Whether the department can initiate proceedings under Section 73 when the taxpayer’s explanation in scrutiny proceedings under Section 61 has already been accepted?

No, the Hon’ble Delhi High Court in Kemexel Ecommerce Pvt. Ltd. v. Sales Tax Officer, Ward 105, Delhi [W.P.(C) 16555/2025, decided on 31.10.2025 | 2025 (11) TMI 663 – DELHI HIGH COURT] held that once the taxpayer’s explanation furnished during scrutiny proceedings under Section 61(1) has been accepted, Section 61(2) creates a statutory embargo barring any further action on the same grounds, including issuance of a show-cause notice under Section 73. The petitioner had responded satisfactorily to a scrutiny notice, and the department formally accepted the explanation. However, after several months, a show-cause notice dated 29.05.2024 under Section 73 was issued on the very same issues, culminating in an order dated 28.08.2024. The Court held that such action was impermissible, as “further action” in Section 61(2) includes demand proceedings under Section 73 and cannot be taken once the scrutiny explanation is accepted. It noted that Section 73 does not contain a non-obstante clause overriding Section 61, and allowing reopened scrutiny would defeat the purpose of the statutory scheme. The Court emphasized that the legislative intent behind Section 61 is to ensure finality and certainty in scrutiny proceedings, preventing repetitive or arbitrary reopening of settled issues. Accordingly, both the SCN dated 29.05.2024 and the consequential order dated 28.08.2024 were quashed, and the writ petition was disposed of.

Author’s Comments:
The Delhi High Court has drawn a strict demarcation between scrutiny proceedings under Section 61 and adjudication under Sections 73/74, holding that once an explanation offered during scrutiny is accepted, Section 61(2) bars any further action on the same grounds. While this interpretation advances certainty and finality for taxpayers, it arguably construes Section 61 too expansively. Section 61 is, by design, a limited and preliminary mechanism, intended only to seek clarification of apparent discrepancies in returns. Closure of scrutiny does not partake the character of adjudication nor does it determine tax liability. In contrast, Sections 73 and 74—both opening with the words “where it appears to the proper officer”—confer a wide jurisdiction to initiate proceedings based on any credible material, whether arising from audit (Section 65), inspection/search (Section 67), summons-based inquiry (Section 70), or independent intelligence inputs. Scrutiny under Section 61 is merely one of several gateways leading to adjudication under Chapter XV. In the author’s view, treating the dropping of scrutiny as a permanent bar on subsequent proceedings risks unsettling the integrated statutory framework. The Act does not expressly prohibit initiation of Section 73/74 proceedings merely because scrutiny was earlier concluded. The real test should be whether the subsequent proceedings are founded on fresh, tangible material, and not a mechanical re-examination of the same facts already accepted. That said, the judicial trend cannot be ignored. The Division Bench of the Rajasthan High Court in Goverdhandham Estate Pvt. Ltd. 2024 (1) TMI 1434 – RAJASTHAN HIGH COURT and the Madras High Court in Radiant Cash Management Services Ltd.2024 (3) TMI 961 – Madras High Court have taken a similar view that once scrutiny is closed under Section 61(2), further proceedings on the same issue are impermissible.