Facts of the Case

A search and seizure operation under Section 132 of the Income-tax Act, 1961 was conducted on 26.06.2006 in the Capital Meter Group. During post-search proceedings, a letter dated 01.09.2006 was submitted by the CEO of Capital Power Systems Ltd surrendering additional income of ₹7 crores. This surrender was reiterated in statements recorded under Section 132(4).

The original assessment for Assessment Year 2007–08 in the case of Capital Power Systems Ltd was completed under Section 143(3) accepting the returned income. Subsequently, relying on observations made in appellate proceedings concerning individual directors, the Assessing Officer issued a notice under Section 148 read with Section 150 alleging that ₹7 crores had escaped assessment in the hands of the company.

The reassessment resulted in addition of ₹7 crores as undisclosed income. The CIT(A) quashed the reassessment holding that Section 150 was wrongly invoked. The ITAT upheld the CIT(A)’s order, leading to the present appeal by the Revenue.

Issues Involved

Whether reassessment proceedings initiated beyond the prescribed limitation period under Section 148 could be sustained by invoking Section 150 of the Act in the absence of any specific finding or direction by the appellate authorities requiring assessment of ₹7 crores in the hands of the assessee company.

Petitioner’s Arguments (Revenue)

The Revenue contended that the disclosure letter dated 01.09.2006 and subsequent statements constituted a clear admission of undisclosed income by the assessee company. It was argued that the ITAT and the High Court in earlier proceedings concerning directors had held that the disclosure was made by the company, thereby justifying reopening under Section 150 to give effect to such findings.

Respondent’s Arguments (Assessee)

The assessee argued that there was no finding or direction by the ITAT or the High Court mandating assessment of ₹7 crores in its hands. It was submitted that Section 150 can be invoked only where reassessment is necessary to give effect to a binding finding or direction, which was absent in the present case. The assessee further contended that statements made during search were contradictory and unsupported by corroborative seized material.

Court Order / Findings

The Delhi High Court held that the scope of Section 150 is limited to situations where reassessment is required to give effect to a clear, explicit, and necessary finding or direction contained in an appellate or judicial order. Relying on settled Supreme Court jurisprudence, the Court clarified that incidental or collateral observations do not qualify as “findings” for the purposes of Section 150.

The Court examined the earlier ITAT and High Court orders and found that they merely held that the disclosure did not belong to the individual directors and that undisclosed income had to be determined on the basis of seized material. There was no finding or direction that ₹7 crores was taxable in the hands of Capital Power Systems Ltd.

The Court further held that the Assessing Officer selectively relied on portions of earlier orders while ignoring their cumulative reasoning. In the absence of corroborative material and a specific directive, reassessment beyond limitation was impermissible.

Important Clarification

The Court clarified that statements recorded during search, particularly when contradictory and uncorroborated, cannot by themselves form the basis for invoking Section 150. The provision cannot be used as a tool to bypass statutory limitation unless strictly warranted by binding findings or directions.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court held that the conditions stipulated under Section 150 of the Income-tax Act were not satisfied, reassessment proceedings were invalid, and the order of the ITAT quashing the reassessment was upheld in favour of Capital Power Systems Ltd.

 Link to download the order - https://www.mytaxexpert.co.in/uploads/1769841623_THEPR.COMMISSIONEROFINCOMETAXCENTRAL1VsCAPITALPOWERSYSTEMSLTD.pdf

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