SC Clears Tax Reassessment Of Former CJI’s Sons

A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran dismissed four appeals filed by Chetan and Nitin Sabharwal, upholding reassessment notices issued for the assessment years 2008-09 and 2009-10.

In its October 28 judgment, the apex court held that the notices issued on March 31, 2015, were based on valid “reason to believe” under Sections 147 and 148 of the Income Tax Act, 1961.

The court said the investigation report provided tangible material for the assessing officer to reasonably believe that taxable income had escaped assessment.

It held that “reason to believe” meant cause or justification and that the officer need not conclusively establish escaped income before initiating reassessment proceedings.

The court also rejected the contention that overvaluation of shares could not result in income escaping assessment.

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 for ₹195 crore and ₹60 crore, respectively. Each seller was entitled to a one-fourth share of the proceeds.

The Income-Tax Department subsequently questioned the valuation of the shares, observing that the sale consideration appeared substantially higher than the value justified by the companies’ underlying land and buildings.

Investigators also found that a substantial portion of the proceeds had been used to acquire a property on Sikandra Road in April 2010. The brothers had claimed exemption from capital gains tax on the investment under Section 54F of the Income Tax Act.

The apex court held that the material justified reopening the assessments, allowing the tax proceedings to continue.