Facts of the Case

The petitioner, ATS Infrastructure Limited, challenged reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961 for Assessment Years 2014-15, 2015-16 and 2016-17. The reassessment proceedings stemmed from notices issued under Section 148A(b) alleging that the petitioner had received loans/advances amounting to approximately ₹170 crore from its wholly-owned subsidiary, Gul Properties Pvt. Ltd., which were proposed to be treated as deemed dividend under Section 2(22)(e).

In response, the petitioner explained that it had not received fresh loans during the relevant years but had, in fact, repaid existing loans, reducing the outstanding balance. This explanation was accepted in substance; however, while passing orders under Section 148A(d), the Assessing Officer shifted the basis of reassessment by questioning the source of funds used for repayment and proposed to treat the repayment amount of ₹25.53 crore as unexplained income.

Issues Involved

Whether reassessment proceedings can be sustained when the Assessing Officer deviates from the foundational reasons recorded in the Section 148A(b) notice, and whether reassessment based on a shifted or improved reasoning without fresh tangible material is legally valid.

Petitioner’s Arguments

The petitioner contended that the reassessment proceedings were vitiated as the Assessing Officer had changed the basis of reassessment. The original allegation concerned receipt of loans from a subsidiary, whereas the final reassessment sought to tax the source of loan repayments, which was never part of the original notice.

It was argued that reassessment must stand or fall on the reasons originally recorded, and additional or supplementary grounds cannot be introduced subsequently. Such action amounted to an impermissible change of opinion and exceeded jurisdiction under Sections 147 and 148.

Respondent’s Arguments

The Revenue argued that once reassessment proceedings were validly initiated, the Assessing Officer was empowered to examine any issue that came to light during the proceedings. It was submitted that Explanation 3 to Section 147 enabled the Assessing Officer to assess other escaped income discovered during reassessment, even if not part of the original reasons.

Court Order / Findings

  • The validity of reassessment must be tested solely on the reasons recorded in the Section 148A(b) notice.
  • The Assessing Officer cannot supplement, improve, or substitute the original reasons by adopting a new line of reasoning at the Section 148A(d) stage.
  • Explanation 3 to Section 147 applies only after reassessment is validly initiated and does not permit deviation from the foundational reasons forming the basis of reopening.
  • Reassessment based on a change of stand or an attempt to conduct a roving enquiry is impermissible.
  • The reassessment action violated the settled principles laid down in CIT v. Kelvinator of India Ltd., CIT v. Living Media India Ltd., and Ranbaxy Laboratories Ltd. v. CIT.

Important Clarification

The Court clarified that while the Assessing Officer may examine additional issues during reassessment proceedings, such power arises only after reassessment is validly initiated. Explanation 3 to Section 147 does not authorise the Assessing Officer to alter or abandon the original reasons recorded for reopening or to cure jurisdictional defects in reassessment proceedings.

Final Outcome

All the writ petitions were allowed. The Delhi High Court quashed the impugned orders passed under Section 148A(d) and the consequential notices issued under Section 148 for all three assessment years. The Court, however, left it open to the Revenue to take such steps as may otherwise be permissible in law.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1772175888_ATSINFRASTRUCTURELIMITEDVsASSISTANTCOMMISSIONEROFINCOMETAXCIRCLE11DELHIORS..pdf 

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