Reassessment for Bogus ITC Remanded as Subsequent GST Order Closed the Case.

By | November 11, 2025
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Reassessment for Bogus ITC Remanded as Subsequent GST Order Closed the Case.

Issue

Whether an Income Tax reassessment proceeding, initiated under Section 148A based on information from the DGGI alleging bogus Input Tax Credit (ITC), is sustainable after the GST department itself has passed an order “closing” the proceedings for that very same ITC issue.

Facts

  • The Assessing Officer (AO) initiated reassessment proceedings for AY 2019-20 against the assessee.
  • The basis for the reopening was information from the Directorate General of GST Intelligence (DGGI), alleging that the assessee had wrongfully availed ITC without the actual receipt of goods.
  • The AO, after issuing a notice under Section 148A(b), passed an order under Section 148A(d) confirming that it was a fit case for reassessment.
  • After this 148A(d) order was passed, the GST department itself concluded its own proceedings and issued an order stating that the main issue regarding the availment of this specific ITC was “closed.”
  • The assessee filed a writ petition, arguing that this subsequent GST order completely nullifies the “reason to believe” that income had escaped assessment.

Decision

  • The High Court set aside the impugned order passed under Section 148A(d).
  • It held that the subsequent order from the GST department, which closed the primary ITC dispute, would have a direct impact and bearing on the validity of the income tax reassessment.
  • The matter was remanded back to the Assessing Officer for a fresh reconsideration of the entire issue in light of this new, favorable GST order.

Key Takeaways

  • Income Tax Proceedings Cannot Ignore GST Findings: When an income tax reassessment is based solely on an allegation of bogus GST ITC, the findings of the GST department itself are critically relevant.
  • Foundation of “Reason to Believe”: If the foundation of the AO’s “reason to believe” (the DGGI information) is later nullified by a final order from the GST department, the reassessment proceeding cannot continue on that same basis.
  • Reconsideration is Mandatory: The AO is now legally bound to re-examine the case, as the original basis for the 148A(d) order has been fundamentally altered by the order of the other tax authority.
HIGH COURT OF DELHI
Vedanta Ltd.
v.
Assistant Commissioner of Income-tax Delhi*
PRATHIBA M. SINGH and SHAIL JAIN, JJ.
W.P.(C) No. 16378 of 2025
CM APPL Nos. 67135 and 67136 of 2025
NOVEMBER  3, 2025
Divyanshu Agrawal, Vaibhav Niti, Hardik Jain, Rachit Sharma, Advs. and Ms. Pragyan Pradip Sharma, Sr. Adv. for the Petitioner. Ruchir Bhatia, SSC, Anant Mann and Abhishek Anand, Advs. for the Respondent.
ORDER
Prathiba M. Singh, J.- This hearing has been done through hybrid mode.
2. The present petition has been filed by the Petitioner- M/s Vedanta Limited under Article 226 and 227 of the Constitution of India, inter alia, challenging the impugned notice dated 24th March, 2025 issued under Section 148A(1) of the Income Tax Act, 1961 by the Assistant Commissioner of Income Tax Circle 25 (1), Delhi (hereinafter, ‘impugned notice’) and the impugned order dated 23rd June, 2025 passed under Section 148A(3) of the Income Tax Act, 1961 (hereinafter, ‘impugned order’), for the Assessment Year 2019-2020.
3. The case of the Income Tax Department is that, it received certain intelligence from the Directorate General of GST Intelligence, Coimbatore Zonal Unit (hereinafter, ‘DGGI’) in respect of wrongful availment of Input tax credit (hereinafter, ‘ITC’), without actual receipt of goods at the declared place of business of the Petitioner.
4. The background is that the Petitioner entered into a transaction for the sale of copper concentrate during the period when its copper plant at Tuticorin was closed down due to environmental concerns. The said transaction was entered into through four agreements with one M/s Xango Trading (India) Pvt. Ltd., for sale and repurchase of approximately 55,000 MT of Cooper.
5. The sale of copper concentrate vide six invoices is stated to have been recorded in the books of accounts of the Petitioner. The copper plant was then directed to be restored for operation vide order dated 15th December, 2018 passed by the National Green Tribunal. Pursuant to which, the Petitioner repurchased the copper concentrate. In respect of the said transaction the allegation is that ITC of more than Rs. 30 crores has been wrongfully availed by M/s Xango Trading (India) Pvt. Ltd.
6. Consequently, summons are stated to have been issued to M/s Xango Trading (India) Pvt. Ltd. and to M/s Vedanta Limited, pursuant to which an investigation report is stated to have been prepared by DGGI.
7. According to the Income Tax Department, there was bogus ITC amounting to more than Rs. 424 crore which was availed of. On the basis of the investigation report of the DGGI, the Income Tax Department issued the impugned notice dated 24th March, 2025, as to why Rs. 424 crores ought not to be demanded in proceedings under Section 148A(1) of the Income Tax Act, 1961.
8. In respect of the said notice, the Petitioner filed a reply on 16th April, 2025, and thereafter the impugned order has been passed on 23rd June, 2025, on the ground that there is an escape of more than Rs. 424 crores from assessment. The operative portion of the said order reads as under:
“8. In light of the above discussions, the plea of the assessee is not accepted. In this case income likely to escape is Rs. 424,58,16,985/- which is more than Rs.50 lakhs and the same is represented in the form of transaction or entries as mentioned above which shows the income chargeable to tax, which has escaped assessment, amounts to more than fifty lakhs rupees. Thus, the assessee’s case is covered under provision of section 149 (1)(b) of the Income Tax Act, 1961. Accordingly, it is concluded that it is a fit case for issuing notice u/s 148 of the Act for A.Y. 2019-20.
9. Accordingly, after considering the facts of the case, as mentioned above, it is concluded that this is a fit case for issuing notice u/s 148 of the I. T. Act.
10. This order is being passed with prior approval of Joint Commissioner of Income Tax, Range-25 New Delhi.”
9. Ms. Pragyan Pradip Sharma, ld. Sr. Counsel appearing on behalf of the Petitioner, has brought to the notice of the Court order dated 11th July, 2025, passed by the Additional Commissioner, GST and Central Excise, Madurai (hereinafter, ‘GST order’), wherein the main issue in respect of availment of ITC is stated to have been closed by the GST Department. It is the submission of ld. Sr. Counsel for the Petitioner that the entire basis of the impugned notice was the aforesaid transaction, in respect of which proceedings have already been closed by the GST Department, and both the impugned notice and the impugned order are not tenable. Thus, ld. Sr. Counsel for the Petitioner prays that the same be set aside.
10. Further, ld. Sr. Counsel for the Petitioner submits that the language of Section 148A has been changed with effect from 01st September, 2024, in view of the amendments by the Finance Act, 2025. Previously, even for issuance of Section 148A notice, an opportunity of being heard was to be provided. The information was also to be independently examined by the Income Tax Department, and notice could not have been issued to the assessee in a mechanical manner. For the same, reliance is placed upon the decision of the Coordinate Bench of this Court in Divya Capital One Pvt. Ltd. v. Assistant Commissioner Income Tax (Delhi)/[2022] 445 ITR 436 (Delhi), and also other decisions.
11. On the other hand, Mr. Bhatia, ld. SSC for the Respondent, submits that the applicable provision would be Section 148A(1) of the Income Tax Act, 1961, post amendment, which is in effect on the date when the impugned notice was issued in this case. Further, ld. SSC for the Respondent submits that a perusal of paragraph 8 of Divya Capital One Pvt. Ltd. (supra) would itself show that the notice for reassessment could be issued under Section 148A(b) of the Income Tax Act,1961 of the earlier regime, but not under Section 148A(d) of the Income Tax Act,1961.
12. Additionally, ld. SSC for the Respondent submits that the GST order is subsequent to the impugned order, and hence was not within the knowledge of the concerned officer who passed the impugned order under Section 148A(3) of the Income Tax Act,1961.
13. Heard. After hearing ld. Counsels for the parties, it is evident that the present case is governed by the provisions of Section 148A of the Income Tax Act, 1961, as amended and brought into effect from 1st September, 2024.
14. Notably, the impugned order was passed prior to the GST order, and thus, obviously the said order of the GST department, could not have been taken into consideration by the concerned officer.
15. Moreover, the closing of the proceedings by the GST Department would have an impact and bearing on the Section 148A proceedings and, therefore, this Court is of the opinion that the impugned order deserves to be set aside, and the matter deserves to be remanded for reconsideration, in view of the GST order dated 11th July, 2025.
16. Accordingly, the impugned order is set aside. The matter is remanded for being considered afresh, after bearing in mind the GST order dated 11th July 2025.
17. Insofar as the legality and validity the impugned notice is concerned, the submission made on behalf of the Petitioner, that there has to be independent reasoning given by the Income Tax Department and hence the said notice is itself unsustainable, is left open at this stage, for being canvassed at a later stage, if the need so arises.
18. Additionally, the Petitioner may place the GST order before the concerned authority i.e., the Assistant Commissioner of Income Tax Circle 25(1), along with a short note of submissions which it relies upon. Let the same be filed within four weeks.
19. If any clarifications are required, the concerned officer, is at the liberty to call the Petitioner, if the need arises.
20. Let the order under Section 148A(3) of the Income Tax Act, 1961 be passed within a period of three months.
21. Rights and contentions of both parties are left open.
22. A reasoned order shall be passed after considering the submissions which are to be made.
23. Accordingly, the petition is disposed of in these terms.Pending applications, if any, are also disposed of.