Facts of the Case

The petitioners, Ramesh Chandra and Sanjay Chandra, filed writ petitions under Articles 226 and 227 of the Constitution seeking quashing of reassessment notice dated 30.03.2017 and order dated 02.05.2017 issued under Sections 147/148 of the Income Tax Act, 1961.

The matter originated from assessment proceedings of M/s Acorus Unitech Wireless Pvt. Ltd. for Assessment Year 2009–10. During appellate proceedings, the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that certain additions made under Section 2(24)(iv) were actually taxable in the hands of the present petitioners, being the real beneficiaries.

Accordingly, directions were issued under Section 150(1) to initiate proceedings against the petitioners, leading to reassessment notices beyond the normal limitation period.

Issues Involved

  1. Whether reassessment proceedings under Sections 147/148 can be initiated beyond the limitation period prescribed under Section 149 by invoking Section 150.
  2. Whether recording adverse findings against a third party without granting an opportunity of hearing violates Explanation 3 to Section 153(3).
  3. Whether such reassessment notices are legally sustainable in absence of compliance with principles of natural justice.

Petitioner’s Arguments

  • The reassessment notices were barred by limitation under Section 149, as the extended six-year period had expired.
  • Section 150 cannot be invoked unless conditions under Explanation 3 to Section 153(3) are fulfilled.
  • No opportunity of hearing was provided to the petitioners before adverse findings were recorded by CIT(A).
  • Reliance was placed on Rural Electrification Corporation Ltd. vs CIT (2013) 355 ITR 345, which mandates prior hearing before shifting tax liability to another person.

Respondent’s Arguments

  • The Revenue argued that no prior hearing was required at the stage when CIT(A) recorded findings.
  • Petitioners would get adequate opportunity during reassessment proceedings under Section 147.
  • The Revenue also contended that appellate proceedings of the main assessee were still pending before the ITAT, and therefore writ jurisdiction should not be exercised.

Court’s Findings / Order

The Delhi High Court held:

  • Explanation 3 to Section 153(3) clearly mandates that before recording a finding that income belongs to another person, such person must be given an opportunity of hearing.
  • In the present case, no such opportunity was granted to the petitioners.
  • Therefore, the essential condition for invoking Section 150 was not satisfied.
  • Consequently, the bar of limitation under Section 149 could not be lifted.
  • The directions issued by CIT(A) containing adverse findings against the petitioners were quashed.

However, the Court allowed liberty to the CIT(A) to proceed afresh in accordance with law after granting proper notice and opportunity of hearing.

Important Clarification

  • Section 150 is an exception to limitation under Section 149, but it is conditional.
  • Compliance with principles of natural justice is mandatory before shifting tax liability.
  • Failure to provide hearing renders the entire reassessment process invalid.
  • The Revenue may initiate fresh proceedings only after following due process 

Sections Involved

  • Section 147 – Income escaping assessment
  • Section 148 – Issue of notice for reassessment
  • Section 149 – Time limit for notice
  • Section 150 – Provision for cases where assessment is in consequence of appellate order
  • Section 153(3) (Explanation 3) – Requirement of hearing before adverse finding
  • Section 2(24)(iv) – Definition of income
  • Articles 226 & 227 of the Constitution of India

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:5122-DB/AKC14082018CW56842017.pdf

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