In a major win for Maruti Suzuki India Ltd., the Delhi High Court has quashed a ₹2000 crore tax reassessment notice issued by the Income Tax Department for the Assessment Year 2009-10. The court ruled that the reassessment proceedings lacked legal merit, as the company had fully disclosed all relevant financial details during the original assessment.

The ruling, delivered by Justices Yashwant Varma and Ravinder Dudeja, emphasized that the reassessment was time-barred and based on a mere change of opinion, which is not permissible under the Income Tax Act, 1961.

Case Background

Maruti Suzuki had originally filed a revised return of income, declaring earnings of ₹12,62,60,79,909. However, the Assessing Officer (AO) later recalculated the taxable income at ₹20,71,04,18,575, identifying four key issues that led to the reassessment notice.

The Income Tax Department questioned whether Maruti Suzuki was operating as a Permanent Establishment (PE) of Suzuki Motor Corporation (SMC) and was liable to deduct TDS amounting to ₹11,29,40,00,000 on purchases from SMC. It also sought to reclassify certain share transactions as business income rather than capital gains, disallowed a deduction of ₹125.89 crore claimed for research and development expenses under Section 35(2AB), and rejected a warranty provision claim of ₹43.2 crore, treating it as a contingent liability.

Maruti Suzuki’s Arguments

The company strongly opposed the reassessment, arguing that the Income Tax Department was attempting to reopen a settled matter without any new evidence. It maintained that the original assessment had already examined these issues, and reopening the case on the same grounds amounted to a mere change of opinion, which is not allowed under Section 147 of the Income Tax Act.

Furthermore, Maruti Suzuki pointed out that all necessary financial records, tax audit reports, and compliance documents had already been submitted during the original assessment. The AO had access to all relevant details, including related party transactions, capital gains, and tax deductions.

Another critical argument made by the company was that the reassessment notice was time-barred. According to tax regulations, the last date for issuing such a notice for AY 2009-10 was March 31, 2016, yet the notice was dispatched on April 1, 2016, making it legally invalid under Section 149 of the Act.

Income Tax Department’s Stand

The department countered that the company’s responses in the original assessment were vague and lacked necessary details, depriving the AO of complete information at that time. It also argued that new facts had emerged in the subsequent assessment year (AY 2010-11), justifying a reassessment of AY 2009-10.

Additionally, tax authorities insisted that a reassessment can be validly initiated if new evidence comes to light, even after the original assessment is concluded. The department relied on past legal precedents to support its claim that material discovered later could serve as a basis for reopening an earlier assessment.

Key Findings of the Delhi High Court

After carefully examining the submissions from both sides, the Delhi High Court ruled in favor of Maruti Suzuki. The court highlighted two primary reasons for quashing the reassessment notice:

1. Time-Barred Notice

The court ruled that the reassessment notice was issued beyond the legally prescribed deadline. Under Section 149, the notice should have been sent by March 31, 2016, but was dispatched only on April 1, 2016.

“The last date for initiating reassessment proceedings for AY 2009-10 was March 31, 2016. However, the notice was issued on April 1, 2016, making it invalid under Section 149.”

The court relied on the precedent set in Suman Jeet Agarwal v. ITO, where it was held that mere generation of a notice does not constitute issuance. Since the notice was dispatched after the deadline, the reassessment was legally unsustainable.

2. No Fresh Information or Independent Application of Mind

The judges also ruled that the reassessment was based on a mere change of opinion, rather than on any new or undisclosed facts. The court emphasized that Maruti Suzuki had already provided full details regarding remittances to Suzuki Motor Corporation, the nature of capital gains, and deductions claimed under Section 35(2AB).

“The record analyzed by this court leads to the inevitable conclusion that the AO was well aware of the transactions with Suzuki Motor Corporation. There is no evidence that Maruti Suzuki misrepresented facts.”

Furthermore, the court noted that the reassessment was prompted solely by a letter from the Additional Commissioner of Income Tax (ACIT), without any independent verification by the AO. The ruling reaffirmed that reassessment cannot be initiated merely on the basis of a different opinion formed in a later assessment year.

3. Related Party Transactions and Permanent Establishment Issue

The judges found that Maruti Suzuki had fully disclosed its transactions with Suzuki Motor Corporation in multiple documents, including:

• The Return of Income (RoI)
• The Tax Audit Report
• The Transfer Pricing Report (Form 3CEB)
• The Annual Report’s Notes to Accounts

These records confirmed that the AO had access to all necessary financial data and had duly considered them during the original assessment. Therefore, reopening the assessment without fresh material was unjustified.

Based on these findings, the Delhi High Court ruled that the reassessment was invalid and quashed the notice