Facts of the Case

The petitioner, Gyan Marketing Associates Pvt. Ltd., filed a writ petition challenging the notice dated 20.03.2023 issued under Section 148A(b) of the Income-tax Act, 1961, the order dated 10.04.2023 passed under Section 148A(d), and the consequential notice dated 10.04.2023 issued under Section 148 for Assessment Year 2016–17.

The reassessment proceedings were initiated on the basis of information received from the Securities and Exchange Board of India (SEBI), relating to alleged non-genuine transactions by Jalan Cement Works Limited (now Aashrit Capital Limited – ACL). The Assessing Officer alleged that the petitioner had engaged in questionable immovable property transactions with ACL to avoid deduction of tax at source and had also received unsecured loans lacking creditworthiness.

Issues Involved

Whether the information relied upon by the Assessing Officer indicated escapement of income for Assessment Year 2016–17, and whether reassessment proceedings initiated under Sections 148A and 148 were without jurisdiction.

Petitioner’s Arguments

The petitioner contended that all transactions relating to purchase and sale of immovable property were duly recorded, supported by agreements, and resulted in disclosed profits of ₹60,00,000 which were credited to the profit and loss account and offered to tax. It was submitted that splitting of transactions did not result in income escaping assessment and that obligation to deduct TDS, if any, was on the purchaser.

With respect to unsecured loans, the petitioner explained that the lender was a registered NBFC with substantial capital, reserves and turnover, and the loan was received through banking channels. It was argued that none of the allegations demonstrated escapement of income.

Respondent’s Arguments

The Revenue relied upon the SEBI communication alleging misuse of funds and non-genuine transactions by ACL and submitted that the petitioner’s transactions with ACL raised serious doubts warranting reopening of assessment. It was argued that irregularities in stamp papers, valuation and loan transactions justified initiation of reassessment proceedings.

Court Order / Findings

The Delhi High Court examined the material relied upon by the Assessing Officer and held that none of the allegations established that the petitioner’s income had escaped assessment. The Court noted that the sale of 1600 square feet of space to ACL resulted in a declared profit of ₹60,00,000 which had already been offered to tax, and therefore could not constitute escapement of income.

The Court further held that even assuming deficiencies in TDS compliance, such issues could not form the basis for reopening the petitioner’s assessment, particularly when the obligation to deduct tax was not on the petitioner.

Regarding unsecured loans, the Court observed that the Assessing Officer failed to address the detailed explanation furnished by the petitioner demonstrating the lender’s creditworthiness.

The Court also noted that the SEBI Appellate Tribunal had reduced penalties against ACL and found no misappropriation or manipulation, and that the petitioner was not a related party to ACL. The impugned order merely repeated allegations without explaining how income had escaped assessment.

Important Clarification

The Court clarified that reassessment proceedings must be founded on tangible material suggesting escapement of income. Allegations of irregular transactions or third-party regulatory proceedings, without demonstrating tax escapement in the assessee’s hands, do not confer jurisdiction to reopen completed assessments under Section 148A.

Final Outcome

The writ petition was allowed. The Delhi High Court set aside the notice dated 20.03.2023 issued under Section 148A(b), the order dated 10.04.2023 passed under Section 148A(d), and the consequential notice dated 10.04.2023 issued under Section 148 for Assessment Year 2016–17. The Court clarified that the Revenue would not be precluded from initiating fresh reassessment proceedings if any new material suggesting escapement of income is found in accordance with law.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769686240_GYANMARKETINGASSOCIATESPVT.LTD.VsINCOMETAXOFFICERWARD103NEWDELHI.pdf

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