Delhi High Court Refuses To Quash Third-Party Reassessment Despite Interim Relief To Searched Entity

The Delhi High Court has dismissed a writ petition filed by Hari Bhoomi Communications Private Limited, holding that reassessment proceedings initiated against it on the basis of material recovered during a search at another entity's premises are not rendered void by a subsequent interim order passed in favour of the searched entity.

A division bench of Justice Dinesh Mehta and Justice Vinod Kumar refused to interfere with an assessment order dated March 25, 2026, passed against the company pursuant to a notice issued on March 31, 2025 under the second explanation to Section 148 of the Income Tax Act. The notice had been triggered by material recovered during a search conducted at the premises of Kuantum Papers Limited.

Appearing for the petitioner, counsel argued that the Punjab and Haryana High Court had stayed proceedings against the searched entity, which according to the petitioner, indicated that the search was prima facie illegal, and therefore the reassessment proceedings against Hari Bhoomi could not continue.

It was also contended that while the searched entity was not being proceeded against, the petitioner had been subjected to an assessment order arising out of the same search.

The Revenue opposed the plea, raising a preliminary objection that the writ petition challenged an assessment order for which a statutory appellate remedy was available.

It further argued that proceedings against the petitioner had been initiated much prior to the interim order passed by the Punjab and Haryana High Court and therefore could not be said to be void or without jurisdiction.

Rejecting the petitioner's reliance on the interim order, the bench held the argument to be “absolutely untenable in law.”

It observed, “The grant of interim order by the Punjab and Haryana High Court, therefore, does not confer any right upon the petitioner to say that proceedings against him are void.”

The court further clarified the legal position, observing that “the material seized/ recovered during search can be relied upon, even if the search is declared illegal.”

On the issue of timing, the bench underscored that “the legality of the initiation of proceedings against the petitioner has to be examined as on the date, when the proceedings were triggered i.e. 31.03.2025,” noting that no stay was operating at that stage.

The court also pointed out that the interim order relied upon by the petitioner merely stated, “Final assessment order be not passed till the next date of hearing,” and did not stay either the search or the proceedings arising from it.

It further held that even if the search is ultimately declared invalid, such a declaration would be a subsequent event that “neither divest the Assessing Officer of jurisdiction nor does it vitiate proceedings already initiated against the petitioner.”

Finding no merit in the petition, the High Court dismissed the plea. It, however, granted liberty to the company to challenge the additions on their merits before the appellate authority and directed that if an appeal is filed within 15 days, it shall be considered without raising objections on limitation.