Bombay High Court Says Income Tax Assessment Cannot Stand On Quashed Revision Order

The Bombay High Court has ruled that an assessment order cannot survive when the revision order on which it was based has already been quashed by the income tax tribunal.

Justice G.S. Kulkarni and Justice Dr. Neela Gokhale observed that the Assessing Officer could not have proceeded with the assessment after the tribunal had quashed the underlying Section 263 order.

The court also rejected the Revenue's contention that the pending challenge against the tribunal's decision changed this position.

“Merely because the Revenue is in appeal against the order dated 13 September 2021 passed by the Tribunal, whereby the order dated 18 March 2020 passed by the PCIT under Section 263 of the Act was quashed and set aside, would not bring about a situation where, in the absence of any subsisting order under Section 263 of the Act, the Assessing Officer would nonetheless have jurisdiction to proceed to pass the assessment order dated 31 October 2021,” the court observed.

The ruling arose from a case involving The Bombay Dyeing and Manufacturing Co. Ltd. for the 2015-16 assessment year.

The Principal Commissioner of Income Tax had passed an order under Section 263 on March 18, 2020.

Section 263 allows the Principal Commissioner to revise an assessment considered erroneous and prejudicial to the Revenue. The income tax tribunal later quashed that order on September 13, 2021, in an appeal filed by the Department.

Despite this, the Assessing Officer passed an assessment order on October 31, 2021 under Section 143(3) read with Section 263. Section 143(3) governs an assessment after examining the taxpayer's return and relevant material. Bombay Dyeing challenged the assessment before the Commissioner of Income Tax (Appeals), who allowed the appeal and annulled it.

It held that the Assessing Officer ought not to have proceeded with the assessment under Section 143(3) read with Section 263 after the revision order had been quashed.

The Revenue then appealed to the income tax tribunal. The tribunal rejected the Revenue's appeal and found no infirmity in the CIT(A)'s order allowing the company's appeal.

The Revenue subsequently approached the High Court under Section 260A, which permits an appeal to the High Court from an income tax tribunal order where a substantial question of law arises.

It pointed out that its challenge to the tribunal's earlier decision quashing the Section 263 order was already pending before the High Court.

The Revenue argued that the present appeal should therefore be admitted and tagged with that pending matter.

The court rejected the contention.

It held that once the tribunal had quashed the Section 263 order, that order was no longer in existence. The Assessing Officer therefore could not have proceeded to make the assessment under Section 143(3) read with Section 263 on its basis.

The court further held that the pendency of the Revenue's appeal against the tribunal's decision did not alter this position. In the absence of a subsisting Section 263 order, the Assessing Officer had no jurisdiction to proceed with the assessment.

The High Court found that the Revenue's appeal did not raise any substantial question of law under Section 260A. It accordingly dismissed the appeal.

The court, however, clarified that the Revenue's separate challenge to the quashing of the Section 263 order remained open. If the Revenue ultimately succeeds in the appeal, the legal consequences would follow and a fresh assessment order would have to be passed in accordance with law.

For Appellant/Revenue: Advocate Samiksha Kanani

For Respondent/Assessee (Bombay Dyeing): Advocates Madhur Agrawal, instructed by Atul Jasani.