Safiya Malik

The Bombay High Court Division Bench comprising Justice M.S. Sonak and Justice Jitendra Jain has dismissed a writ petition challenging reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961. The court held that the petitioner failed to file a timely response to the show cause notice issued under Section 148A(b) and did not annex critical supporting documents to substantiate their claims.

The petitioner, an individual taxpayer, filed their income tax return for the assessment year 2017-18 on August 3, 2017. The return was selected for scrutiny under Section 142(1) of the Income Tax Act, primarily concerning a deduction claim under Section 57. The petitioner was required to submit explanations and supporting documents to establish a nexus between income and expenses claimed under Section 57.

During the original assessment proceedings, the petitioner submitted a response, which referred to supporting documents. However, in the present writ petition, these supporting documents were not annexed. The assessment officer subsequently passed an order under Section 143(3) on December 24, 2019, accepting the returned income. The order did not explicitly reference any details regarding the verification of the petitioner's claims.

On March 16, 2024, the respondent issued a notice under Section 148A(b), instructing the petitioner to file a reply by March 25, 2024. The annexure attached to the notice indicated that an audit had raised objections regarding the deduction under Section 57, stating that there was no documentary evidence or bank statements demonstrating that the expenses incurred were for earning relevant income. The notice relied upon Explanation 1 to Section 148 of the Act, which defines circumstances under which income is deemed to have escaped assessment.

The petitioner failed to file a response within the stipulated timeframe, neither responding by March 25, 2024, nor requesting an extension. Instead, the petitioner submitted an email reply on March 27, 2024, referring to seven supporting attachments. However, none of these attachments were annexed to the present petition.

The court stated, "The petitioner neither sought an extension for filing the response nor submitted any reply by the due date. Even if the petitioner faced difficulties, a formal request for an extension should have been made." The court observed that since the reassessment order was passed based on the petitioner’s failure to provide a timely response, the petitioner could not later claim a grievance regarding the non-consideration of their reply.

The court further noted that the petition lacked necessary annexures, making it difficult to determine whether the issue in question had been previously examined. It observed, "In the absence of the attachments relied upon, this court cannot examine whether the issue for which reopening is sought was indeed examined during the regular assessment proceedings." The court also clarified that discretionary jurisdiction could not be exercised in the absence of foundational facts and relevant documents.

The bench examined whether the audit objection was a sufficient basis for reopening the assessment under the amended provisions of Section 148. It noted that an assessment officer’s decision to reopen the case was grounded in an audit finding that the deduction lacked documentary support.

The court also addressed procedural aspects of the petitioner’s claim. It recorded, "The petitioner should have at least requested an extension if, for any reason, the reply could not be filed by the due date. There seems to be no such request. Even if March 25, 2024, fell on a holiday, the petitioner should have been able to submit the reply the following day." The court observed that the petitioner had the option of electronically submitting the response and did not allege any technical difficulties in doing so.

The petitioner argued that reopening based on an audit objection amounted to a change of opinion, which is not permissible under the Act. The petitioner relied on the following cases:

1. Mira Bhavin Mehta v. Income-tax Officer – Where reassessment was deemed invalid due to a prior query on the same issue.

2. Knight Riders Sports Pvt. Ltd v. Assistant Commissioner of Income Tax – Holding that reassessment post-inquiry constitutes a change of opinion.

3. Dilip Laximan Powar v. Income-tax Officer – Stating that mere audit objections do not justify reopening.

However, the court recorded, "The judgments relied upon do not address the specific issue of whether, post-amendment to Section 148, audit objections can form the basis for reopening." It noted that none of these judgments were cited by the petitioner in their belated response to the show cause notice.

The court also referred to a contrary view taken by the Kerala High Court in Sree Narayana Guru Memorial Educational and Cultural Trust v. ACIT, which upheld reassessment proceedings based on audit objections. It stated, "The Kerala High Court has held that post-amendment, reopening can be based on audit objections even if a query was raised during assessment proceedings."

The bench declined to decide the broader legal issue of whether post-amendment, an audit objection alone is a sufficient basis for reopening an assessment. It stated, "Given the facts in the present case and the petitioner’s failure to provide the entire material on which they allege a change of opinion, we do not deem it appropriate to decide the legal contention." The court stated that its observations were based on the limited record before it and were not intended to be a final determination on the legal question.

Based on the factual and procedural lapses, the court held that:

1. The petitioner’s failure to file a timely response precluded them from challenging the reassessment proceedings at this stage.

2. The absence of supporting documents in the petition made it inappropriate for the court to exercise its extraordinary jurisdiction.

3. The petitioner was granted liberty to challenge the reassessment order before the Appellate Authority.

Accordingly, the petition was dismissed without costs.

Case Title: Sanjay Patel v. The Assistant Commissioner of Income Tax & Ors.

Case Number: Writ Petition (L) No. 31458 of 2024

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

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