VALIDITY OF INCOME TAX REASSESSMENT ON SURRENDERED INCOME
Category: Income tax act
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Case Name: Commissioner of Income Tax V Capital Power
Case Number: ITA 501/2024
Date: 13.12.2024
Quorum: Hon’ble The Acting Chief Justice and Hon’ble Ms Justice Swarana Kanta Sharma
FACTS OF THE CASE:
On June 26, 2006, tax authorities conducted a search and seizure operation on the Capital Meter Group. Mr. Pawan Kumar Bansal was the CEO and Director of Capital Power Systems Ltd., while Mahesh Kumar Gupta was another Director of the assessee, which is one of the companies of the Capital Meter Group.
In September 2006 Mr. Bansal submitted a letter on company letterhead disclosing undisclosed income of ₹7 crores. He later provided a breakdown of this amount; ₹3.55 crores attributed to himself, and ₹3.45 crores attributed to Mahesh Kumar Gupta. The money was reportedly from unaccounted property dealings and invested in share capital. In the personal tax returns however, Mr. Bansal only disclosed ₹20 lakhs and did not include the remaining amount of Rs 6.8 cr. The Assessing officer added this amount to the income of Sh Pawan Bansal on substantive basis.
Both Mr Gupta and Mr. Bansal appealed before the Commissioner of Income Tax.
ISSUE OF THE CASE
Whether Section 150 of the Income Tax Act (which allows reassessment based on findings or directions from certain proceedings) was properly applicable in this case?
LEGAL PROVISIONS:
Section 148 of the Income Tax Act – Issue of notice where income has escaped assessment.
Section 148 empowers the Assessing Officer to issue a notice for income that has escaped assessment, subject to certain conditions and prior approval. The notice can only be issued if there is information suggesting income has escaped assessment, and the AO must obtain approval from a higher authority (the specified authority). Special provisions apply for cases where searches, surveys, or seizures occur after April 1, 2021, which automatically imply that income has escaped assessment.
Section 150 of the Income Tax Act – This provision specifies that even if the normal time limit for reassessment (under Section 149) has passed, the authorities can still issue a reassessment notice if it's based on a decision or direction from a higher authority (like an appellate body or court).
However, this does not apply if the assessment for the relevant year was already time-barred at the time the order in the appeal or revision was passed, due to the limits specified elsewhere in the Act.
ARGUMENTS:
Arguments by the Revenue’s (Tax department) Arguments:
The counsel contended that the Income Tax Appellate Tribunal (ITAT) made an error by not properly considering that Pawan Kumar Bansal, as CEO of the assessee company (Capital Power System Ltd.), had submitted a letter on 01.09.2006 surrendering additional income of ₹7 crores.
The ITAT allegedly overlooked its own Coordinate Bench's order dated 30.09.2014 (in Pawan Kumar Bansal's case) which had clearly stated that the ₹7 crores disclosure was made by Capital Power System Ltd., not by Bansal personally. The counsel points out that even the Court in ITA 529/2015 had noted that the ₹7 crores disclosure was made on behalf of the company, not by Bansal in his individual capacity.
Based on this, the counsel contended that the reassessment proceedings initiated by the Assessing Officer under Section 150 of the Act were justified, and therefore requests the impugned order to be set aside.
Arguments by the assessee's counsel:
The counsel maintains that the ITAT's impugned order is correct and contains no errors. It was argued that the ITAT correctly observed that there was no finding or direction from the Tribunal regarding any undisclosed income of the assessee. Furthermore, there was no direction allowing the Assessing Officer to tax the ₹7 crores amount in any way.
To support this position, the counsel specifically pointed to relevant parts of the ITAT's order dated 30.09.2014 in Pawan Kumar Bansal's case, arguing that the Assessing Officer had misinterpreted that decision, and no such finding was actually made by the ITAT. Based on this the counsel pleaded that the incumbent appeal be dismissed.
ANALYSIS
Section 150(1) of the Act can override limitation periods only when giving effect to specific findings or directions. There was a lack of proper investigation by the Assessing Officer by failing to determine clear bifurcation of the declared amounts. None of the previous orders contained any specific direction to assess ₹7 crores as undisclosed income of the assessee.
JUDGEMENT
The Court upheld the ITAT's decision that reassessment proceedings couldn't be initiated under Section 148. The appeal was dismissed in favor of the assessee as the conditions required under Section 150 were not fulfilled.
CONCLUSION
This case serves as an important precedent regarding the proper application of Section 150 and the prerequisites for initiating reassessment proceedings beyond the normal limitation period.
