Facts of the Case

The petitioner company challenged a reassessment notice issued under Sections 147 and 148 of the Income Tax Act. The notice was based on information received from a survey conducted under Section 133A in the case of a related entity, Maruti Clean Coal & Power Ltd.

The Revenue alleged that the petitioner held shares worth ₹7.22 crores and had received share application money amounting to ₹7.42 crores during Assessment Year 2010-11. It formed a belief that income had escaped assessment.

However, the petitioner contended that the shareholding in question pertained to an earlier financial year (FY 2008-09) and not the relevant assessment year (AY 2010-11), making the reassessment factually incorrect.

Issues Involved

  1. Whether reassessment proceedings under Sections 147/148 can be initiated based on incorrect or irrelevant facts.
  2. Whether “reasons to believe” must have a direct nexus with the relevant assessment year.
  3. Whether reassessment is valid when based on information relating to a different financial year.

Petitioner’s Arguments

  • The “reasons to believe” relied on by the Revenue were factually incorrect.
  • The alleged investment of ₹7.22 crores related to FY 2008-09, not AY 2010-11.
  • Reopening of assessment based on irrelevant year-specific data is legally unsustainable.
  • There was no material linking the alleged escaped income to the relevant assessment year.

Respondent’s Arguments

  • The reassessment was based on tangible material obtained from a survey conducted in a related company.
  • The corporate structure and interlinked shareholding required deeper scrutiny by lifting the corporate veil.
  • At the stage of issuing notice, only prima facie satisfaction is required, not conclusive proof.
  • The Assessing Officer acted on credible external information.

Court’s Findings / Order

  • The Court observed that the entire basis of reassessment was factually flawed.
  • The investment of ₹7.22 crores clearly pertained to an earlier financial year (FY 2008-09).
  • There was no material nexus between the alleged escaped income and AY 2010-11.
  • The Revenue failed to justify how reassessment could be initiated for a subsequent year based on prior year data.
  • The Court held that such an error goes to the root of jurisdiction under Sections 147/148.

Important Clarification

  • “Reasons to believe” must be accurate, relevant, and year-specific.
  • Even if information is tangible, reassessment cannot be sustained if based on incorrect factual assumptions.
  • Jurisdiction under Section 147 fails when there is no live link between material and assessment year.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:6864-DB/PRJ23102018CW109582017.pdf

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