Gujarat HC Holds Reassessment Notice Cannot Be Challenged After Assessment Order, Directs Appeal Remedy

The Gujarat High Court on 29 June held that a reassessment notice cannot be challenged through a writ petition after reassessment proceedings have culminated in an assessment order.

A Division Bench comprising Justices A.S. Supehia and Vaibhavi D. Nanavati dismissed the writ petitions filed by Jitendra Shankarlal Mistri and others, holding that the petitioners could avail the statutory remedy of appeal against the reassessment orders before the Commissioner of Income Tax (Appeals). The observed:

“The petitioner wants the assessment order under Section 147 of the Act to be quashed by going back to notice issued under Section 148 of the Act, which is an absurd thinking.”

The petitioners had challenged the reassessment notices issued under Section 148 of the Income Tax Act (which empowers reopening of assessment where income chargeable to tax has escaped assessment), the orders disposing of their objections and the consequential assessment orders passed under Sections 143(3) (scrutiny assessment) read with Sections 147 (reassessment) and 144A (directions issued by higher income tax authorities).

The reassessment proceedings were initiated after the Assessing Officer relied on information relating to alleged cash transactions connected with the Khavda group. The petitioners contended that the extended limitation period under Section 149(1)(b) (which permits reopening where escaped income is likely to amount to Rs.50 lakh or more) was wrongly invoked.

They argued that the alleged escaped income did not exceed Rs.50 lakh and that the Assessing Officer had mechanically aggregated debit and credit entries arising from alleged cash transactions to cross the statutory threshold.

Petitioners argued that the peak outstanding amount was only Rs.11.39 lakh and, therefore, the assumption of jurisdiction for reopening assessment was invalid.

The Revenue opposed the petitions, submitting that the reassessment proceedings had already resulted in assessment orders and that the petitioners had an effective alternative remedy of appeal. It relied on the Supreme Court's decision in Commissioner of Income Tax v. Chhabil Dass Agarwal to contend that writ jurisdiction should not be exercised when a statutory appellate mechanism is available.

Accepting the Revenue's submissions, the High Court held that Section 149(1)(b) permits reopening of assessment where the information available with the Assessing Officer indicates that escaped income “is likely to amount to” Rs.50 lakh or more.

It observed that the actual quantum of escaped income can only be determined after completion of assessment and that the fact that the final assessed income is below the threshold would not invalidate the reopening notice. It noted:

“The amount so determined, on completion of assessment, if is found less than Rs.50 lakhs cannot dilute the notice issued under Section 148 of the Act. The reopening is premised only on information of income chargeable to tax has escaped assessment.”

Further, the Bench held that no exceptional circumstances existed for exercising jurisdiction under Article 226 of the Constitution and that the petitioners had an efficacious statutory remedy.

Accordingly, the High Court dismissed the writ petitions while granting liberty to the petitioners to pursue appeals before the Commissioner of Income Tax (Appeals).

For the Petitioners: Mr. Jaimin A. Gandhi, Advocate

For the Respondents: Mr. Maunil G. Yajnik, Senior Standing Counsel