Facts of the Case

The petitioner, Devshi Earthmovers Private Limited, filed the present writ petition challenging:

  • Notice dated 28 March 2021 issued under Section 148 of the Income Tax Act
  • Order dated 04 January 2022 disposing objections

The reassessment pertained to Assessment Year 2014–15.

The Assessing Officer (AO) relied on information indicating that certain entities were engaged in layering of funds through multiple bank accounts and intermediary companies. The petitioner was identified as a beneficiary of such transactions, receiving funds routed through entities allegedly acting as paper companies.

It was alleged that such transactions represented unaccounted income introduced into books.

Issues Involved

  1. Whether notice under Section 148 issued after four years from the end of the relevant assessment year is valid in absence of failure to disclose material facts.
  2. Whether the “reason to believe” recorded by the Assessing Officer satisfies the requirements under Section 147.
  3. Whether reassessment proceedings based on alleged accommodation entries and layered transactions are sustainable in law.

Petitioner’s Arguments

  • The impugned notice is barred by limitation as it was issued beyond four years.
  • There was no failure on part of the petitioner to disclose fully and truly all material facts necessary for assessment.
  • The notice is without jurisdiction and bad in law.
  • There were no valid reasons to believe that income had escaped assessment.

Respondent’s Arguments

  • The Revenue relied on information received regarding suspicious transactions involving multiple entities.
  • It was submitted that:
    • Several companies were involved in layering of funds
    • The petitioner was identified as a beneficiary of such routed funds
  • Based on analysis of bank accounts and financial transactions, the AO formed a belief that:
    • Income exceeding ₹1 lakh had escaped assessment
    • There was failure to disclose material facts fully and truly

Court Findings / Order

  • The Delhi High Court issued notice in the matter.
  • The respondent was directed to file a counter-affidavit within four weeks.
  • The Court permitted the Assessing Officer to proceed with assessment; however:
    • Any assessment order passed shall be subject to further orders of the Court.

Important Clarifications

  • The Court did not quash the reassessment notice at this stage.
  • Interim protection was granted by making any assessment subject to final outcome.
  • The case highlights judicial scrutiny on:
    • Reopening beyond four years
    • Requirement of “failure to disclose material facts”
    • Validity of “reason to believe” based on third-party financial data

Sections Involved

  • Section 147 – Income Escaping Assessment
  • Section 148 – Issue of Notice for Reassessment
  • Income Tax Act, 1961

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:561-DB/MMH11022022CW21762022_203852.pdf

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