Recently, the Delhi High Court held that in the absence of books of account, documents, or evidence showing that the petitioner’s income represented in the form of an asset had escaped assessment, the conditions under Clause (a) of the fourth proviso to Section 153A(1) of the Income Tax Act, 1961, were not met. Consequently, the Assessing Officer lacked jurisdiction to reopen the assessment beyond six years.
Brief Facts:
Consequent to the filing of the income-tax return by the petitioner, its case was selected for scrutiny, which later on culminated in an assessment order making additions of Rs 2,98,84,704/- to the declared income of the petitioner. When the matter went in appeal, the CIT(A) deleted the addition of Rs 8,35,864/- which was made by the AO on account of disallowance under Section 14A of the IT Act read with Rule 8D of the IT Rules, 1962. Thereafter, the income tax officials conducted search and seizure operations in the premises of the petitioner, which led to the issuance of a reopening notice. Challenging the said notice as being barred by limitation, the petitioner had approached the High Court.
Contentions of the Petitioner:
The counsel for the petitioner contended that in terms of the first proviso to Section 149(1) of the IT Act, the assessment of income could not be reopened beyond the period of six years, which immediately preceded the assessment year relating to the previous year in which the search is conducted under Section 132 of the IT Act or requisition is made under Section 132A of the IT Act.
Contentions of the Respondent:
The counsel for the respondent contended that, in terms of Section 149(1)(b) of the IT Act, the limitation for reopening of the assessment would extend to ten years, being the maximum period for which reassessment could be initiated by issuing a notice under Section 153A of the Act, subject to incriminating material being found during the search conducted under Section 132 of the Act or requisition being made under Section 132A of the Act. He submitted that in terms of Section 149(1)(b) of the Act, as was in force at the material time, the assessment could be opened for a period exceeding three years but not more than ten years.
Observations of the Court:
Referring to Section 153A(1) of the IT Act, the Bench of Justice Vibhu Bakhru and Justice Tejas Karia observed that assessments can be reopened for a block of six years preceding the assessment year relevant to the previous year in which search under Section 132 of the Act is conducted or requisition is made under Section 132A of the Act as well as the relevant assessment years.
Thus, the AO has the jurisdiction to issue a notice in respect of each of the assessment years falling within six assessment years as well as for the relevant year or years as referred to in Clause (b) of Section 153A(1) of the Act, added the Division Bench. At the same time, the Court clarified that the fourth proviso to Section 153A(1) of the Act proscribes the issuance of any notice for assessment or reassessment in respect of a relevant assessment year unless the conditions as stipulated in the fourth proviso are satisfied.
“The expression ‘relevant assessment year’ is defined under Explanation 1 to sub-section (i) of Section 153A of the Act to mean a year that falls beyond the period of six assessment years preceding the assessment year relevant to the previous year in which search is conducted or requisition is made, but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made”, added the Court.
In the present case, since the AO has sought to disallow expenses on account of doubting the genuineness for the reason that the same were not incurred wholly or exclusively for the petitioner’s business, the Court stated that “Absent any further material to establish that such expenses had resulted in the acquisition of any asset, the conditions stipulated in the fourth proviso to Section 153A(1) of the Act would remain unsatisfied”.
The decision of the Court:
In the light of foregoing discussion, while observing that the search in question was conducted in the financial year 2022-23 and the assessment year 2016-17 falls beyond the block of six years, the Court allowed the petition and quashed the reopening notice as well as the proceedings initiated pursuant thereto.
Case Title: Smart Chip Pvt Ltd vs Assistant CIT
Case No: W.P.(C) 3801/2025
Coram: Hon’ble Justice Vibhu Bakhru and Hon’ble Justice Tejas Karia
Counsel for Petitioner: Advocates Sumit Lalchandani, Shankey Agarwal, Saurabh Nandy, and Siddharth Aggarwal
Counsel for Respondent: Advocates Abhishek Maratha, Apoorv Aggarwal, Parth Samwal, Nupur Sharma, Gaurav Singh, Bhanukaran Singh Jodha, Muskan Goel, and Himanshu Gaur
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