Facts of the Case

The petitioner, Subhash Chander Dabas, filed his return of income for Assessment Year 2012–13 on 30.09.2012. The return was scrutinised and assessed under Section 143(3) by an assessment order dated 26.03.2015.

On 31.03.2019, the Assessing Officer issued a notice under Section 148 seeking to reopen the completed assessment beyond four years from the end of the relevant assessment year. The reasons recorded alleged that the petitioner had received ₹24,80,29,000/- from the Delhi States Newspaper Employees Cooperative Group Housing Society during FY 2011–12 and had failed to disclose the same in his return of income, thereby attracting the proviso to Section 147.

During the reassessment proceedings and in the counter affidavit filed before the Court, the Revenue admitted that no amount had been received directly by the petitioner from the society. Instead, it was asserted that funds were routed through corporate entities in which the petitioner held substantial shareholding. On this altered premise, the reassessment order dated 31.12.2019 treated certain amounts as deemed dividend under Section 2(22)(e).

Issues Involved

Whether reassessment proceedings initiated under Section 148 can be sustained when the foundational allegation recorded in the reasons for reopening is subsequently admitted by the Revenue to be factually incorrect, and whether reassessment can be justified on a new basis not forming part of the recorded reasons.

Petitioner’s Arguments

The petitioner contended that the reassessment proceedings were vitiated as the sole basis for reopening—alleged direct receipt of funds from the housing society—was admitted by the Revenue to be incorrect. It was argued that the validity of a Section 148 notice must be tested strictly on the reasons recorded at the time of issuance and cannot be supplemented, improved, or altered subsequently. The petitioner further submitted that, in the absence of any direct receipt, there was no failure to disclose material facts so as to satisfy the proviso to Section 147.

Respondent’s Arguments

The Revenue argued that although the original allegation regarding direct receipt was incorrect, the funds had ultimately reached the petitioner through entities in which he held substantial interest, justifying reassessment and addition under Section 2(22)(e) as deemed dividend.

Court Order / Findings

The Delhi High Court held that the validity of reassessment proceedings must be examined strictly on the basis of the reasons recorded at the time of issuance of the Section 148 notice. The Court found that the only allegation forming the foundation of the “reasons to believe” was the alleged direct receipt of ₹24.80 crore by the petitioner from the housing society.

The Court noted that the Revenue itself admitted that no such direct receipt had taken place. Consequently, the very edifice on which the reassessment proceedings were initiated stood demolished. The Court held that reassessment proceedings cannot be sustained by shifting to a new factual or legal basis not reflected in the original reasons.

Relying on its earlier decisions including ATS Infrastructure Ltd. and Living Media India Ltd., the Court reiterated that reasons for reopening cannot be of “changing hues” and cannot be supplemented or substituted after issuance of notice under Section 148.

Important Clarification

The Court clarified that where reassessment is initiated beyond four years from the end of the relevant assessment year after completion of assessment under Section 143(3), strict compliance with the proviso to Section 147 is mandatory. If the foundational facts alleged to constitute failure of full and true disclosure are found to be incorrect, reassessment cannot be sustained.

Final Outcome

The writ petition was allowed. The Delhi High Court quashed the notice dated 31.03.2019 issued under Section 148 and set aside the reassessment order dated 31.12.2019 for Assessment Year 2012–13. Liberty was reserved with the Revenue to initiate fresh proceedings, if otherwise permissible in law. All pending applications were disposed of accordingly.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769841455_SUBHASHCHANDERDABASVsASSISTANTCOMMISSIONEROFINCOMETAX.pdf

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