HC Quashes Time-Barred Income Tax Reassessment in case of Huawei Telecommunications; Upholds Special Audit in Tax Dispute:

HC Quashes Time-Barred Income Tax Reassessment in case of Huawei Telecommunications; Upholds Special Audit in Tax Dispute The petitioner, Huawei Telecommunications (India) Company Pvt. Ltd., challenged reassessment notices issued under Section 148 for AY 2013–14 and AY 2015–16, along with a direction for Special Audit under Section 142(2A). The proceedings arose from search and seizure operations conducted by the Income Tax Department, which alleged suppression of income. The petitioner argued that the reassessment for AY 2013–14 was barred by limitation under the amended provisions introduced by the Finance Act, 2021. It also contested the Special Audit direction, claiming absence of the statutory requirement of “complexity” in accounts. The Revenue, on the other hand, justified its actions based on the scale of operations and findings during the search. Issue Before Court: Whether the reassessment proceedings for AY 2013–14, including the issuance of notice under Section 148 and direction for Special Audit under Section 142(2A), were valid in law and within the limitation period prescribed under Section 149 of the Income Tax Act. HC Ruling: The Delhi High Court delivered a split outcome. On reassessment, the Court quashed the notice for AY 2013–14, holding it to be time-barred under the amended statutory framework. However, it upheld the reassessment proceedings for AY 2015–16, observing that the same fell within the permissible limitation period. On the issue of Special Audit, the Court upheld the direction issued by the Assessing Officer. It observed that considering the scale of operations, volume of transactions, and material unearthed during the search, the conclusion regarding complexity of accounts was justified. The Court clarified that a Special Audit is merely a facilitative step to assist the Assessing Officer and does not determine tax liability. Thus, relief was granted only for AY 2013–14, while the challenge to subsequent reassessment and Special Audit was rejected. To Read Full Judgment, Download PDF Given Below