Delhi High Court To Examine If Audit Objection Can Trigger Reassessment For Period Prior To April 2021

The Delhi High Court is set to examine whether an audit objection can constitute “information” for initiating proceedings under the Income Tax Act, 1961, for a period prior to April 1, 2021.

The Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta observed that the issue raised “seminal questions” requiring determination, particularly in view of the larger legal implications involved.

The case arose from a notice issued to the assessee under Section 148A(1) of the Income Tax Act for Assessment Year 2019-20.

The Assessing Officer sought to initiate reassessment proceedings on three grounds—alleged doubtful reversal of Input Tax Credit of Rs. 15.76 crore, alleged bogus transactions of Rs. 36.52 crore for availing ITC, and a claim relating to depreciation of Rs. 443.26 crore on goodwill purchased for Rs. 1,773.00 crore.

Petitioner-assessee argued that in relation to the goodwill issue, the proceedings had been triggered on the basis of an audit objection. It contended that Explanation 1 to Section 148, which included an audit objection within the expression “information”, had been inserted with effect from April 1, 2021, whereas the assessment year in question was 2019-20.

It was also argued that the issue was legally debatable and could not form the basis for initiating proceedings under Section 148.

Revenue, however, contended that although audit objection was specifically included within the ambit of “information” with effect from April 1, 2021, the provision being an Explanation would apply to the present case as the reassessment proceedings were initiated after the insertion of the Explanation.

The Court noted that goodwill had been treated as an intangible asset before its specific exclusion with effect from April 1, 2021, and that the mode or manner in which the goodwill was acquired was immaterial for the purpose of the issue before it.

Accordingly, it issued notice and directed that further proceedings pursuant to the impugned notice would remain stayed.

The matter is next listed on December 1.

For Petitioner: Senior Advocate S. Ganesh with Advocates Vivek Sarin, Divyanshi Singh & Nandita Singhal.

For Respondents: Senior Standing Counsel Vipul Agrawal with Junior Standing Counsel Sakshi Shairwal, Advocates Gaoraang Ranjan & Harshita Kotru.