Facts of the Case

The Petitioner challenged the validity of:

  • Notice dated 17.03.2022 issued under Section 148A(b),
  • Order dated 04.04.2022 under Section 148A(d), and
  • Consequential notice under Section 148 of the Income Tax Act.

The Assessing Officer alleged that income amounting to over ₹10,07,05,88,04,543 had escaped assessment based on data derived from Form 10DB, GST returns, and TDS records.

The Petitioner contended that:

  • These transactions were routine business activities relating to trading in shares, derivatives, and securities.
  • All transactions were duly recorded in financial statements and income tax returns.
  • The notice lacked clarity on how income had escaped assessment.

Issues Involved

  1. Whether reassessment proceedings can be initiated merely on the basis of information already available on record.
  2. Whether failure to provide material/information relied upon violates principles of natural justice.
  3. Whether non-consideration of the assessee’s reply violates Section 148A(c).
  4. Whether cryptic and non-speaking orders under Section 148A(d) are legally sustainable.

Petitioner’s Arguments

  • The impugned order was arbitrary, cryptic, and passed without application of mind.
  • No specific allegation demonstrated how income escaped assessment.
  • Information relied upon was already disclosed in returns and statutory filings.
  • The Assessing Officer failed to provide underlying material despite request.
  • The detailed reply dated 31.03.2022 along with documentary evidence was not considered.
  • The nature of derivatives trading was misunderstood, where only net gains/losses are relevant—not gross transaction value.

Respondent’s Arguments

  • The Assessing Officer considered the initial reply filed within the stipulated time.
  • The detailed reply dated 31.03.2022 was not considered as it was filed beyond the prescribed timeline.
  • The reassessment proceedings were initiated based on information suggesting escapement of income.

Court’s Findings / Order

The Delhi High Court held:

1. Reassessment Scheme Must Be Meaningfully Applied

The amended reassessment provisions (Finance Act, 2021) aim to:

  • Reduce litigation
  • Ensure procedural safeguards before reopening assessments

2. “Information” Cannot Be Used Mechanically

  • Mere classification of existing data as “information” does not justify reassessment.
  • There must be a clear nexus showing escapement of income.

3. Cryptic Notices and Orders Invalid

  • Notices and orders failed to explain:
    • What was wrong with the transactions
    • Why income was believed to have escaped assessment
  • Such non-speaking orders are unsustainable.

4. Violation of Natural Justice

  • Material relied upon was not shared with the Petitioner.
  • Adequate opportunity to respond was not provided.

5. Mandatory Compliance with Section 148A(c)

  • The Assessing Officer is duty-bound to consider replies before passing order.
  • Failure to consider the reply dated 31.03.2022 violates statutory mandate.

6. Reassessment Cannot Be for “Verification Only”

  • Reopening merely for verification purposes is impermissible.

Important Clarifications

  • “Information” under Section 148 must indicate actual escapement of income, not mere suspicion.
  • Replies filed by assessee must be considered even if filed before passing of order.
  • Non-speaking orders and template-based reasoning are legally unsustainable.
  • Reassessment proceedings must strictly adhere to principles of natural justice.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1902-DB/MMH12052022CW74062022_190707.pdf

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