Court Rules That Notice Issued Beyond Four Years Was Valid Due to Undisclosed Material Facts in VAT Returns; Merits of Sales Turnover Differences to Be Examined in Assessment Proceedings
In a significant decision dated October 8, 2026, the Delhi High Court dismissed the writ petition filed by Pernod Ricard India Private Limited challenging the issuance of a reassessment notice under Section 148 of the Income Tax Act, 1961 for the assessment year 2013-14. The company had contended that the reassessment proceedings were initiated without jurisdiction since the assessment had already been completed and the reopening notice did not specify any failure to disclose material facts, especially considering it was issued beyond the four-year limit prescribed by law.
The case arose following a survey conducted at Pernod Ricard India's premises under Section 133A of the Income Tax Act in March 2019. The survey revealed a discrepancy of over Rs. 8 crore between the turnover declared by the company in its Value Added Tax (VAT) returns for sales to the Canteen Stores Department (CSD) and the turnover shown in its Profit and Loss account filed for income tax purposes. Specifically, VAT returns showed sales of approximately Rs. 189.87 crore, while the company's books recorded Rs. 181.74 crore, creating a mismatch flagged by the Income Tax Department.
The Assessing Officer issued a notice under Section 148 on March 31, 2021, to reopen the assessment beyond the four-year period, relying on the difference in turnover figures as material that had escaped assessment. Pernod Ricard challenged this notice on the grounds that the reassessment was based on borrowed satisfaction from the Directorate of Revenue Intelligence (DRI) and that the VAT returns were not disclosed to the Assessing Officer during the original assessment, rendering the notice invalid.
However, the Delhi High Court, in a detailed oral judgment delivered by Justice Dinesh Mehta and Justice Dr. Aditi Choudhary, upheld the reassessment notice. The Court held that the Assessing Officer had tangible material in the form of VAT return discrepancies, which was not disclosed during the original assessment, justifying the invocation of the extended period of limitation for reassessment. The Court emphasized that challenges to the factual merits of the turnover reconciliation, including the company's explanation that state VAT laws required sales to CSD to be recorded at Maximum Retail Price (MRP), were matters to be examined during the assessment proceedings and could not be adjudicated in writ jurisdiction.
The Court further clarified that the objections raised by Pernod Ricard primarily pertained to the merits of the reassessment and not to jurisdictional issues. Under the pre-April 1, 2021, regime applicable at the time, the Assessing Officer's rejection of preliminary objections did not require a detailed inquiry into factual issues but only had to satisfy jurisdictional requirements, which were met in this case.
The Court concluded by rejecting the petition, stating that the petitioner remained free to raise all non-jurisdictional pleas and defenses in the assessment proceedings. The judgment reinforces the Income Tax Department's authority to reopen assessments beyond four years where undisclosed material facts emerge post-assessment, especially through information received from investigative wings.
Bottom Line:
Income Tax - Reassessment under Section 148 of Income Tax Act, 1961 - Notice issued prior to 01.04.2021 on basis of discrepancy between turnover disclosed in VAT returns and turnover shown in profit and loss account - Where VAT returns were not shown to have been disclosed before Assessing Officer in original assessment, reopening beyond four years held justified - Objections going to merits of explanation regarding VAT/MRP computation cannot be examined in writ jurisdiction at threshold.
Statutory provision(s):
Income Tax Act, 1961 Sections 92CA(3), 133A, 143(3), 144C, 147, 148, 148A; Constitution of India Articles 226, 227; Value Added Tax Act, 2005
