ITAT Delhi Quashes Reassessment of Quetzal Buildtech Over Factually Incorrect “Reason to Believe”

Background

The Income Tax Appellate Tribunal Delhi Bench has set aside the reassessment proceedings initiated against Quetzal Buildtech Private Limited for Assessment Year 2016–17, holding that the Assessing Officer assumed jurisdiction under Section 147 of the Income Tax Act on demonstrably incorrect facts.

Reopening Based on False Assumption of Non-Filing of Return

The Tribunal noted that the Assessing Officer invoked clause (a) of Explanation 2 to Section 147, which applies where an assessee has failed to file a return under Section 139(1). However, on record, the assessee had duly filed its return on 5 October 2016 and had even undergone scrutiny assessment under Section 143(3). The foundational premise for reopening, therefore, was factually wrong. The Bench observed that when the very basis of the “reason to believe” is incorrect, the jurisdiction to reopen collapses. It relied on consistent judicial precedent holding that reassessment founded on erroneous factual assumptions amounts to non-application of mind and is legally unsustainable.

Investigation Wing Inputs Cannot Replace Independent Satisfaction

While the reassessment was triggered by information from the Investigation Wing alleging accommodation entries in the form of unsecured loans, the Tribunal emphasised that such inputs cannot substitute the Assessing Officer’s own verification of existing records. Mechanical reliance on third-party information, particularly when contrary facts were already available in assessment files, was impermissible.

The reassessment order passed under Sections 147 and 143(3) was quashed as void ab initio. Since the jurisdictional issue itself failed, the Tribunal declined to examine the additions on merits, leaving all other grounds open.