Reassessment of completed assessment Without Incriminating Material Untenable: Delhi HC

Saksham Commodities Limited Vs ITO (Delhi High Court)

Delhi High Court held that a reopening or abatement would be triggered only upon the discovery of material which is likely to “have a bearing on the determination of the total income”. Thus, AO seeking to reassess completed assessment without incriminating material is untenable in law.

Facts- Vide the batch of writ petitions, the petitioners impugns notices issued under Section 153C of the Income Tax Act, 1961 asserting that in the absence of any material pertaining to the Assessment Years which are proposed to be reopened and assessed having been gathered during the course of a search, the assumption of jurisdiction is wholly illegal and unsustainable in law.

Conclusion- Merely because Section 153C confers jurisdiction upon the AO to commence an exercise of assessment or reassessment for the block of years that are mentioned in that provision, the same alone would not be sufficient to justify steps in that direction being taken, unless the incriminating material so found is likely to have an impact on the total income of a particular AY forming part of the six AYs’ immediately preceding the AY pertaining to the search year or for the “relevant assessment year”.

Ultimately, Section 153C is concerned with books, documents, or articles seized in the course of a search and which are found to have the potential to impact or have a bearing on an assessment that may be undergoing or that may have been completed. The words “have a bearing on the determination of the total income of such other person” as appearing in Section 153C would necessarily have to be conferred preeminence. Therefore, unless the AO is satisfied that the material gathered could potentially impact the determination of total income, it would be unjustified to mechanically reopen or assess all over again all the ten AYs’ that could possibly form part of the block of ten years.

The Division Bench in Kabul Chawla had observed that in the absence of any incriminating material, a completed assessment may be reiterated and the abated assessment or reassessment be concluded. The importance of incriminating material was further underlined in Kabul Chawla with the Court observing that completed assessments could be interfered with, only if some incriminating material were unearthed.

Held that a reopening or abatement would be triggered only upon the discovery of material which is likely to “have a bearing on the determination of the total income” and would have to be examined bearing in mind the AYs’ which are likely to be impacted.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

A. INTRODUCTION