The Supreme Court on 28 October dismissed appeals filed by Chetan Sabharwal and his brother Nitin Sabharwal, upholding income tax reassessment notices issued for Assessment Years 2008-09 and 2009-10. A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran held that the notice dated 31 March 2015 rested on valid “reason to believe” under Sections 147 and 148 of the Income Tax Act, 1961.
Background
In October 2007, the Sabharwal brothers and two other shareholders agreed to sell shares of Pawan Impex (P) Ltd and SVIIT Software (P) Ltd to GYS Real Estate Pvt Ltd. The agreed prices were Rs 195 crore and Rs 60 crore, with each seller entitled to a one-fourth share. Chetan Sabharwal’s assessment for 2008-09 was completed in December 2010 and his returned income was accepted.
An Investigation Unit at Noida later reported that the shares appeared overvalued compared with the cost of the companies’ land and building. It also found that the brothers had bought a half share in a Sikandara Road property in New Delhi in April 2010 through a court auction, largely from these sale proceeds. The Assessing Officer then issued the reopening notice. The Delhi High Court dismissed the brothers’ writ petition on 6 August 2019.
Senior Advocate Mukul Rohatgi argued that overvaluation of shares cannot create escaped income in the seller’s hands. He also said the sale was fully disclosed and examined earlier, so the reopening was a mere change of opinion. The Revenue said the investigation report was fresh and specific material. It added that the earlier assessment order did not reflect any opinion on the issue.
The Bench said “reason to believe” means cause or justification, and the officer need not have finally proved the escape of income. Courts, it added, cannot weigh the sufficiency of the reasons. Rejecting the argument that overvaluation cannot lead to escaped income, the Court said:
“The escapement of income at the hands of the seller of the shares, the proceeds of which were later utilised to acquire capital assets to thus claim deduction, could as well be a diversion of income, assessable to tax under the guise of sale proceeds which, in the present case, assumes relevance for reason of the sale proceeds being far above the actual value of the shares.”
The Court also distinguished this case from one based on mere suspicion:
“The present case is not one wherein it could be said that the AO had only a vague feeling on the basis of which he recorded that proper investigation was necessary. We are of the view that a conclusion that the truth of the alleged transactions needs to be investigated is not the same thing as having reasons, post investigation, to issue a notice.”
On change of opinion, the Court noted that Nitin Sabharwal’s returns were accepted only by an intimation under Section 143(1), so no assessment or opinion existed. In Chetan Sabharwal’s case, the 2008-09 order was a bare acceptance of the returned income, with no inquiry on the points now raised.
The Court held the notice valid, found no change of opinion, and dismissed all the appeals.
Case Details
Case Title: Chetan Sabharwal v. Assistant Commissioner of Income Tax, Circle 28(1), New Delhi, and connected matters
Case Numbers: Civil Appeal Nos. 13953–13956 of 2026
Judge: Justice J.B. Pardiwala
Decision Date: October 28, 2026
