KHURANA CONSTRUCTIONS vs. ASS. COM. OF INCOME TAX, CIR. UDA. AND ANR

The petitioner seeks quashing of notice dated 26.03.2013 issued by respondent No.1 under Section 148 of the Income Tax Act, 1961 (hereinafter, ‘the Act’). It initiates reassessment proceedings for the assessment year 2008-09. Quashing of order/letter dated 15.01.2014 is also sought vide which objections raised by the petitioner against the reassessment were rejected. The principal ground is that the reassessment rests on no tangible material. Only such material could give rise to the requisite “reason to believe” that income chargeable to tax has escaped assessment. (Uploaded on 16/10/2026 at 04:23:46 PM) (Downloaded on 28/10/2026 at 12:45:07 AM) [2026:RJ-JD:48913-DB] (2 of 6) [CW-828/2014]

The facts lie in a narrow compass. The petitioner is a partnership firm. It carries on the business of civil construction. On 01.10.2008, it filed its return of income for the assessment year 2008-09. It declared a total income of Rs.96,33,633/-. The return was based on its audited books of account.

Respondent No.1 later noticed a mismatch in the contractual receipts. The Profit and Loss Account showed receipts of Rs.28,85,97,728/-. The TDS certificates reflected receipts of Rs.30,48,68,411/-. On this basis, reasons were recorded on 21.03.2013. They alleged escapement of income to the extent of Rs.1,62,70,683/-. The notice under Section 148 of the Act followed on 26.03.2013. The petitioner received it on 15.10.2013.

The petitioner asked for a copy of the reasons recorded for reopening. It was told that the reasons would be supplied only after it filed a return in response to the notice. The petitioner then requested that its original return be treated as the return so filed. Thereafter, its Chartered Accountants submitted objections dated 09.01.2014. The objections challenged the assumption of jurisdiction under Sections 147 and 148 of the Act. They also explained the difference in receipts. Tax had been deducted at source on retention money, mobilisation advances and service tax components. These amounts had neither accrued nor been received as income during the relevant year. That was the position under the contractual terms. It was also consistent with the mercantile system of accounting, which the petitioner had always followed.

By the impugned order/letter dated 15.01.2014, respondent No.1 rejected the objections. It observed that the assertions of the petitioner could not be corroborated from the material on record. It called upon the petitioner to furnish details of the retention money received during (Uploaded on 16/10/2026 at 04:23:46 PM) (Downloaded on 28/10/2026 at 12:45:07 AM) [2026:RJ-JD:48913-DB] (3 of 6) [CW-828/2014] the year. It warned that the assessment would otherwise be completed ex parte.

Aggrieved, the petitioner has filed this writ petition. It assails the notice dated 26.03.2013 and the order/letter dated 15.01.2014. Its case rests on two grounds. First, the reopening is founded on mere suspicion and not on definite material giving rise to the requisite ‘reasons to believe’. Second, the objections were rejected without affording an opportunity of hearing.

The respondents have filed a reply. They contend that the writ petition is not maintainable. According to them, the Assessing Officer initiated proceedings under Sections 147 and 148 of the Act only after duly recording reasons to believe that income chargeable to tax had escaped assessment. The notice was issued in accordance with law and within jurisdiction. The petitioner has shown no illegality or jurisdictional infirmity. Nothing, therefore, warrants interference by this Court in its writ jurisdiction.

The respondents further state that the return was processed under Section 143(1) of the Act. On verifying the TDS certificates, the Assessing Officer found contractual receipts of Rs.30,48,68,411/-. The Profit and Loss Account disclosed receipts of only Rs.28,85,97,728/-. The difference was Rs.1,62,70,683/-. The respondents say that this discrepancy was a valid basis to reopen the assessment. The reasons recorded, they argue, were neither based on mere suspicion nor without foundation. They add that the petitioner did not disclose the retention money as receivables in its balance sheet. This made it difficult for the Department to verify whether those amounts were later received and offered to tax. (Uploaded on 16/10/2026 at 04:23:46 PM) (Downloaded on 28/10/2026 at 12:45:07 AM) [2026:RJ-JD:48913-DB] (4 of 6) [CW-828/2014]

The respondents also submit that the objections dated 09.01.2014 were duly considered. The Assessing Officer rejected them because the explanation could not be corroborated by the material on record. The petitioner, they say, ought to have followed the statutory course. It should have filed a return in response to the notice under Section 148, sought the recorded reasons and raised objections to them. If aggrieved by the reassessment order, it could then have availed the statutory appeal.

On these grounds, the respondents contend that an efficacious alternative remedy is available under Sections 246 and 246A of the Act. No exceptional circumstance has been shown to justify interference under Article 226 of the Constitution of India. They seek dismissal of the writ petition with costs.

Learned counsel for the petitioner argues that the notice dated 26.03.2013 is without jurisdiction. The reasons recorded rest on suspicion, conjecture and vague allegations. There is no definite or relevant material giving rise to the requisite “reason to believe” that income chargeable to tax had escaped assessment. The proceedings, it is urged, amount to a fishing enquiry. A difference between the receipts in the Profit and Loss Account and those in the TDS certificates does not, by itself, establish any escapement of income.

Learned counsel further submits that the difference is explained by two factors. Tax was deducted at source on the service tax component. Tax was also deducted on retention money withheld by the contract awarders under the contractual terms. That retention money had neither accrued to nor been received by the petitioner during the relevant year. The petitioner has consistently followed the mercantile system of accounting. It has offered the retention money to tax in the (Uploaded on 16/10/2026 at 04:23:46 PM) (Downloaded on 28/10/2026 at 12:45:07 AM) [2026:RJ-JD:48913-DB] (5 of 6) [CW-828/2014] years in which it accrued. No income chargeable to tax has, therefore, escaped assessment. Reopening on such a basis is arbitrary. It also violates Articles 14 and 265 of the Constitution of India.

Lastly, learned counsel submits that the order/letter dated 15.01.2014 is not a speaking order. It was passed without a personal hearing. The petitioner was also given no opportunity to furnish supporting material. This violates the principles of natural justice. It also runs contrary to the procedure laid down by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer1. It is further contended that the Assessing Officer is proceeding with the reassessment without lawful justification. There is a real likelihood of an illegitimate demand being raised against the petitioner.

Per contra, learned counsel for the respondents opposes the petition on the lines of the reply noted above. He argues that the reopening rests on validly recorded reasons to believe that income had escaped assessment. He also argues that the writ petition is not maintainable as an efficacious alternative statutory remedy is available.

We have heard learned counsel for the parties and perused the case file.

At the outset, we may observe that we are in agreement with the arguments of the learned counsel for the petitioner, as above. Our reasons are as follows:

We first take up the objection on maintainability. The availability of an appeal under Sections 246 and 246A of the Act is a rule of discretion. It is not a bar to the jurisdiction of this Court. The petitioner does not question a finding of fact on merits. It questions the very assumption of jurisdiction under Section 147 of the Act. It also 1(2003) 259 ITR 19 (SC), also reported in (2003) 1 SCC 72 (Uploaded on 16/10/2026 at 04:23:46 PM) (Downloaded on 28/10/2026 at 12:45:07 AM) [2026:RJ-JD:48913-DB] (6 of 6) [CW-828/2014] complains of breach of natural justice in the disposal of its objections. Both go to the root of the proceedings. An appeal would lie only after the reassessment is completed. By then, the petitioner would have suffered the very proceedings it says are without jurisdiction. The remedy of appeal is, therefore, not an efficacious remedy in such a situation. The objection is rejected.

The petitioner has specifically contended, as averred in paragraph No. 17 of the writ petition, that the objections raised against the reassessment proceedings were rejected vide order dated 15.01.2014 without affording an opportunity of personal hearing, merely observing that the facts stated in the petitioner’s letter could not be corroborated by the material available on record. However, the respondents, in their reply to paragraph No. 17, have evaded addressing the specific contention regarding denial of an opportunity of personal hearing and the same goes on to show that contents of corresponding para of petition are admitted in the absence of any denial or otherwise giving any response thereto.

In the premise, the impugned notice dated 26.03.2013 and the order/letter dated 15.01.2014 are set aside. The Competent Authority is, however, at liberty to proceed afresh. However, it shall first grant the petitioner an opportunity of being heard in person. Thereafter, if deemed appropriate, a fresh notice may be issued. Further proceedings shall then take place in accordance with law.

All pending applications stand disposed of. (YOGENDRA KUMAR PUROHIT),J (ARUN MONGA),J 63/K.P. Singh Dewasi Powered by TCPDF (www.tcpdf.org) (Uploaded on 16/10/2026 at 04:23:46 PM) (Downloaded on 28/10/2026 at 12:45:07 AM)