Facts of the Case

The petitioners, Ramesh Chandra and Sanjay Chandra, filed writ petitions challenging reassessment notices and orders issued under Sections 147/148 of the Income Tax Act for AY 2009–10.

The dispute originated from assessment proceedings of M/s Acorus Unitech Wireless Pvt. Ltd., where the Commissioner of Income Tax (Appeals) [CIT(A)] held that certain additions (₹72.40 crore approx.) should instead be taxed in the hands of the petitioners under Section 2(24)(iv).

Based on this finding, reassessment notices were issued to the petitioners beyond the normal limitation period, invoking Sections 150 and 153.

Issues Involved

  1. Whether reassessment proceedings beyond the limitation period under Section 149 can be sustained by invoking Section 150.
  2. Whether findings recorded by CIT(A) against third parties without granting an opportunity of hearing are valid.
  3. Whether Explanation 3 to Section 153(3) mandates prior hearing before fastening tax liability on another person.

Petitioners’ Arguments

  • The reassessment proceedings were time-barred, as the six-year limitation under Section 149 had expired.
  • Invocation of Section 150 was invalid because mandatory conditions under Section 153(3) Explanation 3 were not satisfied.
  • The CIT(A) recorded adverse findings against the petitioners without issuing notice or granting opportunity of hearing, violating principles of natural justice.
  • Reliance was placed on Rural Electrification Corporation Ltd. v. CIT (2013) 355 ITR 345, which mandates hearing before adverse findings against a third party.

Respondent’s Arguments

  • The Revenue contended that no prior hearing was required before recording findings by CIT(A).
  • It was argued that petitioners could raise all objections during reassessment proceedings.
  • The Revenue emphasized that appellate proceedings involving the main assessee were still pending before the ITAT.
  • It was urged that the High Court should not exercise writ jurisdiction at this stage.

Court’s Findings / Order

The Delhi High Court held:

  • Explanation 3 to Section 153(3) mandates that before recording a finding that income belongs to another person, such person must be given an opportunity of hearing.
  • Since no notice or hearing was granted to the petitioners, the essential condition for invoking Section 150 was not satisfied.
  • Consequently, the extended limitation benefit under Section 150 could not be invoked, and the reassessment proceedings were unsustainable.

Final Order

  • Adverse findings recorded by CIT(A) against the petitioners were quashed.
  • Liberty was granted to the Revenue to proceed afresh after issuing proper notice and granting opportunity of hearing.
  • The writ petitions were partly allowed.

Important Clarification by Court

  • Section 150 is not an independent overriding provision; it operates only when conditions under Section 153(3) are fulfilled.
  • Natural justice (audi alteram partem) is a mandatory requirement before shifting tax liability to another person.
  • Failure to provide hearing renders reassessment proceedings invalid despite appellate directions. 

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:5121-DB/AKC14082018CW57172017.pdf

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