Delhi High Court Dismisses Challenge to Reassessment Proceedings: Abhinav Jain Vs ITO & Ors.

The Delhi High Court recently dismissed a writ petition challenging reassessment proceedings initiated under the Income Tax Act, 1961, reaffirming the foundational principle that constitutional courts cannot assume the role of an Assessing Officer by calling for documents or conducting factual inquiries that fall squarely within the AO's statutory domain.

Background and Factual Matrix

The Assessee and His Bank Accounts

The petitioner, a Non-Resident Indian (NRI), maintained two bank accounts during the financial year 2017-18 relevant to Assessment Year 2018-19:

  • Savings NRE Account bearing SB–NRE No.015013110007312 with Bank of India, New Delhi
  • Savings Account No.0650000100137681 with Punjab National Bank, New Delhi

Trigger: Non-Filers Monitoring System (NMS) Flagging

The matter originated when the Income Tax Department's Insight Portal flagged the assessee under the Non-Filers Monitoring System (NMS) category. The portal data revealed that during the financial year 2017-18, the assessee had engaged in transactions amounting to approximately Rs. 9,28,66,191/-, comprising:

  • Foreign remittance receipts
  • Interest income from bank deposits
  • Time deposit (Fixed Deposit) proceeds

Despite the magnitude of these transactions suggesting potential taxable income, the assessee had not filed his Income Tax Return (ITR) for AY 2018-19.

Pre-Notice Response and Verification Query

For AY 2018-19, verification queries were generated on the Insight Portal on account of non-filing of the return. In response to these queries, the assessee filed an e-response on 05.02.2019, explaining that the income in question pertained to interest income from banks and remained below the taxable threshold under the Income Tax Act, 1961.

Initiation of Reassessment Proceedings

Notice Under Section 148A(b)

Based on information available on the Insight Portal, the Assessing Officer issued a notice under Section 148A(b) of the Income Tax Act, 1961 on 22.03.2022, directing the assessee to show cause as to why reassessment proceedings under Section 148 should not be initiated. The information was categorised under Explanation 1(i) to Section 148, suggesting income of Rs. 9,28,66,191/- had escaped assessment.

The assessee was initially given time until 28.03.2022 to file his reply, and he duly submitted a response on 26.03.2022 accompanied by supporting documents.

Corrigenda Issued by Revenue

Subsequently, the Revenue issued two corrigenda to the show cause notice:

  1. First corrigendum dated 31.03.2022 — extending the compliance deadline
  2. Second corrigendum dated 01.04.2022 — further extending the response deadline to 02.04.2022

Order Under Section 148A(d) and Consequent Notice

The Assessing Officer thereafter passed an order under Section 148A(d) on 07.04.2022, concluding that the available information explicitly established the existence of taxable income that had escaped assessment. Consequently, a notice under Section 148 of the Act was issued on the same date, directing the assessee to furnish his ITR for AY 2018-19 within thirty days.

Subsequently, a notice under Section 144B was served on 13.02.2023, indicating that the reassessment would proceed in a faceless manner in accordance with Section 144B. A further notice under Section 142(1) along with a questionnaire was issued on 20.02.2023.

Submissions Advanced by the Assessee

The assessee raised an array of legal and factual contentions assailing the validity of the impugned order and notices:

1. No Escapement of Income — Fundamental Jurisdictional Condition Not Met

The assessee contended that no income had actually escaped assessment, which is the threshold jurisdictional prerequisite for invoking Section 147. The reassessment exercise, as per the assessee, amounted to a fishing and roving inquiry impermissible in law.

2. Non-Resident Status Under Section 6(1)

The assessee submitted that for AY 2018-19, he qualified as a non-resident under Section 2(3) read with Section 6(1) of the Act, having stayed in India for less than 60 days during FY 2017-18. As a non-resident domiciled in Dubai, his total income chargeable to tax in India was merely Rs. 62,340/-, well below the basic exemption threshold of Rs. 2,50,000/- applicable for AY 2018-19. Accordingly, he was not obligated to file his ITR under Section 139(1)(b).

3. Explanation of Transactions — Source Documented

The assessee provided detailed breakdowns of the three principal amounts that formed the basis of the reassessment notice:

  • Rs. 3,75,000/-: An inter-bank transfer from the assessee's own PNB Savings Account to his BOI SB-NRE Account — not representing any income.
  • Rs. 4,90,000/-: Again an inter-bank transfer from PNB Savings Account to the BOI SB-NRE Account, comprising maturity proceeds of small Fixed Deposit Receipts.
  • Rs. 9,11,07,929/-: Comprising three sub-components:
    • Rs. 8,50,00,000/- received as a transfer/gift from the assessee's father, Mr. Brijesh Jain (NRI), from his BOI SB-NRE Account
    • Rs. 4,25,000/- constituting a fresh FDR created out of the earlier inter-bank transfer
    • Rs. 56,82,929/- representing tax-free accrued interest on NRE deposits up to 31.03.2018