Court holds that once entire payment is disallowed in earlier assessment, reopening on related ground lacks jurisdictional basis, leading to stay on proceedings under Section 148 of Income Tax Act
In a significant judgment delivered on October 7, 2026, the Delhi High Court (Division Bench comprising Justices Dinesh Mehta and Dr. Aditi Choudhary) stayed the reassessment proceedings initiated by the Income Tax Department against Indofil Industries Limited for the Assessment Year 2021-22. The case centered around the invocation of Section 148 of the Income Tax Act, 1961, which allows reopening of assessment if income has escaped assessment.
The petitioner, Indofil Industries Limited, challenged notices issued under Sections 148A(1), 148A(3), and Section 148 of the Income Tax Act, alleging that the reassessment was without jurisdiction. The reassessment proceedings were based on the allegation that a payment of Rs. 1.91 crore made to M/s KKM Management Centre Middle East (FZE) required disallowance under Section 40(a)(i) for non-deduction of tax at source (TDS).
However, the petitioner had already faced an earlier assessment triggered by a search operation for the AY 2020-21, during which the entire payment of Rs. 4.31 crore to the same entity was disallowed on the ground of it being a bogus purchase. The petitioner argued that since the entire amount was already disallowed, reopening proceedings to disallow part of the same amount again amounted to double taxation and was without jurisdiction as the jurisdictional fact of income escaping assessment was missing.
The Income Tax Department contended that the issue of non-deduction of TDS under Section 40(a)(i) was not examined during the earlier assessment and therefore, the reassessment on this fresh ground was justified.
After hearing arguments, the Court opined that prima facie, since the entire payment had already been disallowed, no income remained that could escape assessment. Hence, the jurisdictional fact necessary to invoke Section 148 was absent. The Court observed that the Assessing Officer could not assume jurisdiction to reopen the assessment on the ground of non-deduction of tax when the entire expenditure was already disallowed. Consequently, the Court stayed all proceedings pursuant to the impugned notice dated June 29, 2026.
The Court issued notice to the respondents and granted eight weeks to file a reply, with rejoinder to follow within six weeks. The matter is listed for final hearing on February 2, 2027.
This judgment highlights the principle that reopening of assessments under Section 148 requires the existence of a jurisdictional fact, namely that income has escaped assessment, and no double taxation should be allowed by reassessing an already disallowed amount on a different ground.
Bottom Line:
Income Tax - Reassessment - Where entire payment to a party had already been disallowed in earlier assessment, reopening on another ground in respect of part of same payment prima facie amounts to absence of jurisdictional fact of income escaping assessment - Proceedings under Section 148 stayed.
Statutory provision(s):
Income Tax Act, 1961 - Sections 40(a)(i), 143(3), 148, 148A(1), 148A(3), 153C
