The Supreme Court allowed the Income Tax Department to reassess the income of Chetan and Nitin Sabharwal regarding share deals from 2010. The court upheld notices for 2008-09 and 2009-10, noting the officer had valid reasons to believe taxable income escaped assessment. The brothers bought property using these share proceeds.
The Supreme Court has allowed the Income Tax Department to reassess the income of businessmen Chetan and Nitin Sabharwal, sons of former Chief Justice of India YK Sabharwal, over share transactions that financed their purchase of a prime property on Delhi's Sikandra Road in 2010, news agency Press Trust of India reported.
A bench of Justices JB Pardiwala and K Vinod Chandran dismissed four appeals filed by the brothers and upheld reassessment notices for the assessment years 2008-09 and 2009-10.
Justice Sabharwal was the 36th Chief Justice of India from November 1, 2005, to January 14, 2007. His judicial career included tenures at the Delhi High Court, Bombay High Court and Supreme Court.
In its October 28 judgment, the Supreme Court said the Income Tax Department's notice dated March 31, 2015, was based on a valid "reason to believe" under Sections 147 and 148 of the Income Tax Act, 1961.
The court said an investigation report by the director general provided concrete material for the assessing officer to reasonably believe that taxable income had escaped assessment, according to PTI.
It said "reason to believe" meant cause or justification and that the officer did not need to have conclusively established that income had escaped assessment. The court also said the sufficiency of the reasons could not be weighed by courts and rejected the argument that overvaluation could not lead to escaped income.
"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 said.
The bench added: "The present case is not one wherein it could be said that the Assessing Officer 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."
In October 2007, the Sabharwal brothers and two other shareholders agreed to sell shares in 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, respectively, with each seller entitled to a one-fourth share.
Chetan Sabharwal's assessment for 2008-09 was completed in December 2010, and the income declared by him was accepted.
A subsequent Income Tax Department investigation raised concerns over the valuation of the shares. It found at first glance that the sale amount was significantly higher than what could be justified by the cost of the companies' underlying land and buildings, PTI reported.
The department also found that a substantial portion of the proceeds had been used to buy the Sikandra Road property in April 2010. The brothers claimed an exemption from capital gains tax on the investment under Section 54F of the Income Tax Act.
With the four appeals dismissed, the reassessment notices against Chetan and Nitin Sabharwal for 2008-09 and 2009-10 remain valid, allowing the tax authorities to examine the share transactions and the income linked to them.