AO Cannot Reopen Assessment On Same Material To Cure Lapse In Original Proceedings: Gujarat High Court

The Gujarat High Court on 24 February ruled that the Revenue cannot initiate reassessment proceedings under Section 148 of the Income Tax Act based on the same material that was already scrutinised in the original proceedings, which later lapsed due to the Assessing Officer's failure to meet the statutory deadlines.

The Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi held that reopening an assessment in such circumstances is an impermissible attempt to “camouflage” administrative remissness and indirectly extend the period of limitation for finalising an assessment.

The judges opined:

“without diligently finalizing the assessment within limitation, the proceedings were allowed to be lapsed. Hence, the Revenue by reopening the assessment by issuing notice and order under section 148 of the Act has in fact, indirectly attempted to camouflage its remissness of allowing to lapse the earlier assessment proceedings, and consequently, to further extend the limitation for finalizing the assessment.”

The petitioner, Gulbrandsen Private Limited, had filed its return for Assessment Year 2021-22, which was selected for complete scrutiny. This led to the issuance of a Draft Assessment Order in December 2023 proposing variations relating to Transfer Pricing (TP) adjustments and additional depreciation.

Although the petitioner filed objections and expressed its intent to appeal the final order, the Assessing Officer (AO) failed to pass the final assessment order within the mandatory period prescribed under Section 144C(4) of the Act.

Realising that the original proceedings had lapsed, the AO subsequently issued a notice under Section 148 in March 2025 seeking to reopen the assessment based on the very same transactions and amounts flagged during the initial scrutiny.

The Court observed that for reassessment to be valid, there must be “fresh tangible material” suggesting an escapement of income.

The Bench stated that “instead of passing the final assessment order under section 143(3) of the Act and having allowed the proceedings to lapse, the reopening of the assessment on the very same material is impermissible under section 148 of the Act.”

The Court emphasised that the Revenue cannot be allowed to benefit from its own wrong, noting that the AO had the opportunity to take the initial proceedings to their logical end but failed to do so diligently.

The Bench opined that “it is not open for the AO to reopen the assessment under section 147 of the Act on the very same material, which was examined under detailed scrutiny assessment having culminated into a draft assessment order under section 144C of the Act.”

Accordingly, the High Court allowed the petition.

For Petitioner: Senior Advocate, Tushar Hemani with Vaibhavi K Parikh 

For Respondent: Advocate, Rutvij R Patel