RAHUL SINGH LOVELL vs. ASSESSMENT UNIT, INCOME TAX DEPARTMENT & ANR.
What did the High Court hold?
The Delhi High Court disposed of the writ petitions by setting aside the impugned assessment orders, re-assessment orders, notices, and penalty orders. The Court directed the Assessing Officers to pass fresh orders in accordance with the law, providing an opportunity of hearing to the petitioners and conducting an enquiry as stipulated in paragraph 3 of the CBDT Circular dated 16.10.2026. This approach aimed to give effect to the principle of single-point taxation of a firm's income and address the petitioners' grievances in light of the CBDT's clarification. The Court acknowledged that the CBDT's letter substantially resolved the issue and aimed to redress the petitioners' grievances by remanding the matters for fresh consideration.
What were the facts?
The petitioners, partners in professional firms like S. R. Batliboi & Co. LLP, challenged assessment orders where their income was augmented by additional remuneration and discretionary performance rewards. The revenue had already paid tax on these amounts at the firm level. The Assessing Officers relied on Sections 10(2A) Explanation and 28(v) of the Income Tax Act, 1961, while allegedly ignoring the proviso. Multiple such proceedings were initiated across the country. The Delhi High Court, in a prior order dated 01.04.2026, directed the CBDT to issue a clarification on this issue and stayed recovery proceedings.
What were the issues?
1. Whether the Assessing Officer was justified in adding additional remuneration and discretionary performance rewards to the partners' income when the partnership firm had already paid tax on such amounts, despite the proviso to Section 10(2A) Explanation and Section 28(v) of the Income Tax Act, 1961? (Question of law and mixed fact and law) Assessee's Contention: The firm had already paid tax on these amounts, and the Assessing Officer failed to consider the proviso to the relevant sections. Revenue's Contention: The revenue, through the learned Senior Standing Counsel, submitted that the CBDT had issued a clarification on 16.10.2026, which substantially resolved the issue. However, they argued that assessment orders could not be quashed outright without an enquiry as per paragraph 3 of the CBDT letter, proposing remand for fresh orders in light of the circular.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Heard together (5 matters)
Read from the judgment's own cause title. This page is filed under one of them.
Cause title — parties, addresses and appearances
This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
# CNR No. DLHC010145342026 + W.P.(C) 4711/2026 & CM APPL. 23034/2026
SHALINI DAWAR
.....Petitioner
versus
ASSESSMENT UNIT, INCOME TAX DEPARTMENT & ORS.
.....Respondents
# CNR No. DLHC010476812026 + W.P.(C) 14657/2026 & CM APPL. 68573/2026
MRS. INDU DHANDHARIA LR OF MR. PANKAJ
HANDHARIA (DECEASED)
.....Petitioner
versus
ASSISTANT COMMISSIONER OF INCOME TAX .....Respondent
Appearances: For Petitioner/Assessees: Mr. Kamal Sawhney, Mr. Nikhil Agarwal & Mr. Puru Medhaira, Advs.
For Respondents/Department:
Mr. Sunil Agarwal, SSC
CORAM:
HON'BLE MR. JUSTICE DINESH MEHTA
HON'BLE DR. JUSTICE ADITI CHOUDHARY
O R D E R %
2026
On 01.04.2026, we had passed following order in W.P.(C) 4248/2026:
“1. The petitioner, who is a partner in a Firm S. R. Batliboi & Co. LLP (SRB) has approached this Court by invoking its jurisdiction under Article 226 of the Constitution of India, challenging action of the Assessing Officer (AO), who has added in petitioner's income, the amount of additional remuneration and This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
discretionary performance reward recovered by him though the partnership firm has already paid tax on such payments.
While highlighting that the firm had undeniably paid tax on these amounts, learned counsel argued that the AO has simply relied upon Section 10(2A) Explanation and Section 28(v) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act of 1961') while completely ignoring the proviso and its effect.
Learned counsel further submitted that another writ petition being W.P.(C) 3151/2026 (Annexure P-7) on similar issue is pending consideration before this Court, wherein a detailed interim order has been passed.
Having said so, Mr. Kamal Sawhney, learned counsel for the petitioner submitted there are a number of proceedings triggered by the various assessing authorities throughout the country. He added that they are either assessing or reassessing such amounts in the hands of the respective partners in spite of the facts that the firm had offered tax on such amounts.
Having regard to the fact that the issue in hands may have larger implications and bearing on various assessees who are partners in different professional firms, we deem it appropriate to direct the CBDT to issue a clarification in this regard. The firm of the petitioner (SRB), shall move a representation giving out precise facts and relevant provisions in this regard before the Chairman, CBDT within a period of two weeks' from today.
The Chairman CBDT or some officer(s) nominated by him shall examine the issue, whereafter the CBDT shall issue a clarification in accordance with law.
List this case on 18.05.2026. 8. Meanwhile, the recovery proceedings in furtherance of the impugned assessment order dated 06.03.2026 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
shall remain stayed till further order.”
Mr. Sunil Aggarwal, learned Senior Standing Counsel for the respondents, submitted that pursuant to the directions issued by this Court in the above order dated 01.04.2026, in order to give effect to the principle of single-point taxation of a firm’s income, the Central Board of Direct Taxes has issued a letter dated 16.10.2026, whereby requisite/necessary clarifications have been issued, which substantially resolve the issue and redress the petitioners’ grievance. The letter dated 16.10.2026 issued by the Central Board of Direct Taxes is taken on record.
Mr. Kamal Sawhney, learned Counsel for the petitioners, submitted that in light of the above referred letter/Office Memorandum, all the similar assessment orders, re–assessment orders, proceedings and penalty order passed by the Assessing Officers taking the addition of remuneration and discretionary performance reward in the hands of the partners including the ones impugned in the present writ petitions, be quashed and set aside.
To this request of Mr. Sawhney, learned Senior Standing Counsel for the respondents submitted that the assessment orders cannot be quashed out- rightly, unless an enquiry in terms of paragraph no.3 of the letter dated 16.10.2026 is conducted. He argued that in case, this Court deems it apposite to set aside the assessment orders/re-assessment orders, then, the matters be remanded to the Assessing Officers for passing fresh orders in light of the Circular so issued by the Central Board of Direct Taxes.
In view of what has been noted hereinabove, we dispose of the present writ petitions while setting aside the impugned assessment orders/re- assessment orders/notices/penalty orders and direct the Assessing Officers to pass fresh order(s) in accordance with law while providing an opportunity of This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
hearing to the petitioners and conducting an enquiry in terms paragraph no.3 of the Circular dated 16.10.2026 issued by the Central Board of Direct Taxes.
All pending applications also stand disposed of.
DINESH MEHTA, J.
ADITI CHOUDHARY, J. NOVEMBER 2, 2026/kk This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
More judgments on Section 10(2A)
- Dineshbhai Maganbhai Butani, Surat vs Income Tax Officer, Ward 3(3)(1), SuratITA 1131/SRT/2025[2017-18]Status: Disposed7 Sept 2026AY 2017-18
- Anilkumar Bhikhabhai Virani, Bhavnagar vs DCIT, Circle-1, BhavnagarITA 2343/AHD/2025[2011-12]Status: Disposed1 Sept 2026AY 2011-12
- Assistant Commissioner of Income Tax… vs Aditya Singhania, KolkataITA 454/KOL/2026[2018]Status: Disposed1 Sept 2026
- Priya Nishant Sheth, Surat vs N Sairaj, Asst.Director of Income Tax…ITA 532/SRT/2026[2020-21]Status: Disposed25 Jun 2026AY 2020-21
- DCIT-CC-4(2), Mumbai vs Birla Group Holdings Private Limited, MumbaiITA 988/MUM/2026[2019-20]Status: Disposed20 May 2026AY 2019-20
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