The Delhi High Court has ruled that income which allegedly escaped assessment across different years cannot be combined to meet the ₹50 lakh threshold for issuing reassessment notices under Section 149(1)(b) of the Income Tax Act, 1961.
A division bench comprising Justice Vibhu Bakhru and Justice Tejas Karia heard the matter involving M/S L-1 Identity Solutions Operating Company Private Limited (Petitioner) and the Assistant Commissioner of Income Tax (Respondent). The case concerned reassessment notices issued for Assessment Year (AY) 2018-19.
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The Court clarified that, under the Income Tax Act, reassessment notice under Section 148 cannot be issued if three years have passed since the end of the relevant assessment year unless the escaped income for that year exceeds ₹50 lakh.
The Petitioner, a private company offering services to foreign associated enterprises (AEs), challenged the reassessment action on the ground that the income alleged to have escaped assessment for AY 2018-19 was below ₹50 lakh. According to the Petitioner, since the amount was less than the threshold, reassessment notices were invalid.
During search operations conducted by the Income Tax Department, it was alleged that the Assessee undercharged its AE for R&D services provided, leading to an income shortfall of ₹0.27 crore during FY 2017-18 (AY 2018-19). Further, the Assessee was also accused of overpaying ₹0.21 crore for management and group-related services in the same year.
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The Assessing Officer (AO) argued that cumulatively, across FY 2016-17, 2017-18, and 2018-19, the income undercharged or overpaid amounted to ₹0.73 crore, exceeding ₹50 lakh. Hence, they believed reassessment notices were justified under Section 149(1)(b) and 149(1A).
However, the Court firmly rejected this argument.
"It is impermissible for the AO to add income which is alleged to have escaped assessment for different previous years for determining the threshold figure of ₹50 lakh as specified under Section 149(1)(b) of the Act," stated the Court.
The Court further explained that the ₹50 lakh threshold must be considered individually for each assessment year unless the escaped income is represented in the form of a singular asset or expenditure related to a single event or occasion spanning multiple years.
"In this case, there is no singular occasion or event which has resulted in income across more than one previous year exceeding ₹50 lakh," the Court observed.
The allegations against the Assessee were that it undercharged and overpaid separately in different years. Thus, no single event or transaction spanned across years to cumulatively reach ₹50 lakh.
Emphasizing the statutory interpretation, the Court said that the non-obstante clause under Section 149(1A) allows combining amounts only if the escaped income is linked to an asset or event occurring over multiple years, which was not applicable here.
Finding merit in the Petitioner’s arguments, the Court allowed the writ petition, setting aside the reassessment notices and all subsequent proceedings.
"Accordingly, the impugned notices and all proceedings commenced pursuant thereto, are set aside," concluded the Court.
This ruling offers significant clarity regarding the interpretation of Section 149, strengthening taxpayers' protection from reassessment based on cumulative calculations from unrelated years.
Appearance: Mr Shankey Agrawal with Mr Siddarth Agrawal, Advocates for Petitioner; Mr Gaurav Gupta, SSC with Mr Shivendra Singh and Mr Yojit Pareek, JSCs for Respondent
Case title: M/S L-1 Identity Solutions Operating Company Private Limited v. Assistant Commissioner Of Income Tax, Central Circle – 25
Case no.: W.P.(C) 4845/2025
