Revenue Cannot Reopen Assessment Over Additions Already Pending In Tax Appeals: Gujarat High Court

The Gujarat High Court on 16 September held that the Revenue cannot reopen an assessment under Section 147 of the Income Tax Act and pursue parallel proceedings where the same additions have already been examined by the CIT(A) on merits and remain subject matter of tax appeals before the High Court.

A Division Bench comprising Justices A.S. Supehia and Vaibhavi D. Nanavati quashed reassessment proceedings initiated against Venus Township (India) LLP, finding that the reassessment sought to replicate the identical additions of Rs. 1.32 crore made in the original assessment under Sections 153A/153C. It observed:

“In the present case, the CIT (Appeals) has decided the validity of the assessment order passed under section 153A/153C of the Act on merits as well as on technical grounds... The additions made by the Assessing Officer in both the orders are identical and are premised on the same alleged violation of the provisions by the assessee.”

The petitioner had originally been subjected to a search under Section 132 on 10 March 2015. Pursuant to the search, an assessment order dated 29 December 2017 was passed under Section 143(3) read with Sections 153A/153C, making various additions aggregating to Rs. 1.32 crore for the relevant assessment year.

Venus Township challenged the assessment before the CIT(A), which considered the matter on both merits and technical grounds. The CIT(A) granted relief in certain cases to the extent of duplication of additions, while the remaining issues were carried before the Income Tax Appellate Tribunal by both Venus Township and the Revenue.

Subsequently, the Tribunal allowed Venus Township's appeals on technical grounds, while the Revenue's appeals were dismissed. The Revenue thereafter filed tax appeals before the High Court, which remained pending.

Meanwhile, the Revenue initiated reassessment proceedings under Section 147. The Section 148A proceedings ultimately culminated in an order holding that income of Rs. 1.32 crore had escaped assessment, followed by a notice under Section 148. During the pendency of the writ proceedings, the Revenue also passed a fresh assessment order under Section 143(3) read with Section 147, making the same additions of Rs. 1.32 crore.

The Court noted that the additions in the original Section 153A/153C assessment and the subsequent Section 147 assessment were identical down to the rupee. For Assessment Year 2014-15, the alleged unaccounted cash payments relating to various parcels of land and other amounts aggregated to Rs. 1,32,10,000 in both assessment proceedings.

The Revenue sought to justify the reopening by relying upon the decision in Krishna Developers & Company, contending that the earlier proceedings had been decided by the Tribunal on technical grounds.

However, the Bench distinguished the factual position in that case, noting that the CIT(A) in the present matter had actually examined the additions on merits as well as on technical grounds.

It further noted that the Revenue itself had challenged the Tribunal's order in pending tax appeals before the High Court. It therefore held that the issue concerning the additions was already before the Court and could not simultaneously be pursued through a fresh assessment proceeding on identical facts. It observed:

“The issue with regard to the additions is being examined by the Coordinate Bench in tax appeals and hence, the Revenue cannot be allowed to undertake parallel assessment proceedings which would have direct bearing on the result of the tax appeals and the assessment order passed under section 153A/153C of the Act, which is premised on the identical facts and alleged violation of the provisions of the Act by the assessee. The Revenue has tried to create a backup, and has attempted to spin the wheels of assessment, to ensure that in either case, the assessee remains engaged in proceedings.”

Accordingly, the High Court quashed and set aside the impugned Section 148 notice and the consequential assessment orders passed under Section 147. It clarified that it had not expressed any opinion on the merits of the underlying additions, which remain subject to consideration in the pending tax appeals.

Counsel for the Petitioner: Tushar Hemani, Senior Advocate with Vaibhavi K. Parikh

Counsel for the Respondent: Varun K. Patel