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Quashes Reassessment Against Cyberabad Citizens Over Income
The , in a significant ruling, quashed reassessment proceedings initiated by the against M/s. for . A Division Bench comprising Justice P. Sam Koshy and Justice Narsing Rao Nandikonda held that income already disclosed and offered to tax by the entity to which a business has been demerged cannot be treated as "" merely because the transactions appear against the original company's PAN in departmental databases. The Court also found the reassessment notice to be .
Demerger and Disclosure: The Facts
The petitioner, Cyberabad Citizens, operated a multi-speciality hospital. As part of a restructuring, it demerged its entire healthcare services business into under a scheme sanctioned by the , on , with effect from . Post-demerger, all income from the healthcare business was accounted for and offered to tax by Artmed Healthcare in its returns. The petitioner retained the hospital infrastructure and earned rental income, which it duly disclosed.
For the relevant assessment year, the petitioner filed its return declaring a loss, which was accepted under . However, the Department later issued a notice under (b), alleging that the petitioner had failed to report professional receipts, fees for technical services, interest income, and contract receipts aggregating to over ₹108 crore. The petitioner responded, explaining that these transactions pertained to the and had been fully disclosed and taxed in the hands of Artmed Healthcare, furnishing supporting documents.
The Revenue's Case: Insight Portal Triggers
Despite the petitioner's explanation, the Assessing Officer passed an order under (d) on , concluding that the matter required "further verification" and that income chargeable to tax had . A consequential notice under was issued the same day. The Revenue argued that the Department's Insight portal flagged these transactions only against the petitioner's PAN, as tax had been deducted at source in its name by counterparties before the NCLT order was passed. It contended that the genuineness of the disclosure by Artmed Healthcare could not be verified and that the case fell within the extended limitation period under of the Act, as the escaped income exceeded ₹50 lakh.
Court's Analysis: '' Misconceived
The High Court scrutinized the definition of "
" under
, which is the prerequisite for initiating reassessment. The Court observed that the very premise of the statutory scheme is that the "
" must point to income that has not been brought to tax at all, not income that is duly disclosed and offered to tax merely because it is reflected under a different PAN due to a corporate restructuring. The Court held that the Assessing Officer's order, which recorded that the amounts were
"duly offered in the hands of Artmed Healthcare"
yet still required "further verification," disclosed an absence of
. The Bench emphasized that
was designed as a
to prevent reassessment on a
or for a roving inquiry.
Limitation Bar: No '' of Undisclosed Income
On the alternative ground of limitation, the Court noted that the notice was issued beyond the ordinary three-year period from the end of the assessment year under . The extended period under requires the Assessing Officer to possess books of account or documents that "reveal" undisclosed income of ₹50 lakh or more. The Court held that the word "reveal" connotes the surfacing of something not already known or disclosed. Since the transactions were already recorded in Artmed Healthcare's books and disclosed in its returns, there was no "" of undisclosed income. The Department's inability to cross-verify against its own records of a connected assessee did not justify invoking the extended limitation period.
Key Observations from the Bench
The Court made several pointed observations:
"We are constrained to observe that an order under (d) recording, in the same breath, that an amount has already been offered to tax by the entity legally entitled to be assessed on it and yet proceeding to treat the matter as one of escaped income 'requiring verification' discloses an absence of the very that is designed to ensure…"
"The scheme of was introduced precisely to interpose a before an assessee is subjected to the rigours of reassessment so that reassessment proceedings are not set into motion on a or for the purpose of a ."
"The extended period of limitation under was therefore, not available to respondent No.1 on the facts of this case and the notice dated 16.04.2024 having admittedly been issued beyond three years from the end of the , the ordinary period prescribed under is ."
Verdict and Implications
The High Court allowed the writ petition, setting aside the impugned order dated under (d) and the consequential notice under . The Court held that the proceedings were unsustainable both for lack of valid "" and on the ground of limitation. No order as to costs was made.
This judgment reinforces the principle that reassessment cannot be mechanically initiated based on database entries when the income has already been duly disclosed and taxed by the correct entity. It also underscores that the limitation provisions under Section 149 must be strictly construed, and the extended period is not available merely because the Department finds it inconvenient to verify disclosed against its own records.
