessee.

ITAT also dismissed Revenue's appeal and held that the income disclosed by the Director was not on behalf of the assessee but on behalf of its parent- Capital Group of Companies. Hence, this appeal.

Findings

The High Court concurred that ITAT had, at no point, rendered any finding in its order that the amount of ₹7 crores is required to be assessed in the hands of Capital Power Systems Ltd.

It said the AO had only referred to a part of the ITAT order to initiate reassessment but overlooked the subsequent findings contained in the same order which reflected that the Director's statement was not reliable and proper course would be to determine the undisclosed income based on the loose papers found and seized during the search.

“A statement must be considered in its entirety, and the Revenue cannot selectively rely on certain portions of a statement while disregarding the rest of it. Further, in case of statements more than one, the cumulative effect of the statements has to be considered for reaching just decision of a given case.”

Coming to invocation of Section 150, the High Court observed that the language of the provision makes it clear that notice can be issued only to give effect to any finding or direction contained in any order passed by any authority in any proceedings under the Act.

“It is clear that the nature of the findings or directions contemplated are such that a notice under Section 148 of the Act is warranted for the purposes of giving effect to the findings. In this view, the findings are required to be dispositive of the issue concerned and only the procedure is required to be involved to give effect to the same.”

It cited ITO v. Murlidhar Bhagwan Das (1964) where the Supreme Court had held that 'finding' refers to a decision on a material question that is essential for the disposal of the case at hand. It is not sufficient for a finding to be incidental or collateral; it must be directly connected to the resolution of the issue under consideration.

Accordingly, concluding there was no specific 'finding' warranting invocation of Section 150, the High Court dismissed Revenue's appeal.

Appearance: Mr. Ruchir Bhatia, Senior Standing Counsel for Appellant; Mr. Inder Paul Bansal, Mr. Vivek Bansal, Mr. Vishal Chechi and Ms. Pooja Rani, Advocates for Respondent

Case title: The Pr. Commissioner Of Income Tax - Central -1 v. Capital Power Systems Ltd.

Case no.: ITA 501/2024

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