Court rules reassessment based on change of opinion as arbitrary and violative of constitutional rights, imposes Rs. 1 lakh costs on tax officials.
In a significant ruling, the Delhi High Court has quashed reassessment proceedings initiated against Ms. Radhika Roy by the Deputy Commissioner of Income-Tax, highlighting the arbitrary nature of the proceedings which were based on a change of opinion regarding the same transaction previously scrutinized. The court's decision underscores the importance of jurisdictional integrity and constitutional rights, imposing a token cost of Rs. 1,00,000 on the tax department for causing undue harassment to the petitioner.
The judgment, delivered by a Division Bench comprising Justices Dinesh Mehta and Vinod Kumar, emphasized that reassessment proceedings under Sections 147 and 148 of the Income Tax Act, 1961, cannot be initiated for the same issue that was already adjudicated upon in prior reassessment proceedings. The court found such actions to be without jurisdiction, arbitrary, and violative of the fundamental rights under Articles 14, 19(1)(g), and 300A of the Constitution of India.
The case revolved around an interest-free loan transaction between Ms. Roy and RRPR Holding Private Limited, a company in which she held a significant shareholding. Earlier reassessment proceedings had already examined this transaction, and the tax department had chosen not to make any additions. Despite this, the department initiated fresh proceedings based on the same transaction, leading the court to find the reassessment as a mere change of opinion.
The court also addressed the issue of limitation, stating that the extended period for reassessment could not be invoked since all primary facts were disclosed during earlier proceedings. The invocation of extended limitation was deemed baseless, rendering the issuance of notice contrary to Section 149 of the Income Tax Act.
In its judgment, the court referred to several precedents, including the Supreme Court rulings in Calcutta Discount Co. Ltd. v. Income Tax Officer and New Delhi Television Ltd. v. Deputy Commission (Income Tax), affirming that reassessment is not permissible merely due to a change of opinion by tax authorities.
The court's decision not only quashes the notices and any consequential orders but also sends a strong message regarding the misuse of power by tax authorities, reaffirming the protection of citizens' rights against arbitrary actions.
Bottom Line:
Income Tax - Reassessment proceedings under Section 147/148 of the Income Tax Act, 1961 cannot be initiated based on the same transaction or issue that was already examined and adjudicated upon in earlier reassessment proceedings, as it would amount to a change of opinion and is without jurisdiction.
Statutory provision(s): Income Tax Act, 1961 Sections 147, 148, 2(22)(e), 2(24)(iv), 143(3), 149; Constitution of India, 1950 Articles 14, 19(1)(g), 300A.
