Court’s Decision
The Bombay High Court dismissed the writ petition challenging the reassessment order under Section 147 read with Section 144B of the Income Tax Act, 1961, stating that the petitioner had an alternate and efficacious remedy under Chapter XX of the Income Tax Act.
The Court ruled that:
- The petitioner must first exhaust the appellate remedy before approaching the High Court under Article 226 of the Constitution of India.
- The Appellate Authority must consider the appeal without any issue of limitation, if filed within four weeks.
- The ad-interim relief against the tax demand was extended for four weeks to allow the petitioner to seek a stay before the Appellate Authority.
Facts of the Case
1. Original Tax Filing & Scrutiny Assessment
- The petitioner filed an income tax return for Assessment Year 2015-16 on 30 October 2015.
- The return was selected for scrutiny assessment, and a notice under Section 142(1) of the Income Tax Act was issued on 21 June 2017.
- The assessment order under Section 143(3) was passed on 5 October 2017, accepting the return of income without raising specific objections regarding deduction under Section 54F or taxation of rental income.
2. Audit Objection & Reassessment Notice
- After the assessment, the petitioner filed letters with the Assessing Officer (AO) on 17 August 2018 and 27 August 2018, responding to an audit objection about:
- Deduction under Section 54F (exemption on capital gains for reinvestment in house property).
- Taxability of rental income under Section 23 of the Act.
- On 28 March 2021, the petitioner received a notice under Section 148, proposing to reassess income for AY 2015-16.
- On 30 June 2021, the petitioner was supplied with reasons for reopening, which stated:
- Deduction under Section 54F should be restricted to the cost of acquisition.
- No rental income had been offered under Section 23 of the Act.
3. Petitioner’s Objection to Reopening
- The petitioner filed objections on 13 July 2021, arguing that:
- Both issues (Section 54F deduction and rental income) had already been examined during the original assessment.
- The reassessment proceedings were merely a change of opinion, which is not permissible.
- The reopening was initiated solely based on an audit objection, without the Assessing Officer’s independent “reason to believe.”
- The Assessing Officer rejected the objections on 25 March 2022.
4. Reassessment Order & Tax Demand
- On 29 March 2022, an assessment order under Section 147 read with Section 144B was passed, making the following additions:
- Income from house property: ₹46,85,625/-
- Disallowance of deduction under Section 54F: ₹3,86,95,545/-
- Total reassessed income: ₹10,86,36,149/-
- Total tax demand: ₹2,65,22,019/-
- Instead of filing an appeal, the petitioner filed the present writ petition on 27 April 2022, challenging the reassessment order.
5. Interim Relief Granted by the Court
- The High Court granted an ad-interim relief on 20 September 2022, which stayed the reassessment demand.
Issues Before the Court
- Was the reassessment proceedings barred by the first proviso to Section 147, since the notice under Section 148 was issued beyond four years from the end of the relevant assessment year?
- Did the reassessment constitute a mere “change of opinion”, which is not permitted under the law?
- Was the reassessment initiated at the behest of an audit objection, without an independent reason to believe by the Assessing Officer?
- Did the petitioner have an alternate and efficacious remedy by way of an appeal under Chapter XX of the Income Tax Act?
- Did the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2022 (TOLA) extend the four-year limitation period under Section 147?
Court’s Reasoning
- Alternate Remedy Doctrine Applies
- The petitioner had an alternative remedy under Chapter XX of the Income Tax Act.
- The High Court refused to interfere, directing the petitioner to file an appeal before the Appellate Authority.
- TOLA Extended the Limitation Period
- The Court ruled that TOLA extended the four-year period, making the reassessment valid.
- Petitioner Participated in Reassessment Proceedings
- Since the petitioner had fully participated in the reassessment, he could not challenge it in a writ petition.
Conclusion
- Writ petition dismissed due to the availability of an alternative remedy.
- Liberty granted to file an appeal within four weeks.
- Interim relief extended for four weeks.
- No comments on the validity of reassessment; Appellate Authority to decide.
Implications of the Judgment
- Reaffirmation of Alternate Remedy Rule
- The decision reinforces the principle that writ petitions should not be entertained when a statutory appellate remedy exists.
- Taxpayers must first approach the Appellate Authority before seeking relief from the High Court.
- Extended Scope of TOLA in Tax Reassessments
- The ruling clarifies that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2022 (TOLA) extends the time limit for reassessments.
- This strengthens the government’s position in reopening cases beyond the usual four-year period.
- Audit Objections and Reassessment Validity
- The judgment distinguishes between audit objections based on facts and those involving legal issues.
- If an audit objection involves a legal question, reassessment may still be valid, even if triggered by an audit review.
- Reassessment Not Barred Merely Due to Change of Opinion
- The ruling confirms that if an issue was not specifically examined in the original assessment, reopening is valid.
- This sets a precedent for tax authorities to justify reassessments based on new information or a lack of prior scrutiny.
- Encouragement for Taxpayers to Follow Proper Channels
- The judgment sends a strong message that taxpayers should follow the proper appellate process rather than seeking immediate relief from High Courts.
- Taxpayers must ensure that all arguments are raised at the appropriate stage before the Assessing Officer.
- Appellate Authorities Empowered to Review Procedural Lapses
- Since the Appellate Authority was directed to consider all grounds raised by the petitioner, this empowers appellate forums to scrutinize procedural lapses in reassessment orders.
- This could lead to more robust procedural compliance from tax authorities.