The Delhi High Court quashed reassessment proceedings initiated beyond the four-year limit, citing full disclosure of salary expenses in the prior year.
The High Court quashed a reassessment notice issued under Sections 154 and 155 of the Income Tax Act, finding it invalid due to non-compliance with the mandatory procedure under Section 148A. The petitioner, whose return was previously scrutinized and assessed, challenged the notice on grounds that it related to a prior period expense and was issued after 31.03.2021 under an outdated legal framework.
The Revenue defended the notice citing the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA Act) and CBDT circulars, but the Court ruled that procedural safeguards introduced post-2021 must be followed. Similar reassessment notices across various High Courts are also under challenge on comparable grounds.
The bench of Justice Vibhu Bakhru and Justice Tejas Karia observed, “In the present case, the petitioner had expressly disclosed in its accounts, which were furnished in support of its return that the expenses booked under the head ‘wages and salaries’ included ₹6.29 crores on account of salaries and wages, which pertain to prior financial years. Thus, no proceedings for initiation of reassessment could have been initiated under the provisions relating to reassessment that were in force prior to 01.04.2021 after expiry of four years from the end of the relevant assessment year.”
The Court held that even if reassessment could be initiated under Section 149(1) of the Income Tax Act, it was barred in this case due to the first proviso to Section 147(1), which prohibits reopening when there has been full and true disclosure during the original assessment.
The Court set aside the reassessment proceedings, including the order under Section 148A(d) and the notice under Section 148 of the Income Tax Act, both dated 02.12.2022.
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