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Informist, Tuesday, May 12, 2026

 

NEW DELHI – The Supreme Court Tuesday held that the Income Tax Department can reassess any person or company's income if it had reason to believe that the true nature of the income was revenue, which is liable to be taxed as a business receipt, instead of profit. The tax department's view that income was revenue and not profit cannot be discarded as a mere change of opinion, the apex court added.

 

It would be immaterial whether the income-tax officer, at the time of making the original assessment, could not find whether the transaction was genuine or not by initial inquiry, said the court. If new information is found that gives the income tax officer reasons to believe that taxable income had escaped assessment, the reassessment proceedings can be restarted, said a bench of Justices J.B. Pardiwala and K.V. Viswanathan.

 

The Income Tax Department can reassess the income either on the basis of some freshly discovered facts which were previously not disclosed, or if some information surfaces that tends to expose the untruthfulness of the previously disclosed facts, said the court. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same available facts, but rather acting on fresh information, said the court. 

 

The Supreme Court observed that it is a settled law that mere intimation by an assessee of a transaction does not preclude the assessing officer from reopening assessment if there is tangible material to prima facie indicate that primary facts regarding the true nature of the transaction had not been brought to the notice of the officer by the assessee. Noting its previous verdict, the court said that the duty of disclosing all the primary facts relevant to a question before the assessing authority lies with the assessee and merely producing account books and documents does not fulfil that obligation. 

 

The court allowed the tax department's plea to reassess Sanand Properties P. Ltd.'s income as the assessing officer had reason to believe that some taxable income had escaped assessment. The tax department had said the income received by Sanand Properties from its association of persons was not a share of its profit but a share of its revenue as it was a consideration received against the development rights over the land sold by the company.

 

The top court said that the income tax department in the assessment orders for assessment years 2007-08 to 2008-09 had not formed any opinion on what was the fundamental nature of the income accrued by Sanand Properties from association of persons. Therefore, when "tangible material" in the form of the impounded documents and the company director's statement shed light on the manner in which Sanand Properties received its income from association of persons, there were "reasons to believe" that income liable to tax has escaped assessment, said the court.

 

It is a well-settled principle of accounting and law that profit is the surplus remaining after all expenses have been deducted from gross receipts, noted the court. Since Sanand Properties' share remained insulated from the expenses of association of persons, the amount received by it lacks the essential characteristics of "profit" and is, in pith and substance, a business receipt arising from the surrender of development rights or a share of gross revenue, said the court.  End

 

Reported by Surya Tripathi

Edited by Tanima Banerjee

 

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