Delhi High Court quashes Section 148 notice where cash transaction had already undergone scrutiny

Background of the writ petition

The Delhi High Court in Neeru Sehgal Vs PCIT (Delhi High Court) examined the validity of a reassessment notice issued under Section 148 of the Income Tax Act 1961. The assessee invoked writ jurisdiction to challenge the notice dated 31.08.2024, primarily on the ground that the very transaction forming the foundation of the reassessment proceedings had previously been examined in detail in a regular scrutiny assessment under Section 143(3) for the same assessment year.

The scrutiny assessment proceedings culminated in an assessment order dated **20.03.2025. During that process, the Assessing Officer (AO) had already investigated the cash transaction which later became the trigger for the impugned Section 148notice. The assessee contended that once the AO had applied his mind to the issue in the scrutiny proceedings and accepted the explanation, reopening the assessment based on the same material amounted to nothing but a change of opinion, which is impermissible within the statutory scheme ofSections 147and148of theIncome Tax Act 1961`.

Assessee’s contentions before the Court

Challenge to the reassessment notice

The assessee questioned the reassessment notice dated 31.08.2024 on multiple grounds, with the central plank of challenge being:

  • For the same assessment year, proceedings under Section 143(3) were already in progress when the impugned Section 148 notice was issued.
  • The transaction relied upon for reopening related to an alleged cash payment of Rs. 85,00,000/- to Mr. Sachiv Sahni through Mr. Arjun Malhotra.
  • This very transaction had been part of the scrutiny assessment proceedings, during which the AO had raised specific queries and issued a questionnaire.
  • The assessee had furnished detailed replies, explanations and supporting material in response to the AO’s queries.
  • After considering the replies, the AO completed the scrutiny assessment under Section 143(3) without making any addition in respect of this transaction, thereby evidencing that he had accepted the assessee’s explanation.

On these facts, the assessee argued that the Revenue could not reopen the assessment merely because it now sought to take a different view on the same set of primary facts, without any fresh tangible material. Such an approach, it was submitted, would convert the reassessment mechanism into a review power, which is not envisaged under Sections 147 and 148.

Overlap of scrutiny and reassessment proceedings

Another important facet highlighted by the assessee was the timing of the proceedings:

  • When the notice under Section 148 was issued on 31.08.2024, assessment proceedings under Section 143(3) for the relevant assessment year were still alive and ongoing.
  • Therefore, at the time of issue of the reassessment notice, the AO was already seized of the matter and was in the process of examining the relevant issues, including the transaction in question.
  • The assessee contended that parallel proceedings of this nature for the same issue and same year were legally unsustainable and contrary to the statutory scheme.

Revenue’s response

On behalf of the Revenue, Mr. Indruj Singh Rai, learned Senior Standing Counsel, appeared and represented the respondents.

Significantly, the Court recorded that learned counsel for the Revenue did not dispute the factual position as narrated by the assessee.