Reassessment Powers Are Not a Tool for Vindictive Re-Interpretation: Delhi High Court Quashes Second Reopening

"Section 2(22)(e) and 2(24)(iv) Are Two Sides of the Same Coin – Tax Department Cannot Flip It Twice", In a scathing indictment of arbitrary tax administration, the Delhi High Court  struck down a second reassessment notice issued to Ms. Radhika Roy for the Assessment Year 2009–10, declaring it to be “fundamentally without jurisdiction” and a “classic case of abuse of power under Section 147 of the Income Tax Act.” The Division Bench of Justice Dinesh Mehta and Justice Vinod Kumar held that the second notice issued under Section 148, based on the same interest-free loan transaction that had already been scrutinized and closed in a prior reassessment, amounted to nothing more than a change of opinion cloaked in legalese.

Calling out the reassessment notice dated 31.03.2016 as a mere repackaging of an already examined transaction, the Court observed, “Section 2(22)(e) and Section 2(24)(iv) are two sides of one coin. When said coin itself had been examined... merely because the new incumbents in the chair feel themselves to be wiser... an already settled assessment cannot be unsettled.”

“Reopening Cannot Be a Revolving Door — Once Conscious Application of Mind Is Made, Revenue Must Respect Finality”

The Court opened its analysis with a sharp critique of the Revenue’s conduct. It noted that Ms. Roy had fully disclosed her interest-free loan from RRPR Holdings Pvt. Ltd. during the earlier reassessment proceedings initiated in 2011. The AO had issued a specific notice on 06.03.2013, proposing to treat the loan as deemed dividend under Section 2(22)(e). After considering her submissions and examining the balance sheet, books of accounts, and auditor’s notes, the AO dropped the proposed addition and passed a reassessment order dated 30.03.2013.

“Thereafter,” the Court noted, “a second notice under Section 148, based on the same foundational facts, cannot be justified merely by shifting the legal lens from Section 2(22)(e) to Section 2(24)(iv).” The Bench was unambiguous: “Once a transaction has been scrutinized and adjudicated upon, the Revenue cannot return for a second bite at the cherry under the garb of reassessing under a different section.”

The Court emphasized that reassessment powers under Sections 147 and 148 are an exception, not the rule, stating, “Such powers cannot be exercised casually and callously. Reopening based on a different interpretative route for the same transaction violates basic principles of tax certainty.”

“Extended Limitation Under Section 149 Cannot Be Invoked Without Failure to Disclose Primary Facts”

A significant dimension of the Court’s reasoning was its dismissal of the Revenue’s invocation of the extended six-year limitation under Section 149. The Department alleged that the petitioner failed to disclose material facts, thus justifying the extended time frame. Rejecting this, the Court held, “The petitioner had produced audited books, balance sheets, and her account in RRPR. The primary fact — the interest-free loan — was fully disclosed. There was no suppression.”

Referring to the Supreme Court’s ruling in New Delhi Television Ltd. v. DCIT, (2020) 424 ITR 607 (SC), the Bench reiterated the principle that, “It is not required to disclose the secondary facts. Drawing of inferences and legal conclusions is the duty of the Assessing Officer.”

The Bench minced no words in holding that the AO had attempted to shift the burden of inference onto the assessee, an approach the Court denounced as legally untenable.

“Reassessment Based on Identical Facts Is Not Administration — It Is Harassment”

In perhaps the most searing portion of the judgment, the Court expressed its disapproval of the Revenue’s conduct. It remarked, “Such reassessment proceedings hit the very root of fair adjudicatory process. They lead to unnecessary harassment of an assessee on the one hand and give rise to unpredictability, if not anarchy, on the other.”

The Court also brushed aside the Revenue’s argument that Ms. Roy should have first responded to the notice or pursued statutory remedies. It held that the case involved “ex facie lack of jurisdiction”, making judicial review under Article 226 not only maintainable but necessary. The Court observed, “To relegate the petitioner to statutory remedies after 8 years of interim protection, in respect of AY 2009-10, would be a travesty of justice.”

“No Quantum of Cost Can Compensate the Harassment, But a Message Must Be Sent”

Holding the action of the Revenue to be arbitrary and vindictive, the Court quashed the impugned reassessment notices and imposed costs of ₹1,00,000/- in each petition upon the Department. While acknowledging that such costs were only symbolic, the Bench made clear that “no amount of cost can be treated enough for these cases.”

The judgment sends a strong message to the Income Tax Department: the power of reassessment is not to be wielded whimsically. The High Court reminded the authorities that tax certainty and rule of law are constitutional values that cannot be compromised by interpretive adventurism.

“The Constitutional Promise of Fairness in Tax Proceedings Cannot Be Eroded by Shifting Interpretations of the Same Transaction”

The Court concluded with an affirmation of the taxpayer’s constitutional rights. “Subjecting the petitioner to reassessment proceedings second time for the selfsame transaction is arbitrary and without jurisdiction. It falls foul of Articles 14, 19(1)(g) and 300A of the Constitution.”

With this ruling, the Delhi High Court has reaffirmed an essential tenet of Indian tax jurisprudence: reassessment cannot be used as a revolving door to unsettle what has already been settled — especially not on the basis of changed opinion or convenience. Legal finality and administrative discipline must prevail over expedient interpretations.

Date of Decision: 19 January 2026