WP(C) No.6159/2023 Page 1 of 38

* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment Reserved on: 12.11.2025

Judgment delivered on: 16.02.2026

Judgment uploaded on: As per Digital Signature~

+ W.P.(C) 6159/2023, CM APPL. 24241/2023

SAPPHIRE FOODS INDIA LTD. .....Petitioner

versus

ASSISTANT COMMISSIONER OF INCOME

TAX ACIT (OSD) DELHI & ORS. .....Respondents

Advocates who appeared in this case

For the Petitioner: Mr. T. M. Shivakumar, Ms. Sanjana, Ms.

Laxmi Pundir, Ms. Simmi Bagga and Ms.

Palak Kumari, Advs.

For the Respondents: Mr. Abhishek Maratha, SSC, Mr. Apoorv

Agarwal, JSC with Ms. Nupur Sharma, Mr.

Gaurav Singh, Mr. Bhanukaran Singh

Jodha, Ms. Muskaan Goel, Mr. Himanshu

Gaur and Mr. Nischay Purohit, Advs.

CORAM:

HON'BLE MR. JUSTICE V. KAMESWAR RAO

HON'BLE MR. JUSTICE VINOD KUMAR

JUDGMENT

V. KAMESWAR RAO, J.

1.This petition has been filed with the following prayers:

“1. Issue a writ of Certiorari or writ of mandamus or

appropriate writ, direction or order

a. setting aside the impugned order u/s 148A(d) of the

Act and the accompanying notice u/s 148 of the Act

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both date 31.03.2023 by Respondent No. 1 in the

Petitioner’s case for A. Y. 2016-17.

b. Quashing the proceedings initiated vide the

impugned notice dated 31.03.2023 u/s 148 of the Act.”

2.The petition relates to the Assessment Year (AY) 2016-17, for which

an order under Section 148A(d) of the Income Tax Act,1961 (‘the Act’) and

a notice under Section 148 of the Act, both dated 31.03.2023 were issued by

the respondent no.1, on the information available with him whereby he has

called for the filing of the return of income (ITR) by the petitioner herein,

within thirty days.

FACTUAL BACKGROUND

3.At the outset, we may provide a brief factual background of the

controversy. The petitioner herein, is a company incorporated under the

Companies Act, 1956 and is regularly assessed to income tax at Delhi. For

the AY concerned i.e. 2016-17, the petitioner filed its ITR on 08.10.2016,

declaring loss of Rs. 10,24,33,542/-. The petitioner’s case was picked up for

scrutiny assessment, pursuant to a notice under Section 143(2) being issued.

Thereafter, upon conducting the proceedings, the Assessing Officer passed

the assessment order under Section 143(3) of the Act, on 09.12.2018,

assessing the income at Rs. 14,56,05,630/-. The assessing officer by this

order made an addition of Rs. 24,80,39,169/-, on account of alleged

premium charged in excess of the fair market value of shares determined by

changing the method of valuation of shares from DCF method adopted by

the petitioner, to the book value method.

4.Aggrieved by the assessment order, the petitioner filed the first appeal

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before Commissioner of Income Tax [Appeals]-4, New Delhi [“CIT(A)”],

on 07.01.2019. The first appellate authority partly allowed the petitioner's

appeal vide order dated 20.01.2020. The addition made by the assessing

officer under Section 56(2)(viib) of the Act was deleted but some related

technical grounds were dismissed. Hence, the appeal came to be partly

allowed. However, aggrieved by the order of CIT(A), the Revenue filed an

appeal before the Income Tax Appellate Tribunal (ITAT), Delhi on

29.06.2020 and the same is pending orders of the ITAT.

5.On 22.03.2023, the respondent no. 1 issued a notice to the petitioner

under Section 148A(b) of the Act along with relevant annexures and

scanned copy of audit objections raised by the local Audit Party conveying

that he has information in his possession which suggests that income

chargeable to tax for AY 2016-17 has escaped assessment within the

meaning of Section 147 of the Act and called upon the petitioner to show

cause as to why notice under Section 148 of the Act should not be issued.

Thereafter, the Assessing officer while relying upon Section 148

Explanation-1 (ii) of the Act and the audit objections issued the impugned

notice to the petitioner, granting it an opportunity to show cause as to why

the assessment in the case of the petitioner must not be reopened. The

compliance from the petitioner was sought by 29.03.2023.

6.The annexure to the notice under Section 148A(b) of the Act

mentions two primary reasons by the way of two audit objections, which

were raised by the local audit party. The same are reproduced as under:

“Audit Para No.:No.CT/IIA/0003

Section56(2)(viib) provides that where a company, not being a

company in which the public are substantially interested,

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receives from any person being a resident, any consideration

for issue of shares that exceeds that face value of such shares,

the aggregate consideration received for such shares as

,exceeds the fair market value of the shares shall be chargeable

to tax under the head Income from other sources. The fair

market value to be determined by applying the method

prescribed under Rule 11 UA of IT Rules. The assessment of

M/s.Gamma Pizzakraft(overseas)Private Ltd for AY 2016-17

the assessment "was completed after scrutiny u/s 143(3) in

December 2018 at an income of Rs. 14,56,05,630.The assessee

issued 54,33,548 equity shares of face value of Rs. 10 each to a

company at the rate of Rs. 65.65 (total consideration of Rs.

35,67,12,426)thereby getting premium of Rs.30,23,74,146 at

the rate of Rs. 55.65 per share.

Assessing Officer attracted the provisions of Section 56(2)(viib)

and worked out the fair market value, in accordance the

provisions of Rule 11 UA, as Rs. 10 per share i.e. equal to the

face value of the share. As such, no premium was allowable on

the equity shares to assesse.

However, the AO disallowed premium only of Rs. 24,80,39,169

in the assessment order by adding it to the income of the

assessee, and allowed premium Rs. 5,43,34,977 on equity

shares to assessee. Thus, incorrect allowance of share premium

on transfer of equity shares ,having market value equal to face

value (Rs.10), resulted inunder assessment of Rs.5,43,34,977

having tax effect of Rs.2,50,09,650 as computed below:

Audit Para No.:CT/IIA/0002

Section 36 (i) (ii) of the Income Tax Act, 1961, provides -that

bonus or commission paid to employees is admissible only if it

is not payable as profit or dividend. Section 37 of the Act

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further provides that any expenditure, not being in the nature of

capital expenditure, laid out wholly or exclusively for the

purpose of business is allowable as deduction in computing

income chargeable under the head Profits and gains of

business or profession. Thus, all expenditure, other than capital

expenditure which is incurred in relation to the business is

allowable. The assessment of M/s. Gamma Pizza kraft

(overseas) Private Ltd for A Y 2016-17 the assessment was

completed after scrutiny u/s 143(3) in December 2018 at an

income of Rs. 14,56,05,630. The assesses company, which

started operating a bakery restaurant, had turnover of only Rs.

1,75,978 in the first AY and filed ITR at loss of Rs. 10.24 crore.

Audit scrutiny noticed that assessee paid Rs. 8.90 crore to Sh.

Amar Singh (MD and shareholder) and Rs. 90.81 lakh to Sh.

Snadeep Kohli (shareholder) crore on account of Bonus and

legal & professional expenses respectively out of total expenses

of Rs. 10.51 crore debited to P&L, which worked out to 93

percent. There was no justification available in the file as to

why the huge bonus was paid by the assessee to its MD/

shareholders in the very first year when the turnover of the

company was negligible. The expenses was not allowable as

these were not incurred for business purpose. Further, the

bonus and legal & professional expenses paid to

MD/shareholders was otherwise payable as profit or dividend

to them.

Thus, incorrectallowance expensesresulted inunder

assessment of Rs.9,80,81,200(Rs.8,90,00,000 Rs.90,81,200)

having tax effect of Rs.4,51,45,442 as computed

below:

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7.Hence, the assessing officer has relied on these two audit objections to

state that petitioner had not disclosed all the facts in the ITR / financial

statements for AY 2016-17.

8.It can be noted from the above that the first audit objection is related

to escapement of income due to an incorrect allowance of share premium @

Rs.10 per share amounting to Rs.5,43,34,977/- on issue of equity shares. The

second audit objection is related to the incorrect allowance of

Rs.9,80,81,200/-. In view of the same, the shared premium and expenses

(Rs.5,43,34,977/- plus Rs.9,80,81,200/-.) was held to be disallowed and

added back to the total income of the petitioner.

9.On the basis of the petitioner’s reply to this notice, the assessing

officer dropped the issue raised by the first audit objection and held that

there was no escapement of income in relation to the said share premium

issue. However, in the second audit objection, it mentioned that two

payments made to Mr. Amar Singh (MD & shareholder) and to Mr. Sandeep

Kohli (shareholder) constituted 93% of expenses debited to Profit & Loss

Account (P&L Account) and that there was no justification available in the

file as to why the huge bonus was paid to the MD/shareholder in the very

first year when the turnover of the company was negligible. The Audit Party

then concluded that the expenses were not allowable as these were not

incurred for business purposes. The Audit Party also concluded that the

bonus and legal and professional expenses were otherwise payable as profit

or dividend to them. Based on this, the Audit Party held that the incorrect

allowance from expenses has resulted in under assessment of income

amounting to Rs.9,80,81,200/-. Hence, it is the second audit objection which

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is the basis for the impugned order and impugned notice, which is

challenged before us.

SUBMISSIONS ON BEHALF OF THE PETITIONER

10.Mr. T. M. Shivakumar, learned counsel appearing on behalf of the

petitioner company stated that the petitioner had already filed its ITR under

Section 139(1). However, since the time given in the impugned notice under

Section 148 of the Act was fast approaching, as a matter of abundant caution

and not to be in default of filing the ITR, the petitioner filed the ITR again.

Before filing the ITR again, the petitioner sent an email to the assessing

officer reiterating the same stand that it is filing the ITR under protest and is

retaining its right to approach this Court against the impugned notice and

order.

11.He stated that the petitioner herein, filed a detailed reply on

29.03.2023 to the above show cause notice dated 22.03.2023 along with

supporting annexures. Due to typographical errors in the said reply, the reply

was resubmitted on 30.03.2023, after making necessary corrections. In this

reply, the petitioner made a detailed submission to justify that there was no

escapement of income. He stated the assessing officer has wrongly

disallowed the expenditure of Rs.9,80,81,200/- as not allowable under

Section 37 of the Act.

12.A gist of the submissions made by him in this reply can be summed

up as follows:-

(i)The petitioner clarified that unlike the averment in the audit

objection, the said Rs.8.90 crore paid to Amar Raj Singh (MD

& shareholder) was not on account of “bonus” but it was

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towards “joining bonus” for the services rendered in the

capacity as MD of the company and that the same has been duly

disclosed in the Audited Financial Statement.

(ii)This entire amount is being attributed to legal and professional

fees and there is no mention of the words “joining bonus”

anywhere in the operative part of the impugned order.

(iii)The petitioner enclosed with its reply a copy of the Audited

Financial Statement and drew reference to note no. 20

[employees benefit expenses] & note no. 31 [related party

disclosure] in this regard.

(iv)This payment to Amar Raj Singh was duly supported by the

Employment Agreement executed between him and the

petitioner company on 11.09.2015 as per resolution of the

Board in its meeting held on 11.09.2015. Petitioner submitted

the copy of the Financial Statement of the Company for FY

2015-16 as also the copy of the Employment Agreement which

formed part of the original assessment proceedings.

(v)The petitioner was asked to submit the relevant details in

response to a questionnaire attached to the notice under Section

142(1) of the Act, dated 11.09.2018 in which the following

details were sought:-

"14. Please provide details of salary and wages

amounting to Rs.8,92,60,513/- such as name of

the employee, PAN, address, designation, TDS

details etc.

15. You have shown 8,90,00,000/- as director

remuneration. Please provide details of director

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whom payment is being made and his return of

income.

xxx xxx xxx

17. Please provide details of legal & professional

expenses of Rs.1,24,44,134/- such as name of the

person, PAN, bills raised by the persons/parties,

payment invoices, brief details of nature of the

legal work, TDS details etc."

(vi)By reply dated 31.10.2018, the petitioner complied with this

questionnaire. The petitioner enclosed with its reply, a copy of

the Employment Agreement with Amar Raj Singh and the

Consulting Agreement with Sandeep Kohli.

(vii)The payment of Rs. 90.81 Lakh to Sandeep Kohli was made for

his appointment as consultant for providing consultancy

services for the company, based on his expertise and experience

in running outlets such as ‘Pizza Hut’ and ‘Delifrance’.

(viii)The petitioner appointed Sandeep Kohli for strategic guidance

and input on new outlets, new locations, current operations etc.,

(ix)The petitioner duly deducted TDS on payments made to Amar

Raj Singh under Section 129 of the Act, and a service tax @ 14

percent to Sandeep Kohli

(x)Both Amar Raj Singh and Sandeep Kohli have filed their ITRs

for AY 2016-17 and thereby declared both the amounts and tax

liability has been discharged at the highest slab rate of 30

percent.

(xi)Hence, these amounts were not payable as profits and dividend

as the same were paid towards services to the company.

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13.It is his submission that the expenses were incurred by the petitioner

company for the purpose of business and were allowable on the grounds of

commercial expediency. Reliance is placed on the judgment in the case of

S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals), Chandigarh,

[2007] 158 Taxman 74 (SC).

14.It is also his submission that all the aspects of the petitioner’s case had

already been examined by the assessing officer during scrutiny assessment

and all the material facts were duly disclosed by the petitioner. Now, the

assessment must not be opened on a mere ‘change of opinion’ on the part of

the assessing officer. To substantiate this, he has placed reliance on the

following judgments:

a. Joint Commissioner of Income-tax v. Cognizant

Technology Solutions India (P.) Ltd., [2023] 146

taxmann.com 197 (SC),

b. Assistant Commissioner of Income-tax v. CEAT Ltd.,

[2023] 146 taxmann.com 108 (SC)

c. Deputy/Assistant Commissioner of Income-tax v.

Financial Software and Systems (P.) Ltd., [2022] 145

taxmann.com 37 (SC)

d. Principal Commissioner of Income-tax v. Century

Textiles & Industries Ltd., [2018] 99 taxmann.com 206

(SC),

e. Replika Press (P.) Ltd. v. Deputy Commissioner of

Income-tax, [2013] 37 taxmann.com 417 (HC - Delhi) ,

f. NTPC Ltd. v. Deputy Commissioner of Income-tax,

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[2013] 32 taxmann.com 343 (Delhi),

g. Consolidated Photo & Finvest Ltd. v. Assistant

Commissioner of Income-tax, [2006] 151 Taxman 41

(Delhi),

h. Deepak Kapoor v. CIT, 2022 SCC Online Del 3724,

i.Tata Sons Ltd. v. Deputy Commissioner of Income

Tax, [2022] 137 taxmann.com 414 (Bombay)

j. Springer Healthcare Ltd. v. ACIT, W.P.(C)

336/2025 (DHC)

15.He stated that the assessing officer passed the order under Section

148A(d) of the Act after due examination, wherein, he agreed with the

petitioner’s submissions made by it in its reply, that there was income which

has escaped assessment on the issue of incorrect allowance of share

premium of Rs.5,43,34,977/-. However, the submissions with respect to

incorrect allowance of expenditure of Rs.9,80,81,200/- were rejected

summarily as having no merit.

16.It is also his submission that the Audit para was issued without

receiving a reply from the assessing officer on factual aspects. Had the

assessing officer given his reply to the audit para, the objections might have

been duly dropped as the assessing officer had already examined the said

issue in the course of original assessment proceedings under Section 143(3)

of the Act vide points no. 14, 15 and 17 of the questionnaire (reproduced

above herein) attached to the notice under Section 142(1) and the claim was

allowed only after being satisfied with the reply submitted by the assessee.

17.He stated that the assessing officer has entirely relied on the audit

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objection and incorrectly held that the petitioner failed to establish a

rationale in the payment of a high expense on a dismal turnover for the

relevant year. The assessing officer has erroneously held that the expenses

were exceptionally high and unrelated to the business.

18.Mr. Shivakumar challenged the report of the Audit Party on the

following grounds. Firstly, the Audit Party has used the word “bonus” for

the amount paid to the MD. It had erred in not giving the correct description

for the amount paid to the MD. The said amount was the “joining bonus”

paid to the MD and not a bonus in the usual sense. Such an amount paid

would have relevance to the need of the company to engage a particular

person as its MD and the roles and responsibilities he is entrusted with and

has no relevance to the first year’s turnover. Had it been correctly

mentioned, it would have removed any misgivings on the payment made in

the first year. Secondly, the Audit Party did not have any evidence before

them to give a finding that the expenses were not incurred for business

purposes.

19.As per him, the audit observation was defective as the Audit Party

had traversed beyond their mandate by seeking justification for allowance of

an expense debited to P&L in a completed assessment. The Audit Party

cannot question the wisdom and discretion of the assessing officer in

deciding which aspects need to be verified. It cannot question what is the

level of satisfaction which is to be achieved by the assessing officer while

completing the assessment.

20.He also stated that as per the Audit Manual issued by the Comptroller

and Auditor General, the calling for information/details during assessment

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proceedings is within the discretionary domain of the assessing officer.

Hence, the Audit Party could not have required the justification to have been

called for by the assessing officer while completing the assessment

proceedings under Section 143(3) of the Act. Since the assessing officer did

not give any reply, the defect of the Audit Party went uncontested for no

fault of the petitioner.

21.He reiterated that there was no failure on part of the assessee in

disclosing material facts, which were duly examined by the assessing officer

during scrutiny assessment. Hence, reopening of assessment cannot be done

on mere change of opinion.

22.Another argument raised by Mr. Shivakumar is that the impugned

order and notice are barred by limitation prescribed under Section 149 (1)(b)

of the Act, as the assessing officer did not have any documents/evidence in

his possession which revealed any escapement of income represented in the

form of any expenditure in respect of a transaction. The impugned order and

notice are also without jurisdiction, having been issued beyond the period of

three years from the end of AY 2016-17 without satisfying the conditions

imposed by clause (b) of Section 149(1) of the Act.

23.According to him, this is a clear case of change of opinion. In the garb

of reassessment, the assessing officer is attempting to review his own order

in the absence of any fresh information/material available with him. The

assessing officer had already allowed the subject expenses debited to the

P&L account after viewing all the relevant facts, and is now only trying to

re-appreciate the same. Reliance was placed by him on the judgment in the

case ofCIT v. Kelvinator of India Ltd., (2010) 2 SCC 723.

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24.It is also his submission that the impugned order and notice, having

been issued by the jurisdictional assessing officer, are in violation of Section

151A of the Act. It is only the faceless assessment officer who is

empowered to issue notice under Section 148 of the Act as per the e-

Assessment of Income Escaping Assessment Scheme, 2022 notified vide

Notification no. 18/2022/F. No.370142/16/2022-TPL(Part1) dated

29.03.2022. As per paragraph 3(b) of the said Scheme, the issuance of notice

under Section 148 of the Act shall be through automated allocation, in

accordance with the risk management strategy formulated by the Board as

referred to in Section 148 of the Act, for issuance of notice, and in a faceless

manner, to the extent provided in Section 144B of the Act with reference to

making assessment or reassessment of total income or loss of the assessee.

25.It is the petitioner’s case that the assessing officer has held that the

escaped income is represented in the form of expenditure in respect of a

transaction. However, he has not mentioned which transaction he is referring

to, in respect of which income represented in the form of expenditure which,

according to him, has escaped assessment. In fact, there is no escaped

income in the form of an ‘expenditure-in-respect-of-a-transaction’ which is

being brought to tax.

26.He also stated that after amendments to Sections 147 to 151 of the Act

with effect from 01.04.2021, in case of assessments completed under

Section143(3) of the Act, the audit objection can only be a starting point for

enquiry under Section 148A(a) or for issuance of notice under Section

148A(b) of the Act. But in the absence of any fresh material on record,

completed assessments cannot be reopened as it would amount to “review”

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which cannot be done by the assessing officer.

27.He placed reliance on the judgment of the Supreme Court in the case

ofCIT v. Financial Software & Systems (P) Ltd., 2022 SCC OnLine SC

1411wherein it was held that the Revenue was wrong in reopening the

assessment proceedings as the original assessment under Section 143(3) of

the Act was done wherein specific queries were raised to the petitioner

which were answered by it.

28.He stated that the impugned order was passed by brushing aside the

detailed reply given by the petitioner to the show cause notice under Section

148A(b) of the Act. The assessing officer should have considered the reply

and then proceeded to pass the impugned order. The purpose of Section

148A is to give opportunity is to the assessee to justify and present

arguments to the assessing officer to prevent the reopening of a completed

assessment. The provision is an important safeguard introduced through the

Finance Act, 2021 against the arbitrary and opaque process of reopening

assessments. However, it has been reduced to a mere mechanical formality

by the assessing officer who has simply dismissed the objection with a

cryptic observation -“no merit”. Reliance is placed on the judgment of in the

case ofSurender Kumar Jain v. Principal Commissioner Delhi, North

Zone and Anr., W.P.(C) 17700/Del/2020.

29.Reliance is also placed by him on the case ofM/s. Triveni Rubber &

Plastics v. Collector of Central Excise, Cochin,AIR 1994 SC 1341,

whereinthe Supreme Court held that the order impugned therein suffers

from perversity inasmuch as some relevant evidence had not been

considered or that certain inadmissible material had been taken into

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consideration or where it could be said that the findings of the authorities

were based on no evidence or that they were so perverse that no reasonable

person would have arrived at those findings.

30.In reply to the stand taken by the Revenue that the writ petition is

premature, Mr. Shivakumar stated that the present petition is not against the

show cause notice but against the impugned order under Section 148A(d)

and impugned notice under Section 148 of the Act. The present petition is

not limited to the sufficiency or correctness of the material available with

the assessing officer but also about the lack of jurisdiction with the assessing

officer to review his own order in the garb of reassessment, for which the

assessing officer lacked authority.

31.Concluding his submissions, Mr. Shivakumar stated that all the facts,

documents and records were duly examined by the assessing officer and

there was no fresh material with the assessing officer which was not already

considered at the time of assessment. Hence, the reassessment is merely on a

change of opinion and an attempt to review the earlier order. In view of the

above, the impugned notice and impugned order must be set aside.

SUBMISSIONS ON BEHALF OF THE RESPONDENTS

32.Contesting these submissions, Mr. Abhishek Maratha, learned Senior

Standing Counsel appearing on behalf of the respondents/Revenue, stated

that the information in this case was received by the assessing officer after a

field audit was carried out by the Revenue Audit team of the Comptroller

and Auditor General of India. The assessee was provided adequate

opportunity to provide its reply under Section 148A(b) of the Act. After duly

considering the reply furnished by the petitioner/assessee under Section

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148A(c) of the Act, the order under Section 148A(d) of the Act was passed

and the case of the assessee was found to be fit to issue the notice under

Section 148 of the Act. It was found that the turnover of the assessee

company for the Financial year (FY) 2015-16 was only Rs. 1,75,978/-.

However, the petitioner company paid an amountof Rs. 8.90 crore to Amar

Singh (MD and shareholder) and Rs 90.81 lakh to Sandeep Kohli (shareholder)

on account of bonus and legal & professional expenses. As per the assessing

officer, these amounts were exceptionally high and not directly related to the

business and therefore the combined expenditure was disallowed under Section

37 of the Act.

33.He stated at the outset that this petition is premature. As per the law

laid down by the Supreme Court and various High Courts, unless there is an

absolute lack of jurisdiction, a writ petition against a show cause notice is

not maintainable. Reliance was placed on the judgments in the cases of

Than Singh Nathmal v. Superintendent of Taxes, 1964 (6) SCR 654;

Titaghur Paper Mills v. State of Orissa, 1983(2) SCC 743;andRaj Kumar

Shivhare v. Asst. Director, Enforcement Directorate, 2010 (4) SCC 772.

34.He stated that the objections of the assessee were duly considered and

disposed of and only then was the order under Section 148A(d) of the Act

passed. As per the information with the assessing officer, the transaction

amounting to Rs.9,80,81,200/- relatable to AY 2016-17 was beyond 3 years

but not beyond 6 years. The income chargeable to tax in this case was more

than threshold limit i.e. Rs.50,00,000/- as prescribed in Act and such income

is represented in the form of an expenditure in respect of transaction.

Therefore, the notice issued under Section 148 of the Act is in compliance

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with the first proviso to Section 149(1)(b) of the Act. Hence, the contention

of the assessee is incorrect.

35.As perSection149(1), expenditure means that which is incurred in

respect of a transaction or in relation to an event or occasion but it is not

mentioned whether the same should be routed through P&L account or not.

36.To the argument that the impugned notice is contrary to the "e-

Assessment of Income Escaping Assessment Scheme, 2022" notified under

Section 151A of the Act and is barred by limitation as per first proviso to

Section 149(1) of the Act, Mr. Maratha stated that this ground does not hold

any merit asSection 151A states the proceedings are to happen in faceless

manner as given in Section 144B and Section 144B does not cover any

procedure under Section 148A in its scope. Moreover, pursuant to reopening of

the case, the reassessment proceedings are taking place in a faceless manner

only. Hence, there is no contravention in following any procedure.

37.It is his submission that no decision was passed on the issue of incorrect

allowance of expenses of Rs. 9,80,81,200/- in consonance with the speaking

order which was passed under Section 143(3) of the Act dated 09.12.2018. It is

trite law that under Section 36(i)(ii) of the Act, the bonus or commission paid

to an employee for services rendered by them is allowed as deduction if it is

not paid as dividend or profits. In the present case, the assessing officer has

observed that the amount of Rs. 8.90 crore paid by the assessee to Amar Raj

Singh (MD & shareholder) and Rs 90.81 lakh to Sandeep Kohli (shareholder)

on account of bonus and legal & professional expenses respectively out of the

total expenses of Rs.10.51 crore debited to P&L, account which worked out to

93 percent was detected only after the completion of the scrutiny assessment,

as a result of the investigation. This being new material coming to the

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knowledge of the assessing officer which was not considered at the time of the

original assessment proceedings, the initiation of reassessment proceedings is

justified.

38.Additionally, he stated that the payments made were not wholly and

exclusively for the purpose of business and professionunder Section 37 of the

Act. This issue was raised in the audit objection and hence the impugned order

was passed.Moreover, in its reply, the assessee failed to prove the

genuineness of such high expenses on a dismal turnover for the relevant year

under consideration because of which the expenses were not allowed.

39.He has referred to Explanation 1 to Section 148, which describes

income chargeable to tax being escaped to mean:

“(ii) any audit objection to the effect that the assessment in the

case of the assessee for the relevant assessment year has not

been made in accordance with the provisions of this Act;”

40.Thus, the contention of the assessee is false and invalid as the

proceedings under Section 148 were initiated considering and analysing the

facts highlighted in the audit objections, with proper application of mind and

therefore, the notice under Section 148 was issued.

41.The information received by the assessing officer was according to

the risk management strategy formulated by the Board as per which income

had allegedly escaped assessment. Mr. Maratha reiterated that the assessing

officer before initiating proceedings under Section 148A of the Act,

provided sufficient opportunity to the assessee and examined its reply. The

assessment was reopened after due application of mind by the assessing

officer. The material available with the assessing officer which arose from

the audit objections raised by the audit team is tangible and significant and

WP(C) No.6159/2023 Page 20 of 38

was not considered at the time of the original assessment. Moreover, the

information is not general but specific and has a nexus with the escaped

income on the part of the assessee. Therefore, in light of the same, the

initiation of the reassessment proceedings is justified and does not constitute

a change of opinion. Reliance is placed by him on the case ofKelvinator of

India Ltd. (supra)to state that the assessing officer has the power to reopen

assessment in cases where tangible material has come to his knowledge

suggesting escapement of income.

42.He stated that CBDT instruction/Circular F. No. 225/40/2021/ITA-II,

dated 15.03.2021, prescribes guidelines regarding categories of cases to be

considered as 'potential cases' for taking action under Section 148 of the Act,

for AY 2013-14 to AY 2017-18 which includes cases where there are audit

objections (Revenue/Internal). The present case of the petitioner is covered

under clause-1(i) of the aforesaid circular. The relevant extract of the

circular is reproduced as under:

“F. No. 225140/20211/TA-l/

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, the 4

th

March, 2021.

To

All. Pr. Chief Commissioner of Income

Tax/Chief Commissioners of

Income Tax.

Madam/Sir,

Subject:- Instructions regarding selection of cases for issue of

notice under section 148 of the Income Tax Act, 1961-

regarding.

I. The Central Board of Direct Taxes (Board), in exercise of its

WP(C) No.6159/2023 Page 21 of 38

power under section 119 of the Income Tax Act, 1961 (Act),

with an objective of streamlining the process of selection of

cases for issue of notice under section 148 of the Act, hereby

directs that the following categories of cases be considered as

'potential cases' for taking action under section 148 of the Act

by 31.03.2021 for the A. Y 2013-14 to A. Y 2017-18 by the

jurisdiction Assessing Officer (JAG):

(i) Cases where there are Audit Objection (Revenue/Internal)

which require section under section 148 of the Act;

(ii) Cases of information from any other Government

Agency/Law Enforcement Agency which require action under

section 148 of the Act;

(iii) Potential cases including:-

a. Reports of Directorate of Income - tax (Investigation),

b. Reports of Directorate of Intelligence & Criminal

Investigation.

c. Cases from Non-Filer Management System (NMS) & other

cases as flagged by the Directorate of Income –tax (System)

as per risk profiling;”

43.He further stated that as per the Revenue Audit Manual Direct Taxes

issued by Office of Comptroller and AuditorGeneralof India, whereby in the

last line it is stated "unlessthere is clear evidence of misuse." Therefore, it is

possible for the Audit Party to question the order of the assessing officer when

there is clear evidence that there was some income that escaped assessment, on

the basis of which reassessment proceedings can be initiated.

44.He stated that the cases relied upon by the petitioner are

distinguishable on facts from the present case. Merely stating the law does

not justify how the same has been violated in the case of the petitioner.

Concluding his submissions, he reiterated that the assessment proceedings in

the case of the petitioner are under progress/pending, and in light of the

same, the petition being immature, needs to be dismissed.

WP(C) No.6159/2023 Page 22 of 38

45.Mr. Maratha stated that the contention of the assessee that the

petitioner was not given any opportunity pursuant to the notice, and the

order under Section 148A(d) was passed without considering its reply, is

incorrect as the petitioner was given an opportunity of being heardviathe

notice dated 22.03.2023 under Section 148A(b). The reply of the assessee

was duly considered in paragraphs 7 and 8 of the impugned order dated

31.03.2023. It is after considering all the facts that the conclusion was

arrived at, establishing that income has escaped assessment and the notice

under Section 148 was issued.

ANALYSIS AND CONCLUSION

46.Having heard the learned counsel for the parties and perused the

record, we may state that the petition has been filed by the petitioner

company challenging the order passed under Section 148A(d) of the Act and

notice under Section 148 of the Act, both dated 31.03.2023 in respect of AY

2016-17.

47.At the outset, we may deal with the submission made by Mr. Maratha

that the present petition filed by the petitioner is premature inasmuch as the

petitioner has come only against the notice under Section 148 of the Act, and

there is no other jurisdictional issue or violation of the principles of natural

justice. In other words, there being no order passed on the proceedings

initiated pursuant to the notice under Section 148 of the Act, the petition

needs to be dismissed.

48.We are not in agreement with the said submission of Mr. Maratha, as

when reassessment proceedings are initiated pursuant to the issuance of

notice under Section 148A(b) of the Act, order under Section 148A(d) of the

WP(C) No.6159/2023 Page 23 of 38

Act and notice under Section 148 of the Act, surely, remedy would lie with

the assessee to approach the Court of law, provided that the case is of lack of

jurisdiction of the assessing officer to initiate proceedings on the ground that

the notice itself is barred by time. When such an issue is raised that would go

to the root of the maintainability of the proceedings, the Court shall entertain

the same and decide the issue.

49.The subject matter of the notice under Section 148 of the Act is the

amount of Rs.9,80,81,200/-, which according to the Revenue, has escaped

assessment, as flagged by the Audit Party. We note that the assessing officer

had made the assessment for the concerned AY 2016-17 under Section

143(3) of the Act, as is clear from the assessment order dated 09.12.2018. It

is the case of the assessee that during the assessment proceedings, specific

queries were put by the assessing officer to the petitioner regarding the

aforesaid amount, which according to the assessee consists of

Rs.8,90,00,000/- paid to the MD and Rs.90,81,200/- paid to the shareholder

as joining bonus and legal & professional expense respectively. The queries

as put by the assessing officer were answered by the petitioner by submitting

the Employment Agreement with the MD Amar Raj Singh and the

Consulting Agreement with the shareholder Sandeep Kohli. The case of the

petitioner is that, as the assessing officer had all the information relating to

the said expenditure/amounts at the time of assessment, the Revenue cannot

initiate reassessment citing the same issue, even pursuant to audit objections.

50.Mr. Maratha has relied upon the judgment inCommissioner of

Income Tax v. PVS Beedies (P) Limited, [1999] 237 ITR 13 (SC)to

contend that an Audit Party is entitled to point out a factual error or omission

WP(C) No.6159/2023 Page 24 of 38

in the assessment, and reopening of the case on the basis of such factual

error pointed out by the Audit Party is permissible under law.

51.No doubt, the notice under Section 148A(b) was issued on the basis of

the audit objection. Now the question is, whether the issue can be reopened

based on such audit objection on the ground that expenses were not

allowable, when the assessing officer had all the material/ documents before

him with respect to the transactions made to the MD and the shareholder

while passing the assessment order.

52.It is apparent from the records that the petitioner had given all

information with respect to the amounts and did not withhold any document.

Further, the assessing officer had also specifically asked the petitioner to

submit relevant details on the said amounts through the questionnaire

attached to the notice under Section 142 of the Act. The petitioner replied to

the questions put by the assessing officer by submitting the Employment

Agreement with the MD Amar Raj Singh and the Consulting Agreement

with the shareholder Sandeep Kohli, stating that the said amounts were in

the nature of ‘joining bonus’ and ‘professional fees’. As such, the assessing

officer was very much aware of the said amounts/transactions, and was also

in possession of the relevant documents, though he failed to return any

specific finding with regard to the same in the assessment order. If that be

so, it must necessarily be inferred that the said amounts of Rs. 8.90 crore had

already been subjected to assessment.

53.We note that as contended by Mr. Shivakumar for the petitioner, the

Supreme Court inFinancial Software Systems (P) Ltd. (supra)had held

that when specific queries were raised, which were answered by the

WP(C) No.6159/2023 Page 25 of 38

assessee, it was not open for the Revenue to reopen the assessment

proceedings on the same ground.

54.His submission is that the attempt of the Revenue to initiate

reassessment proceedings is in fact an attempt to review the order of the

assessing officer, which is impermissible in law.

55.We agree with this submission. We are of the view that reopening the

assessment on the basis of the objections of the Audit Party, shall in the

above facts, amount to reviewing the assessment already made, as the

relevant material was available with the assessing officer during that

assessment. It is necessary to draw a distinction between a case where the

assessee failed to provide some material /information during the assessment,

which was flagged by the Audit Party, as against a case where all

information was provided by the assessee, but was not considered or

commented upon by the assessing officer in the assessment order, resulting

in a subsequent audit objection. The latter cannot be subject matter of

reassessment, as it shall have the effect of reconsidering the same material to

arrive at a different conclusion, which cannot be permitted. The attempt of

the Revenue to now hold that the amounts are chargeable to tax certainly

amounts to a change of opinion, which cannot be sustained.

56.It is trite law that the Revenue can reopen assessments based on audit

objections to the effect that the assessment in the case of the assessee for the

relevant assessment year has not been made in accordance with the

provisions of the Act. In fact, Clause (ii) to Explanation 1 of Section 148 of

the Act, which was incorporated into the Act by virtue of the Finance Act,

2022 empowers the assessing officer to issue notice reopening the

WP(C) No.6159/2023 Page 26 of 38

assessment when audit objections suggests that income has escaped

assessment. However, the first proviso to Section 148 states that no notice

shall be issued under the provision, unless the assessing officer has

information with him which suggests that income chargeable to tax has

escaped assessment in the case of the assessee for the relevant assessment

year. The question that arises now is whether notice can be issued under

Section 148, notwithstanding the fact that the issue flagged by the Audit

Party was subject matter of examination in the assessment proceedings and a

final decision in terms of an assessment order. We are of the view that the

mere fact that objections were raised by the Audit Party cannot change or

expand the nature of the power vested in the assessing officer to

assess/reassess the income of the assessee to a power to review an already

concluded assessment.

57.A similar issue had come up for consideration before a co-ordinate

bench of this Court inSpringer Healthcare Limited (supra).The Court,

after discussing the relevant provisions, held as under:

“21. In the present case, the fact that the petitioner had received an

aggregate amount of ₹1,44,34,773/- during the previous year relevant

to AY 2017-18, which was not surrendered to tax, was not only within

the AO’s knowledge, but was subject matter of examination as to

whether the said amount was now held to be chargeable to tax under

the Act. Concededly, all relevant facts regarding the aspect of

taxability of the aforesaid amount were examined by the AO. There is

no additional material that has been discovered subsequently, which

was not within the knowledge of the AO at the material time.

22. Undeniably, this would be a case of change of opinion, if the said

amount is now held as chargeable to tax under the Act.

23. We must, at this stage, note that there is no cavil that the exercise

initiated pursuant to the impugned notice is for all intents and purpose

WP(C) No.6159/2023 Page 27 of 38

an attempt to review the decision the AO in the assessment

proceedings. However, it is contended by the Revenue that the same is

permissible as the initiation was triggered by audit observations and

the same constitutes information that can trigger the reassessment

proceedings. We find no merit in the said contention.The fact that

audit observation may be deemed to be information suggestive of the

assessee’s income escaping assessment does not enhance or expand

the power available with the AO to assess/ reassess the assessee’s

income that has escaped assessment. It does not alter the very nature

of power to assess/ reassess under Section 147 of the Act, to a power

to review a concluded assessment.

24. We consider it relevant to refer to Section 148 of the Act and in

particular the Explanation 1 to Section 148 of the Act, as was in force

at the material time (that is, prior to the amendment by Finance Act,

2023). The relevant extract of said section is set out below: -

“148. Issue of notice where income has escaped assessment.—

Before making the assessment, reassessment or recomputation

under Section 147, and subject to the provisions of Section 148-A,

the Assessing Officer shall serve on the assessee a notice, along

with a copy of the order passed, if required, under clause (d) of

Section 148-A, requiring him to furnish within such period, as

may be specified in such notice, a return of his income or the

income of any other person in respect of which he is assessable

under this Act during the previous year corresponding to the

relevant assessment year, in the prescribed form and verified in

the prescribed manner and setting forth such other particulars as

may be prescribed; and the provisions of this Act shall, so far as

may be, apply accordingly as if such return were a return

required to be furnished under Section 139:

Provided that no notice under this section shall be issued unless

there is information with the Assessing Officer which suggests that

the income chargeable to tax has escaped assessment in the case

of the assessee for the relevant assessment year and the Assessing

Officer has obtained prior approval of the specified authority to

issue such notice.

Provided further that no such approval shall be required where

the Assessing Officer, with the prior approval of the specified

WP(C) No.6159/2023 Page 28 of 38

authority, has passed an order under clause (d) of Section 148-A

to the effect that it is a fit case to issue a notice under this section.

Explanation 1.—For the purposes of this section and Section 148-

A, the information with the Assessing Officer which suggests that

the income chargeable to tax has escaped assessment means,—

(i) any information in the case of the assessee for the relevant

assessment year in accordance with the risk management strategy

formulated by the Board from time to time;

(ii) any audit objection to the effect that the assessment in the case

of the assessee for the relevant assessment year has not been

made in accordance with the provisions of this Act; or .”

25. It is clear from the above that in terms of clause (ii) to

Explanation I to Section 148 of the Act, an audit objection to the effect

that the assessment in the case of an assessee was not made in

accordance with the provisions of the Act, is information for the

purpose of Section 148 as well as Section 148A of the Act.

26. The contention advanced on behalf of the Revenue is founded on

interpreting Explanation I as a mandatory command to issue a notice

under Section 148 of the Act notwithstanding the issue flagged under

the audit objection has been subject matter of the examination in

assessment proceedings and a final decision in terms of an assessment

order. This requires us to examine Section 148 of the Act in the light

of the import of word “information” as used in the main provision.

27. The term “information” is used in the first proviso to Section 148

of the Act. The said proviso proscribes issuance of notice under

Section 148 of the Act unless there is “information” with the AO,

which suggests that an assessee’s income chargeable to tax has

escaped the assessment for the relevant AY.Thus, if the AO is in

receipt of an audit objection, the same is required to be construed as

information that suggests that the income of the assessee has

escaped assessment. The proviso to Section 148 of the Act is

couched in the negative. Whilst, the AO is proscribed from issuance

of the notice under Section 148 of the Act, unless it has the

“information” that suggests that the assessee’s income has escaped

assessment, it is not mandatory for the AO to issue such a notice, or

to review the assessment order merely because issues were flagged

in an audit objection. The AO is required to apply its mind to the

WP(C) No.6159/2023 Page 29 of 38

audit objection and form an independent, informed view.

28. The provisions of Section 148A of the Act are also required to be

construed by imputing the meaning of the term “information” as

provided under Explanation I to Section 148 of the Act. Section 148A

of the Act prescribes the procedure to be followed prior to issuance of

notice under Section 148 of the Act. Section 148A as was in in force

prior to Amendment Act 15 of 2024, is reproduced below:-

“148-A. Conducting inquiry, providing opportunity before issue of

notice under Section 148.—The Assessing Officer shall, before

issuing any notice under Section 148,—

(a) conduct any enquiry, if required, with the prior approval of

specified authority, with respect to the information which suggests

that the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, [* * *],

by serving upon him a notice to show cause within such time, as

may be specified in the notice, being not less than seven days and

but not exceeding thirty days from the date on which such notice

is issued, or such time, as may be extended by him on the basis of

an application in this behalf, as to why a notice under Section 148

should not be issued on the basis of information which suggests

that income chargeable to tax has escaped assessment in his case

for the relevant assessment year and results of enquiry conducted,

if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to

the show-cause notice referred to in clause (b);

(d) decide, on the basis of material available on record including

reply of the assessee, whether or not it is a fit case to issue a

notice under Section 148, by passing an order, with the prior

approval of specified authority, within one month from the end of

the month in which the reply referred to in clause (c) is received

by him, or where no such reply is furnished, within one month

from the end of the month in which time or extended time allowed

to furnish a reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in a

case where,—

(a) a search is initiated under Section 132 or books of account,

other documents or any assets are requisitioned under Section

WP(C) No.6159/2023 Page 30 of 38

132-A in the case of the assessee on or after the 1st day of April,

2021; or

(b) the Assessing Officer is satisfied, with the prior approval of

the Principal Commissioner or Commissioner that any money,

bullion, jewellery or other valuable article or thing, seized in a

search under Section 132 or requisitioned under Section 132-A, in

the case of any other person on or after the 1st day of April,

2021, belongs to the assessee; or

(c) the Assessing Officer is satisfied, with the prior approval of the

Principal Commissioner or Commissioner that any books of

account or documents, seized in a search under Section 132 or

requisitioned under Section 132-A, in case of any other person on

or after the 1st day of April, 2021, pertains or pertain to, or any

information contained therein, relate to, the assessee; or

(d) the Assessing Officer has received any information under the

scheme notified under Section 135-A pertaining to income

chargeable to tax escaping assessment for any assessment year in

the case of the assessee.

Explanation.—For the purposes of this section, specified authority

means the specified authority referred to in Section 151.”

29. It is apparent from the above, the term “information” is used in

clause (a), clause (b) of Section 148A of the Act and proviso (c) of the

said Section. Clause (a) of Section 148A of the Act requires the AO to

conduct the enquiry, if necessary, with respect to the information

which suggests the income chargeable to tax has escaped assessment.

Accordingly, when an audit objection is raised, the AO would have

such information in respect of which an enquiry may be conducted

under clause (a) of Section 148A of the Act, if required. However, this

does not mandate that the AO proceeds to issue a notice under Section

148A of the Act merely on the basis of the audit objection. Clause (b)

of Section 148A of the Act requires the AO to provide the assessee

with the basis of the information, which suggests that the income

chargeable to tax has escaped assessment, in order to enable to the

assessee to respond to the said notice.

30. This clearly, establishes that the purpose of an audit objection

cannot be considered as a command to issue a notice under Section

148A of the Act irrespective of what such information is. On the

WP(C) No.6159/2023 Page 31 of 38

contrary, it requires the AO to furnish the information to the assessee

and elicit the assessee’s response. Thereafter, the AO is required – in

terms of clause (d) of Section 148A of the Act – to take an informed

decision whether it is a fit case for issuance of notice under Section

148 of the Act “on the basis of the material available on record

including the reply of the assessee”. Obviously, if the AO is satisfied

with the reply furnished by the assessee and the material on record,

the AO is bound to hold that it is not a fit case for issuance of notice

under Section 148 of the Act.

31. In a case such as this, the AO was required to take an informed

decision whether the issue raised had been considered and

concluded in the assessment proceedings as contended by the

petitioner. The said issue cannot be brushed aside by construing an

audit objection as a ground of issuing a notice under Section 148 of

the Act regardless of whether the assessee’s income had escaped

assessment. The expression “escaped assessment” by its very nature,

means that the income has not been subjected to an assessment. The

expression would not include a case where the AO made an

informed assessment of the assessee’s income.

32. Clause (c) of the proviso to Section 148A of the Act excludes the

procedure under Section 148A of the Act where the information

available with the AO is contained in the books of accounts,

documents or material seized in a search conducted under Section

132 of the Act or requisitioned under Section 132A of the Act on or

after 01.04.2021. This clause is not applicable to the facts of the

present case.”

(emphasis supplied)

58.From the bedrock of the aforesaid, it is clear that the audit objection

pointing out that there is no justification available in the file as to why the

amounts were paid, cannot be said to be ‘information’ for the respondent to

initiate reassessment proceedings, when the assessing officer was in

possession of the information and necessary documents at the time of the

assessment proceedings. As such, the impugned action of the respondents is

unsustainable.

WP(C) No.6159/2023 Page 32 of 38

59.At this stage, we may also refer to the plea of Mr. Shivakumar that the

assessing officer has not referred to any transaction, which has resulted in

escapement of income represented in the form of expenditure. This plea is

unmerited as there are transactions in the nature of the payments to the MD

Mr. Amar Singh for Rs 8.90 crore and Rs 90.81 lakh to the shareholder Mr.

Sandeep Kohli on account of joining bonus and legal & professional

expenses. However, the stand of the Revenue that these payments have

escaped assessment in the nature of expenditure also cannot be accepted in

view of our findings above.

60.Now we shall come to the plea advanced by Mr. Shivakumar that the

notice under Section 148 of the Act is barred by time under Section 149(1)

of the Act. Mr. Maratha had submitted that the transactions to the tune of

Rs.9,80,81,200/- relatable to AY 2016-17 was beyond four years, but not

beyond the period of six/ten years, as provided by the Act, and are therefore

within limitation.

61.It is apposite to note that the first proviso to Section 149(1) of the Act

expressly provides that no notice under Section 148 of the Act shall be

issued in case of the relevant assessment year beginning on or before 1

st

day

of April, 2021, if such a notice could not be issued at that time on account of

being beyond the time limit as specified under provisions of Clause (b) of

Section 149(1) of the Act as it stood immediately prior to the

commencement of the Finance Act, 2021. As such, it is necessary to

examine whether the notice under Section 148 would be time-barred as per

Section 149 as it existed at the relevant time. The same read as under:

“Time limit for notice.

WP(C) No.6159/2023 Page 33 of 38

149. (1) No notice under section 148 shall be issued for the relevant

assessment year,—

(a) if four years have elapsed from the end of the relevant assessment

year, unless the case falls under clause (b) or clause (c);

(b) if four years, but not more than six years, have elapsed from

the end of the relevant assessment year unless the income

chargeable to tax which has escaped assessment amounts to or is

likely to amount to one lakh rupees or more for that year;

(c) if four years, but not more than sixteen years, have elapsed from

the end of the relevant assessment year unless the income in relation

to any asset (including financial interest in any entity) located outside

India, chargeable to tax, has escaped assessment.

Explanation.—In determining income chargeable to tax which has

escaped assessment for the purposes of this sub-section, the provisions

of Explanation 2 of section 147 shall apply as they apply for the

purposes of that section.

(2) The provisions of sub-section (1) as to the issue of notice shall be

subject to the provisions of section 151.

(3) If the person on whom a notice under section 148 is to be served is

a person treated as the agent of a non-resident under section 163 and

the assessment, reassessment or recomputation to be made in

pursuance of the notice is to be made on him as the agent of such non-

resident, the notice shall not be issued after the expiry of a period of

six years from the end of the relevant assessment year.

Explanation.—For the removal of doubts, it is hereby clarified that the

provisions of sub-sections (1) and (3), as amended by the Finance Act,

2012, shall also be applicable for any assessment year beginning on or

before the 1st day of April, 2012.”

62.A reading of Section 149(1) of the Act as it existed prior to 2021

would reveal that no notice under Section 148 of the Act shall be issued if

four years, but not more than six years have elapsed from the end of the

WP(C) No.6159/2023 Page 34 of 38

relevant assessment year unless the income chargeable to tax has escaped

assessment amounts to or is likely to amount to 1 lakh rupees or more for

that year.

63.Now we shall examine Section 147 of the Act, as it existed during the

relevant time. The same is reproduced as under:

“Income escaping assessment.

147. If the Assessing Officer has reason to believe that any income

chargeable to tax has escaped assessment for any assessment year, he

may, subject to the provisions of sections 148 to 153, assess or

reassess such income and also any other income chargeable to tax

which has escaped assessment and which comes to his notice

subsequently in the course of the proceedings under this section, or

recompute the loss or the depreciation allowance or any other

allowance, as the case may be, for the assessment year concerned

(hereafter in this section and in sections 148 to 153 referred to as the

relevant assessment year) :

Provided that where an assessment under sub-section (3) of

section 143 or this section has been made for the relevant

assessment year, no action shall be taken under this section after

the expiry of four years from the end of the relevant assessment

year, unless any income chargeable to tax has escaped assessment

for such assessment year by reason of the failure on the part of the

assessee to make a return under section 139 or in response to a

notice issued under sub-section (1) of section 142 or section 148 or

to disclose fully and truly all material facts necessary for his

assessment, for that assessment year:

Provided further that nothing contained in the first proviso shall apply

in a case where any income in relation to any asset (including

financial interest in any entity) located outside India, chargeable to

tax, has escaped assessment for any assessment year:

Provided also that the Assessing Officer may assess or reassess such

income, other than the income involving matters which are the subject

matters of any appeal, reference or revision, which is chargeable to tax

and has escaped assessment.

WP(C) No.6159/2023 Page 35 of 38

Explanation 1.—Production before the Assessing Officer of account

books or other evidence from which material evidence could with due

diligence have been discovered by the Assessing Officer will not

necessarily amount to disclosure within the meaning of the foregoing

proviso.

Explanation 2.—For the purposes of this section, the following shall

also be deemed to be cases where income chargeable to tax has

escaped assessment, namely:—

(a) where no return of income has been furnished by the assessee

although his total income or the total income of any other person in

respect of which he is assessable under this Act during the previous

year exceeded the maximum amount which is not chargeable to

income-tax;

(b) where a return of income has been furnished by the assessee but no

assessment has been made and it is noticed by the Assessing Officer

that the assessee has understated the income or has claimed excessive

loss, deduction, allowance or relief in the return;

(ba) where the assessee has failed to furnish a report in respect of any

international transaction which he was so required under section 92E;

(c) where an assessment has been made, but—

(i) income chargeable to tax has been underassessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under

this Act ; or

(iv) excessive loss or depreciation allowance or any other allowance

under this Act has been computed;

[(ca) where a return of income has not been furnished by the assessee

or a return of income has been furnished by him and on the basis of

information or document received from the prescribed income-tax

authority, under sub-section (2) of section 133C, it is noticed by the

Assessing Officer that the income of the assessee exceeds the

maximum amount not chargeable to tax, or as the case may be, the

assessee has understated the income or has claimed excessive loss,

deduction, allowance or relief in the return;]

(d) where a person is found to have any asset (including financial

interest in any entity) located outside India.

Explanation 3.—For the purpose of assessment or reassessment under

WP(C) No.6159/2023 Page 36 of 38

this section, the Assessing Officer may assess or reassess the income

in respect of any issue, which has escaped assessment, and such issue

comes to his notice subsequently in the course of the proceedings

under this section, notwithstanding that the reasons for such issue

have not been included in the reasons recorded under sub-section (2)

of section 148.

Explanation 4.—For the removal of doubts, it is hereby clarified that

the provisions of this section, as amended by the Finance Act, 2012,

shall also be applicable for any assessment year beginning on or

before the 1st day of April, 2012.

64.As seen above, the first proviso to Section 147 of the Act mandates

that when assessment under Section 143(3) of the Act has been made for the

relevant assessment year, reassessment on the ground that income has

escaped assessment is only possible up to four years from the end of the

assessment year unless any income chargeable to tax has escaped for such

assessment year by reason of the failure on the part of the assessee to make a

return or to disclose fully and truly all material facts necessary for his

assessment.

65.Suffice it to state, in the present case, the assessee had made a return

of its income on 18.10.2016 for the relevant assessment year and had

provided all necessary material for its assessment. As such, the extended

period of six years for reopening the assessment would not be available to

the Revenue under Section 147 of the Act as it existed prior to April 1, 2021.

The period of limitation is thus, four years from the end of AY 2016-17. It is

a matter of record that the notice under Section 148 has been issued on

31.03.2023, which is beyond the said period of four years. Therefore, in

view of the first proviso to Section 149 of the Act, no notice could have been

issued under Section 148, as no such notice could have been issued under the

WP(C) No.6159/2023 Page 37 of 38

provisions that were in force prior to April 1, 2021. We hold that the notice

dated 31.03.2023 and the subsequent proceedings are barred by limitation.

66.Yet another plea that has been raised by Mr. Shivakumar for the

petitioner is that the notice under Section 148 of the Act has been issued by

the jurisdictional assessing officer, and not in a faceless manner, as

contemplated by Section 151A of the Act and the e-Assessment of Income

Escaping Assessment Scheme, 2022. Any discussion on the issue in this case

would only be academic in view of our decision that the impugned notice

under Section 148 of the Act is barred by limitation and even otherwise

untenable. Nevertheless, we deem it appropriate to state here that the plea is

devoid of merit, as this Court has in a catena of judgments, including inTKS

Builders Ltd. v. Income Tax Officer, (2024) 167 taxmann.com 759 (Delhi),

categorically held that both the jurisdictional and the faceless assessing

officers shall have concurrent jurisdiction to issue notices under Section 148

of the Act, at least insofar as the jurisdiction of Delhi is concerned. We must

state, the judgment inTKS Builders (supra)has been taken in appeal, along

with judgments of this Court and other High Courts and theissue is pending

consideration before the Supreme Court. Therefore, the said plea of Mr.

Kumar does not impress upon us.

67.Though Mr. Maratha had drawn our attention to the judgment inPVS

Beedis (supra)to contend that objections raised by the audit party can be

grounds to reopen assessment under law. While we have no cavil with the

judgment, it is quite distinguishable on facts. The reopening in that case was

done because in the original assessment, donations made to a body known as

P.V.S. Memorial Charitable Trust was held by the Income-tax officer to be

WP(C) No.6159/2023 Page 38 of 38

eligible for deduction under Section 80G of the Act. But subsequently, it

was pointed out by the Audit Party that the recognition which had been

granted to the P.V.S. Memorial Charitable Trust had expired. Therefore, in

the relevant year of assessment, the trust was not a recognised charitable

trust, and as such did not qualify for deduction under Section 80G as a

donation made to a recognised charity. In that case, the assessing officer at

the time of the original assessment was not aware of this fact, whereas in the

case before us, he was aware of the transactions and had all relevant material

before him while making the assessment. As such, this case would not come

to the aid of the Revenue.

68.In view of the foregoing discussion, we are of the view that the

impugned notice and order, both dated 31.03.2023 need to be set aside. The

assessment proceedings initiated pursuant to the same also need to be

quashed. We order accordingly.

69.The petition is disposed of on the above terms, along with the pending

application.

V. KAMESWAR RAO, J

VINOD KUMAR, J

FEBRUARY 16, 2026/sr