Facts of the Case

The petitioner challenged:

  • Order dated 28.04.2023 passed under Section 148A(d)
  • Consequential notice issued under Section 148
  • Earlier notice dated 23.03.2023 issued under Section 148A(b)

The case revolved around an alleged escapement of income concerning investment in shares of Lendingkart Technologies Pvt. Ltd. amounting to ₹6,78,86,701.

The Assessing Officer initially questioned the transaction but later shifted focus to the absence of documents such as:

  • Share subscription agreement
  • Share certificates
  • Valuation report

Despite accepting the source of investment, the AO concluded that fair market value could not be verified under Section 50CA.

 Issues Involved

  1. Whether reassessment proceedings can be sustained when the final order is based on grounds not mentioned in the Section 148A(b) notice.
  2. Whether Section 50CA applies to a transaction involving investment (purchase of shares) rather than transfer.
  3. Whether absence of certain documents justifies reassessment when the source of investment is accepted.

Petitioner’s Arguments

  • The AO changed the basis of allegation, which is impermissible in law.
  • The original notice alleged escapement due to a transaction, but the final order relied on lack of valuation documents, which was never put to the petitioner.
  • The source of investment was already accepted, hence no basis for reassessment remained.
  • Section 50CA was wrongly invoked as the transaction was not a transfer but an investment.

Respondent’s Arguments

  • The AO justified reassessment on the ground that:
    • Required documents were not furnished
    • Fair market value could not be verified
  • It was argued that reassessment proceedings were valid based on available material.

 Court Findings / Order

The Delhi High Court held:

  • The AO erroneously shifted the basis of reassessment beyond the allegations contained in the Section 148A(b) notice.
  • The issue regarding valuation and applicability of Section 50CA was never raised in the original notice, violating principles of natural justice.
  • The Court observed that Section 50CA may not apply since the transaction involved investment and not transfer of shares.
  • Consequently:
    • Order under Section 148A(d) was set aside
    • Notice under Section 148 was quashed
    • Liberty granted to AO to proceed afresh strictly in accordance with law and original allegations

Important Clarification

  • Reassessment proceedings must strictly adhere to the grounds stated in the Section 148A(b) notice.
  • Authorities cannot introduce new reasons or allegations at the stage of final order.
  • Section 50CA applicability depends on transfer of shares, not mere investment.

Sections Involved

  • Section 148 – Income escaping assessment
  • Section 148A(b) – Show cause notice before reassessment
  • Section 148A(d) – Order after considering reply
  • Section 50CA – Valuation of unquoted shares

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS31052023CW78382023_181734.pdf

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