Delhi High Court Quashes Reassessment Under Section 148A(d), Holding That Income Tax Authorities Cannot Reopen Assessment Twice on the Same Grounds Without Fresh Material Evidence

Court’s Decision

The Delhi High Court ruled in favor of the petitioner and quashed the order dated 22.04.2024 issued under Section 148A(d) of the Income Tax Act, 1961, as well as the notice under Section 148 issued on the same date for Assessment Year (AY) 2017-18. The Court held that the reassessment was based on identical facts and grounds that had already been examined and accepted in a previous reassessment conducted under Section 147 read with Section 144B. The Court found the reassessment to be legally unsustainable and ruled that the assessment cannot be reopened twice for the same reason.

Facts of the Case

1. Original Filing of Income Tax Return (ITR)
   • The petitioner, a regular taxpayer, filed her Income Tax Return (ITR) for AY 2017-18 on 02.08.2017, declaring a taxable income of ₹74,77,750/-.
   • The declared income included capital gains from the sale of 1,70,000 shares of Trustline Real Estate Private Limited (TREPL) at ₹42 per share to one Mr. Samir Dev Sharma.
2. First Reassessment Proceedings (2021-2022)
   • The Assessing Officer (AO) issued a notice under Section 148 on 31.03.2021, reopening the assessment based on information from the Risk Assessment Directorate alleging that:
     • The petitioner had undervalued her shares in TREPL.
     • The sale was made below fair market value (FMV) to avoid tax.
     • ₹18,91,41,050/- of income had allegedly escaped assessment.
   • The petitioner responded, providing valuation reports, balance sheets, and profit and loss accounts, proving that the sale price was determined based on an approved valuation of the Friends Colony property (owned by TREPL).
   • The AO accepted the petitioner’s response and closed the reassessment proceedings on 29.03.2022 without making any additions.
3. Second Reassessment Proceedings (2024)
   • Despite the earlier reassessment closure, the AO issued another notice under Section 148A(b) on 28.03.2024, again claiming that:
     • The petitioner had undervalued her shares.
     • The transaction effectively amounted to the transfer of immovable property (Friends Colony property) through a sale of shares.
     • The new alleged escaped income was ₹32,35,81,536/-.
   • This time, the AO wrongly assumed that TREPL owned the entire Friends Colony property (500 sq. yds.), not just two floors.
   • The AO, without any fresh material evidence, passed the impugned order under Section 148A(d) on 22.04.2024, directing reassessment.

Issues Before the Court

1. Can an assessment be reopened twice for the same issue that has already been examined and concluded in an earlier reassessment?
2. Was there any new tangible evidence that justified the issuance of the fresh notice under Section 148A(b)?
3. Did the AO have valid material to claim that TREPL owned the entire Friends Colony property?
4. Did the AO comply with Section 148A(d), which requires considering the assessee’s response before passing the order?

Petitioner’s Arguments

• The petitioner argued that the fresh reassessment proceedings were illegal because the same issue had already been examined and settled in the reassessment completed on 29.03.2022.
• She sold the shares at ₹42 per share, which was determined based on a proper valuation report and in compliance with Rule 11UAA of the Income Tax Rules.
• The AO had no new material evidence to support the claim that TREPL owned the entire Friends Colony property.
• The AO had already examined the transaction in detail, and her explanations had been accepted in the first reassessment proceedings.
• Reopening the assessment again violated the principle of finality in tax assessments.

Respondent’s Arguments (Income Tax Department)

• The Revenue contended that new information had been received through a Tax Evasion Petition (TEP) alleging that:
  • TREPL owned the entire Friends Colony property, not just two floors.
  • The entire sale of shares was a sham transaction to avoid stamp duty and tax liabilities.
  • The Friends Colony property was valued at ₹32,35,81,536/-, but the shares were sold at a much lower price.
• The AO was justified in reopening the assessment under Section 148A(b) based on this fresh “evidence”.

Analysis of the Law

1. Section 147 & 148 – Reassessment Proceedings
   • Allows the AO to reopen an assessment if there is reason to believe that income has escaped assessment.
   • However, if an issue has already been examined in a previous reassessment, reopening it again on the same grounds is impermissible.
2. Section 148A(d) – Procedure Before Issuing Reassessment Notice
   • Requires the AO to:
     • Issue a show cause notice (done on 28.03.2024).
     • Consider the assessee’s response before passing an order (ignored in this case).
   • The AO completely ignored the petitioner’s response that TREPL only owned two floors, not the entire property.
3. Principle of Finality in Assessment
   • Courts have consistently held that once an issue is examined and reassessment is completed, it cannot be reopened again without new, tangible material evidence.
   • The AO’s incorrect assumption that TREPL owned the entire Friends Colony property was not based on any new evidence, making the reassessment invalid.

Precedent Analysis

• The Court referred to previous cases where it was held that mere suspicion or change of opinion does not justify reopening an assessment.
• It emphasized that the AO must have fresh, tangible material to justify a new reassessment, which was lacking in this case.

Court’s Reasoning

• The Court found that:
  1. The issue had already been adjudicated in the earlier reassessment (concluded on 29.03.2022).
  2. The AO had no new material evidence to suggest that TREPL owned the entire Friends Colony property.
  3. The AO failed to address the petitioner’s response, which clearly proved that TREPL owned only two floors, not the entire property.
  4. The impugned order relied on incorrect assumptions and was not supported by any credible material.
  5. Reopening the assessment twice on the same grounds was legally impermissible.

Conclusion

• The Court quashed the reassessment proceedings, setting aside the order dated 22.04.2024 and notice under Section 148.
• Since the Court found the reassessment unsustainable, it did not examine whether the notice was time-barred.
• The petition was allowed, and the pending application was also disposed of.

Implications of the Judgment

• Prevents harassment of taxpayers by repeated reassessments on the same issue.
• Reinforces the principle of finality in reassessment proceedings.
• Strengthens taxpayer protection against reassessments based on mere suspicion or incorrect assumptions.
• Clarifies that assessments cannot be reopened without fresh, credible material evidence.

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