Safiya Malik

In a significant judgement, the Bombay High Court has quashed reassessment notices issued under Section 148 of the Income Tax Act, 1961, against the petitioner for assessment years 2013-14 and 2014-15. The court observed that the reopening was unjustified as the issues raised had already been subject to proceedings under Section 263, making the reassessment legally untenable.

The petitioner, engaged in the real estate business, filed income tax returns for the assessment years 2013-14 and 2014-15, declaring total income of Rs.54,91,960/- for the former. The Income Tax Department initially accepted the petitioner’s income tax returns under Section 143(3) of the Act by passing an assessment order on December 31, 2015.

Subsequently, on November 29, 2017, the Commissioner of Income Tax initiated revisional proceedings under Section 263 of the Act, alleging that the petitioner had not disclosed income related to the sale of six flats by M/s. Orchid Builders and Developers, amounting to Rs.2,74,94,950/-. The revisional notice also questioned the treatment of interest payments and rental income that were not reflected in the petitioner’s filings.

The petitioner responded to the show cause notice on March 1, 2018, after which, on March 16, 2018, the Commissioner passed an order under Section 263, setting aside the original assessment. The Commissioner directed the Assessing Officer to conduct a fresh examination and reassessment. In compliance with this directive, the Assessing Officer passed a fresh assessment order on December 14, 2018, under Section 143(3) read with Section 263, assessing the petitioner’s income at Rs.57,06,250/-.

Despite these proceedings, the respondents issued a reassessment notice under Section 148 of the Act on March 25, 2021, to reassess the petitioner’s income for the assessment years 2013-14 and 2014-15. The petitioner challenged the validity of this reassessment, arguing that the issues had already been examined and resolved in the Section 263 proceedings.

The division bench, comprising Justice M. S. Sonak and Justice Jitendra Jain, held that the reassessment sought to reopen an assessment that had already been nullified by the revisional authority under Section 263. The court observed: “The original assessment dated 31 December 2015 was set aside by the PCIT in revisional proceedings under Section 263. Consequently, a fresh assessment was passed on December 14, 2018. Since the assessment sought to be reopened did not exist on the date of recording reasons, the reassessment proceedings are legally untenable.”

The court further held that the issues raised in the reassessment notice had already been addressed in the Section 263 revisional proceedings. It noted: “The grounds forming the basis of reassessment proceedings are identical to those considered in the revisional proceedings under Section 263. Once an assessment has been set aside and a fresh assessment conducted on the same issues, reassessment under Section 147 based on the same grounds is not permissible in law.”

The court also considered the provisions of Section 147 and the requirement that an assessing officer must demonstrate a failure by the assessee to fully and truly disclose all material facts necessary for the assessment. The bench found that the reassessment proceedings did not meet this requirement: “The reasons recorded for reopening the assessment fail to specify any material facts that were not disclosed by the petitioner. Instead, the reopening is premised on records that were already verified in earlier proceedings. This does not satisfy the statutory requirement under the first proviso to Section 147.”

Additionally, the bench examined the reliance placed by the Income Tax Department on the Supreme Court’s decision in Kalyanji Mavji & Co. v. CIT. The High Court clarified that this precedent had been overruled in Indian & Eastern Newspaper Society v. Commissioner of Income Tax, and therefore, it was not applicable in the present case.

The court held that the reassessment proceedings were legally impermissible and issued the following directive:

“The reassessment notices under Section 148 of the Income Tax Act for assessment years 2013-14 and 2014-15, dated March 25, 2021, are quashed and set aside.”

Case Title: Dilip Gangaram Patil v. Additional/Joint/Deputy Assistant Commissioner of Income Tax & Ors.

Case Number: Writ Petition No. 2771 of 2022 & Writ Petition No. 2021 of 2022

Bench: Justice M. S. Sonak and Justice Jitendra Jain

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