Newdelhi: The Supreme Court has allowed the Income Tax Department to reassess the income of businessmen Chetan and Nitin Sabharwal, sons of former Chief Justice of India YK Sabharwal, concerning share transactions that funded their acquisition of a prime property on Delhi's Sikandra Road in 2010.

A bench comprising Justices JB Pardiwala and K Vinod Chandran dismissed four appeals filed by the brothers and upheld the reassessment notices for the assessment years 2008-09 and 2009-10. Justice YK Sabharwal served as the 36th Chief Justice of India from November 2005 to January 2007, following judicial tenures at the Delhi High Court, Bombay High Court, and the Supreme Court.

In its October 28 judgment, the top court ruled that the tax department's notice issued on March 31, 2015, rested on a valid foundation under Sections 147 and 148 of the Income Tax Act, 1961. The bench stated that an investigative report from the director general supplied concrete material enabling the assessing officer to reasonably conclude that taxable income had escaped assessment.

The court clarified that a "reason to believe" signifies cause or justification, meaning the officer was not required to conclusively establish that income had escaped assessment at the initial stage. It added that courts cannot weigh the sufficiency of those reasons and dismissed the contention that asset overvaluation cannot lead to escaped income.

According to the judgment, the potential diversion of income through sale proceeds significantly exceeding the actual value of the shares remains relevant for tax assessment. The bench emphasized that the assessing officer did not merely rely on a vague feeling, noting that identifying the need to investigate transaction authenticity differs from establishing conclusions after an inquiry.

The case stems from October 2007, when the Sabharwal brothers and two additional shareholders agreed to sell shares in Pawan Impex Private Limited and SVIIT Software Private Limited to GYS Real Estate Private Limited for Rs 195 crore and Rs 60 crore respectively, with each seller entitled to a one-fourth share. Chetan Sabharwal's assessment for the 2008-09 period was initially finalized in December 2010 with the declared income accepted.

Subsequent tax department investigations flagged concerns regarding the share valuations, indicating initially that the sale amounts vastly exceeded figures justified by the underlying land and buildings of the companies. Authorities also discovered that a major share of the proceeds funded the purchase of the Sikandra Road property in April 2010, for which the brothers sought capital gains tax exemptions under Section 54F of the Income Tax Act.

With the dismissal of all four appeals, the reassessment notices for the 2008-09 and 2009-10 assessment years remain fully operational, permitting tax officials to thoroughly examine the disputed share transactions and connected financial records.