Category: In The High Courts: Part B-Unreported Decisions

6. Technoforce Solutions (I) Pvt. Ltd vs. Deputy Commissioner of Income Tax, Circle-1 Nashik & Ors,

[Writ Petition no. 2041 of 2026, dated 1st April 2026 (Bombay HC)] Assessment Year : 2023-24.

Section 170A- modified return of income- Assessment – Limitation – restricted to the modified return of income or to give effect to the Order of amalgamation and not seek to re-open the entire assessment:

The Petitioner filed its return of income for A.Y. 2023-24 on 27.11.2023 declaring a total income of Rs.5,32,85,870/-. An intimation under Section 143(1) was issued on 05.12.2023 without making any adjustment to the income declared. The Petitioner had filed an application before the NCLT on 28.12.2021 for amalgamating its wholly owned subsidiary company, M/s. Promatics Solutions (I) Pvt. Ltd., for which the Appointed Date was fixed as 01.04.2021. The NCLT, by order dated 05.07.2024, approved the amalgamation of M/s. Promatics Solutions (I) Pvt. Ltd. with the Petitioner w.e.f. 01.04.2021.Thereafter, the Petitioner filed a modified return of income under Section 170A of the Act for A.Y. 2023-24, on 23.01.2025 on the Income-tax Portal, declaring total income of Rs.5,26,82,860/. The assessment for A.Y. 2023-24 became time barred on 31.03.2025 in terms of the fourth proviso to Section 153(1) of the Act. Subsequently, in response to the modified return Respondent No.3 issued a Notice under Section 143(2) for A.Y. 2023-24 on 23.06.2025. The Petitioner filed a reply to the aforesaid Notice on 07.07.2025 and stated that the reply was without prejudice to the contention that the Notice was barred by limitation. In this reply it was explained that the effect of Amalgamation is reduction of income of the Petitioner by a sum of Rs. 6,01,077/-, being the interest charged by the Petitioner to M/s. Promatics Solutions (I) Pvt. Ltd. on its loan amount. The Petitioner received a Notice u/s. 142(1) on 21.01.2026 for A.Y. 2023-24.

The Petitioner filed the present Petition seeking quashing of the Notice under Section 143(2) dated 23.06.2025 and Notice under Section 142(1) dated 21.01.2026 on the ground that both the Notices are issued after the assessment of the Petitioner’s income for A.Y. 2023-24 has become time barred on 31.03.2025 and therefore, both Notices are bad in law and without jurisdiction. Secondly, the notice under Section 143(2) of the Act cannot be issued after a period of three months from the end of the assessment year, , after 30.06.2024.

According to the Petitioner, with effect from 01.04.2022, Section 170A has been introduced in the Act by the Finance Act 2022. The said Section, as amended by the Finance Act 2023 with effect from 01.04. 2023, deals with the effect of business reorganisation. Sub-Section (1) of Section 170A of the Act mandates that where prior to the date of the order in respect of business reorganisation, if an assessee has furnished its return of income for any assessment year relevant to the previous year to which such order applies, the successor shall furnish within a period of six months from the end of the month in which the order was issued, a modified return in such form and manner as may be prescribed. As per sub-Section (2) of Section 170A of the Act, in so far as it is relevant for the present purpose, where the assessment proceedings for an assessment year, relevant to a previous year to which the order in respect of reorganisation applies, are completed on the date of furnishing of the modified return, the assessing officer is required to pass an order modifying the total income of the relevant assessment year in accordance with the order of the business reorganisation, and taking into account the modified return so furnished.

The Hon’ble Court observed that, in the present case, the original return of income filed under Section 139(1) on 27.11.2023 for A.Y. 2023-24, had been accepted under Section 143(1) of the Act by issuance of the intimation dated 05.12.2023. Thereafter, no notice under Section 143(2) of the Act had been issued on or before 30.06.2024, as prescribed under the proviso to Section 143(2) of the Act. Therefore, the assessment proceedings stood completed and were not pending at the time of filing of the modified return of income on 23.01.2025. Accordingly, as per Section 170A(2)(a) of the Act, Respondent No.3 was under an obligation to pass an order modifying the total income of A.Y. 2023-24, as determined under the intimation issued under Section 143(1), in accordance with the order of amalgamation passed by the NCLT on 05.07.2024 and after taking into account the modified return furnished by the petitioner.

The Petitioner contended that the impugned notice dated 23.06.2025 issued under Section 143(2) of the Act and thereafter the notice dated 21.01.2026 issued under Section 142(1), called for accounts, documents, and information unrelated to the order of reorganization. According to the petitioner, no inquiry was being conducted regarding giving effect to the amalgamation order of the NCLT, which was the sole reason for filing the modified return of income under Section 170A(1) of the Act. It was further contended that, since the assessment for the assessment for A.Y. 2023-24 stood completed on the date of filing the modified return, clause (a) of sub-Section (2) of Section 170A specifically required the Assessing Officer to pass an order modifying the total income determined under Section 143(1) in accordance with the amalgamation order dated 05.07.2024 and after taking into account the modified return of income furnished on 23.01.2025. The petitioner further submitted that both the aforesaid notices lacked jurisdiction. The notice under Section 143(2) could not have been issued after 30.06.2024 in view of the proviso to Section 143(2), and since the assessment for A.Y. 2023-24 could not be completed after 31.03.2025 in terms of the fourth proviso to Section 153(1) of the Act, there was no pending assessment proceeding in relation to which any inquiry could be conducted. Consequently, the notice issued under section 142(1) of the Act also could not survive.

The Respondents contended that the present writ petition was liable to be dismissed since it challenged notices issued for completing the assessment in respect of the modified return of income filed by the Petitioner on 23.01.2025 and, therefore, the challenge was premature. It was submitted that the Petitioner had proceeded on an erroneous assumption that filing of a modified return under Section 170A of the Act does not permit fresh assessment proceedings. According to the respondents, section 170A had been introduced to enable the Assessing Officer to correctly assess the total income in cases of business reorganisation approved by a Court or Tribunal after the return of income for the relevant assessment year had already been filed. The learned Counsel for the Respondents further submitted that a return of income filed under Section 170A was also required to be verified by using the machinery provisions under the Act, and therefore, the interpretation suggested by the Petitioner would render Section 170A unworkable. It was further contended that the notice under Section 142(1) of the Act could not be faulted merely because it sought information beyond the amalgamation order passed by the NCLT. The respondents also submitted that issuance of notices under Sections 143(2) and 142(1) did not amount to a “back door reassessment”. According to them, the respondents had acted strictly within the framework of the Act and had not exceeded their jurisdiction.

In rejoinder, the learned Counsel appearing for the Petitioner submitted that the modified return of income filed under Section 170A was required to be dealt with strictly in accordance with sub-section (2) thereof.. It was further submitted that the notices had been challenged on the ground of limitation and lack of jurisdiction According to the petitioner, the notice under Section 143(2) for A.Y. 2023-24 could not have been issued after 30th June 2024 in view of the proviso to Section 143(2) of the Act. Further, since the assessment for A.Y. 2023-24 was required to be completed on or before 31.03.2025, no notice under Section 142(1) could thereafter be issued to scrutinise the modified return filed under Section 170A. Consequently, both notices are without jurisdiction and liable to be quashed. The petitioner further submitted that clause (a) of sub-Section (2) of Section 170A specifically provides that where the assessment stands completed on the date of filing the modified return, the Assessing Officer is only required to pass an order modifying the total income already determined so as to give effect to the order of business reorganisation passed by the Tribunal or the Court. On the other hand, where the assessment is pending on the date of filing the modified return, in such circumstances the Assessing Officer shall pass an order assessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. Accordingly, it was argued that section 170A constitutes a complete code in itself. In the present case, since the assessment stood completed on the date of filing of the modified return, the Assessing Officer could not seek information beyond the scope of the amalgamation order as contemplated under clause (a) of sub-Section (2) of Section 170A. In support of the aforesaid submissions, reliance was placed upon the decision of this Court in the case of Bajaj Electricals Limited v. Assistant Commissioner of Income-tax, Circle-2(1)(1), Mumbai [Writ Petition (L) No. 40696 of 2025 decided on 9th February 2026]. It was further submitted that the Assessing Officer were permitted to scrutinise the modified return in the same manner as an original assessment, even in cases where the assessment had already stood completed on the date of filing the modified return, then no distinction would survive between cases falling under clause (a) and those covered under clause (b) of sub-Section (2) of Section 170A of the Act.

Section 170A comes into operation, where, prior to the date of the order in respect of business reorganisation, the assessee has furnished a return of income for any assessment year relevant to the previous year to which such order applies. The consequence of the application of Section 170A is that, under sub-Section (1) thereof, the successor is obligated to furnish a modified return of income, in the prescribed manner and limited to the order of business reorganisation, within six months from the end of the month in which such order was passed.

In the present case, the Petitioner had filed its original return of income for the A.Y.2023-24 on 23.11.2023. The scheme of amalgamation of M/s. Promatics Solutions (I) Private Limited with the Petitioner was approved by the NCLT on 05.07.2024.. Therefore, the Section 170A(1) of the Act squarely applied to the petitioner’s case, pursuant to which the Petitioner filed the modified return of income on 23.01.2025.

Section 170A(2) of the Act makes a clear distinction between two scenarios, clause (a) applies where the assessment stood completed on the date of furnishing of the modified return of income, whereas clause (b) applies where the assessment was pending on the date of furnishing of the modified return of income. In cases falling under clause (a), the assessing officer is required to pass an order modifying the total income already determined in the completed assessment, in accordance with the order of reorganization and considering the modified return. In contrast, clause (b), which deals with pending assessment, contemplates passing of an order assessing or reassessing the total income in accordance with the order of reorganization and after taking into account the modified return. According to the Hon’ble Court, the distinction between clauses (a) and (b) of sub-Section (2) of Section 170A of the Act is clear and deliberate. Clause (a) only provides for modification of the assessed income to give effect to the order of reorganisation while considering the modified return of income. There is no scope under clause(a) for issuance of notices under Sections 143(2) and 142(1) for making a de novo assessment.

An assessment which is already stands completed can only be modified under Section 170A(2)(a) by taking into consideration the modified return and giving effect to the order of amalgamation. For this limited purpose, information can be called for by the Assessing Officer by invoking the relevant provisions of the Act.

On the other hand, Section 170A(2)(b) contemplates passing of an Order of assessment or re-assessment, which necessarily requires issuance of notices under the Act for determination of the total income of the assessee.

In the present case, since the Petitioner’s fell under Clause (a) of sub-Section (2) of Section 170A, the impugned notice dated 23rd June, 2025 and 21st January, 2026 issued under Sections 143(2) and 142(1) were held to be unsustainable. The Court observed that the notices were not confined to the modified return of income or to giving effect to the amalgamation order, but instead sought to re-open the entire assessment of the Petitioner for Assessment Year 2023-2024. In these circumstances, the impugned notices, as well as the consequential assessment order passed under Section 143(3), read with Section 144B, were held to be unsustainable and were accordingly quashed and set aside.

Respondent No.3 was directed to pass a fresh order modifying the total income determined pursuant to the intimation issued under Section 143(1) dated 5th December, 2023 and to give effect to the modified return filed on 23rd January, 2025.

BCAJ Admin

5. Skypak Travels Private Limited vs. Income-Tax Officer Ward- 2(3)(1) and Ors.

[Writ Petition no. 5456 of 2024, Order dated 24th April 2026 (Bombay HC)] Assessment Year 2018-19.

Sec 148 – Reassessment – beyond a period of three years – Approval – the specified authority was the authority contemplated by Section 151(ii), and not in Section 151(i) – Defect not a mere procedural irregularity – Approval by a wrong authority – Proviso to Section 151 cannot be read retrospectively

The Petitioner is a company incorporated in India. The Petitioner had not been engaged in any active business for several years and had not filed its Return of Income for the relevant period. It was the specifically contended by the Petitioner that, at the relevant time, it did not even have an account on the income-tax e-filing portal, and such account came to be opened only on 16 October, 2024 after the Petitioner became aware of the reassessment and penalty proceedings.

For Assessment Year 2018-19, a notice dated 23 March 2022 was issued under Section 148A(b) of the Act alleging that information had been flagged on the portal in accordance with the risk management strategy and that the Petitioner had sold immovable property valued at Rs.2,29,23,500/- without filing any return of income. The Petitioner contended that the said notice was never served either physically or electronically. Thereafter, an order dated 06 April 2022 was passed under Section 148A(d) of the Act, followed by issuance of notice dated 07 April 2022 under Section 148 of the Act. According to the petitioner, these were also never served. The Petitioner further contended that both the said notice and the order themselves recorded that approval had been obtained from the Principal Commissioner of Income Tax. Subsequently, the reassessment proceedings were carried forward by issuance of notices under Section 142(1) and Show cause notices alleging that the Petitioner had sold immovable property and proposing to add Rs.2,29,23,500/- under Section 50C of the Act.

The Petitioner contended that none of the aforesaid notices had ever been served upon it. In fact, the reassessment order itself records that the notice sent by speed post had been returned with the remark “Left”, and that the Inspector deputed for service had reported that the address of the Assessee was inaccurate and that no company in the name of the Petitioner existed at the stated address in Raja Bahadur Compound. The Petitioner contended that, despite this, the Department continued to proceed on the basis of incorrect address. On 26 March 2024, Respondent No.1 passed an order under section 147 read with Section 144 of the Act, treating Rs.2,29,23,500/- as short-term capital gains under Section 50C and raising a tax demand of Rs.1,79,72,560/-. Thereafter, by orders dated 23 September 2024, penalty under Section 270A amounting of Rs.1,51,58,394/- and penalty under Section 272A(1)(d) amounting of Rs.50,000/- were levied.

According to the Petitioner, it became aware of these proceedings only when the assessment order and penalty orders were received by its director on 10 October 2024. Thereafter, an e-filing account was created on 16 October 2024, upon which the Petitioner downloaded various notices and orders.

The Petitioner submitted that the impugned notice under Section 148 and the order under Section 148A(d) are wholly without jurisdiction since they had been issued after expiry of three years from the end of Assessment Year 2018-19, whereas the approval admittedly been granted by the Principal Commissioner of Income Tax. According to the petitioner, in such a case, the competent specified authority under Section 151(ii), as it then stood, ought to have been the Principal Chief Commissioner / Principal Director General or, in their absence, the Chief Commissioner / Director General, and not the Principal Commissioner. Reliance was placed upon the decision in Vodafone Idea Limited vs. Deputy Commissioner of Income Tax in Writ Petition No. 2768 of 2022 decided on 06 February 2024, wherein the Court, in an identical case, held that where the notice under Section 148 and order under Section 148A(d) had been issued beyond three years from the end of the relevant assessment year, sanction granted by the Principal Commissioner was invalid and the sanctioning authority ought to have been the authority specified under Section 151(ii). The petitioner also relied upon Kpmg Llp vs. Assistant Commissioner of Income Tax, International Tax Circle 2(1)(2), Delhi & Ors., Writ Petition (ST) No. 5390 of 2024 decided on 21 February 2024, wherein, following Vodafone Idea Limited (supra), the Court quashed the order under Section 148A(d) and notice under Section 148 on the ground that the sanction was accorded by the Principal Commissioner even though the matter pertained to Assessment Year 2018-19 and the impugned action had been taken beyond three years. It was further pointed out that the Special Leave Petition preferred against the said decision in KPMG (supra) had also been dismissed by the Hon’ble Supreme Court.

The importance of prior approval under Section 151 was emphasized by the Supreme Court in Union of India & Ors. vs. Rajeev Bansal [(2024) 469 ITR 46 (SC)], wherein it was held that Section 151 imposes an important check on the power of the Revenue to reopen assessments and that grant of sanction by the appropriate authority is a pre-condition for assumption of jurisdiction under Section 148. Non-compliance with the statutory requirement as to sanction goes to the root of the matter and renders the entire proceedings void.

The Hon’ble Court observed that, as Section 151 stood at the relevant point of time, where more than three years had elapsed from the end of the relevant assessment year, the specified authority was the authority contemplated under Section 151(ii), and not the authority mentioned in Section 151(i). The period of three years was required to be computed from the end of the relevant assessment year. In the present case, the impugned order and notice themselves indicated that approval had been granted by the Principal Commissioner of Income Tax. This fact was also admitted in the Reply Affidavit. He was not the competent authority in law for a case falling beyond the three-year period from the end of the relevant assessment year.

The Hon’ble Court observed that the issue was squarely covered by the decision of this Court in Vodafone Idea Limited vs. Deputy Commissioner of Income Tax decided on 06 February 2024. In that case also, for Assessment Year 2018-19, the notice under Section 148 and the order under Section 148A(d) had been issued beyond three years, and sanction had been accorded by the Principal Commissioner. Incidentally, the notice in the said case was also dated 07 April 2022. The Court held that the sanctioning authority ought to have been the Principal Chief Commissioner as contemplated under Section 151(ii) and that the proviso to Section 151, inserted only with effect from 01 April 2023, would not apply.

The same view was reiterated by the High Court in Kpmg Llp vs. Assistant Commissioner of Income Tax, International Tax Circle 2(1)(2), Delhi & Ors. decided on 21 February 2024. In that case as well,, the Court held that since the impugned notice and order for Assessment Year 2018-19 were issued beyond three years, sanction granted by the Principal Commissioner was invalid and the matter was governed by Section 151(ii). The Court specifically observed that the proviso to Section 151 had been inserted only with effect from 01 April 2023 and, therefore, had no application to the facts of that case. The Special Leave Petition against the said decision was also dismissed in SLP(C) Diary No. 23377/2025.

The Hon’ble Court further noted that Hon’ble Supreme Court in case of Rajeev Bansal had clearly explained the importance of sanction under Section 151 and held that grant of sanction by the appropriate authority is a pre-condition for the Assessing Officer to assume jurisdiction under Section 148. Section 151 is not an empty formality; rather it is statutory safeguard and check against arbitrary reopening. Non-compliance with the said requirement goes to the root of jurisdiction itself.

According to the Hon’ble Court, the defect in the present case was not a mere procedural irregularity. It was a case where approval had been granted by an incompetent authority. Consequently, the assumption of jurisdiction itself was invalid.

The Hon’ble Court further observed that the fifth and sixth proviso (erstwhile third and fourth provisos) to Section 149(1) were not applicable for the purposes of Section 151 of the Act. The provisos themselves make it clear that they are only for the purposes of computation of period of limitation under Section 149 of the Act. It was this reason that a special proviso had subsequently been inserted in Section 151 of the Act.

Further, the proviso inserted to Section 151 cannot be treated as retrospective. The Legislature had specifically inserted the proviso with effect from 01 April 2023. Had the Legislature intended
retrospective operation, it could have said so expressly. In the absence of such indication, and particularly since the provision relates to jurisdiction, it cannot be construed so as to retrospectively validate an action which was without jurisdiction when originally taken.

The Court also noted that the proviso to Section 151 refers to four provisos to Section 149(1). Two of those provisos i.e., third and fourth proviso to Section 149(1) were inserted with effect from 01 April 2023. The original third and fourth provisos were made fifth and sixth provisos. There is no case made out or even argued that even third and fourth proviso to Section 149(1) are retrospective in nature. Once, the third and fourth proviso to Section 149(1) are undisputedly prospective and effective from 01.04.2023, then the proviso to Section 151 which was inserted at the same time, and which makes a reference to such provisos cannot be held to be retrospective. Thus, it was observed that the proviso to Section 151 cannot be read retrospectively so as to govern notices and orders issued in April 2022.

The objection raised by the Revenue regarding availability of an alternate remedy was rejected. Consequently, the impugned order passed under Section 148A(d) dated 06 April 2022, the impugned notice issued under Section 148 dated 07 April 2022, the assessment order dated 26 March 2024 passed under section 147 read with Section 144, the notice of demand issued pursuant thereto, and the penalty orders dated 23 September 2024 under Sections 270A and 272A(1)(d), being consequential to proceedings initiated without jurisdiction, were quashed and set aside.

BCAJ Admin

4. Wrode and Wire Pvt Ltd vs. National Faceless Assessment Centre (formerly known as National E-Assessment Centre) & Ors

[Writ petition no. 3533 of 2022, dated April 24, 2026 (Bombay HC)] Assessment Year 2018-19

Section 143(3), rws 144B – Faceless Assessment – Show Cause notice not granting sufficient time to reply – Violation of principles of natural justice – Standard Operating Procedure dated 03.08.2022 :

The Petitioner had filed its return of income declaring a total income of Rs.6,19,860/- for the relevant Assessment Year 2018-19. The case of the Petitioner was selected for scrutiny through issuance of notice under Section 143(2) of the Act. The Respondents issued several notices, and the Petitioner duly filed various submissions/explanations along with the relevant documentary evidence. A direction was also issued for conducting special audit under Section 142(2A) of the Act, and the special audit report was submitted to Respondent No. 1.

Thereafter, the Petitioner received a Show Cause Notice cum Draft Assessment Order dated 06.01.2022 (Thursday), calling upon the Petitioner to show cause as to why the assessment should not be completed in terms of the Draft Assessment Order, where the Assessing Officer proposed an addition of Rs. 116,38,23,790/. The said notice was digitally issued and signed at around 07:06 p.m., and the Petitioner was required to comply with the same by 23:59 hours of 09.01.2022 (which was a Sunday). On 08.01.2022, the Petitioner sought an adjournment and requested extension of time upto 23.01.2022. However, Respondent No.1 directly passed the impugned assessment order under Section 143(3), read with Section 144B, on 12.01.2022, whereby an addition of Rs. 65,68,23,520/- was made and a Demand of Rs. 70,85,60,500/- was raised.

The Petitioner, challenged the said Assessment Order by the way of the Writ Petition and contended that, under the Show Cause Notice dated 06.01.2022, proposing an addition of Rs. 116,38,23,790/-, the time granted to the Petitioner was merely 2.5 days, which included Saturday and Sunday. It was submitted that the Assessment proceedings were conducted in a high pitched and hurried manner. According to the petitioner, the period of merely 2.5 days was wholly insufficient and resulted in violation of the principles of natural justice, which require sufficient, adequate, and reasonable opportunity of being heard to the assessee. The petitioner further contended that paragraph 1.3 of the Standard Operating Procedure dated 03.08.2022 issued by the National Faceless Assessment Centre itself directed the assessment units to grant at least seven days’ time to assessees for responding to show-cause notices.

It was also contended that, despite the Petitioner having filed an adjournment request on 08.01.2022, no communication regarding acceptance or rejection of such request was ever made to the Petitioner, and the impugned assessment order was directly passed on 12.01.2022. Further, no opportunity for personal hearing was granted to the petitioner. It was submitted that the draft Assessment Order violated the provisions of Section 144B(7)(vii), as they stood at that relevant point of time.

The petitioner additionally contended that, in the final Assessment Order dated 12.01.2022, a separate disallowance of Rs. 7,46,488/- in respect of travelling expenses had been made; although no such disallowance had ever been proposed in the Draft Assessment Order. Thus, an addition had been made directly in the final Assessment Order without issuance of any Show Cause Notice in respect thereof. According to the petitioner, the assessment proceedings had been completed in a high-pitched manner and in undue haste.

The learned counsel appearing on behalf of the Respondents supported the contentions of Respondent No.1 as set out in the impugned Final Assessment Order and relied upon the Affidavit in Reply dated 04.05.2022 as well as an Additional Affidavit in Reply dated July, 2022. It was also contended that the Petitioner ought to be directed to avail the alternate remedy available under the statute.

The Hon’ble Court held that it would not be appropriate to relegate the Petitioner to avail to the alternate remedy of appeal under the statute when there had been a breach of the principles of natural justice on the part of Respondent No.1. According to the Hon’ble Court, the matter was a fit case to interfere in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India.

Accordingly, the Hon’ble Court held quashed and set aside the final Assessment Order dated 12.01.2022 passed under Section 143(3), read with Section 144B of the Act, along with all consequential notices. The matter was remanded to the Jurisdictional Assessing Officer for fresh consideration from the stage of issuance of the Draft Assessment Order dated 06.01.2022 and for passing such order as may deemed fit in accordance with law, after affording the Petitioner an opportunity to respond to the Draft Assessment Order and also granting a personal hearing.

BCAJ Admin

6. Pr. Commissioner of Income Tax- 2, Thane vs. Pacific Organics Pvt. Ltd., [ITXA No. 58 OF 2020, Dated: 29/04/2025 (Bom) (HC)]

Section 271(1)(c) : Penalty – Notice must be precise and there should be no room for ambiguity – Veena Estate (P.) Ltd. (Bom) distinguished.

The ITAT held that the penalty show cause notice was ambiguous, as the relevant portions were not ticked, or the irrelevant portions were not struck off.

The Hon. Court referred to the Full Bench decision, in the case of Mohd. Farhan A. Shaikh vs. Deputy Commissioner of Income Tax, Central Circle 1, Belgaum [2021] 125 taxmann.com 253 (Bombay), wherein it was held that if the notice contains no caveat that the inapplicable portion was to be deleted, any action based on such notice would be inferred. The Full Bench held that the notice must be precise and there should be no room for ambiguity.

The tax department relied upon Veena Estate (P.) Ltd. vs. Commissioner of Income-tax [2024] 158 taxmann.com 341 (Bombay) wherein, the Appellant-Assessee, who had never raised any ground about the ambiguity of the notice before the Assessing Officer, Appellate Authority and ITAT, attempted to raise such a ground for the first time in an Appeal under Section 260-A of the Income Tax Act, 1961. This was not allowed by the coordinate bench.

The Hon. Court observed that such facts do not exists in the present Appeal, and therefore, the decision in Veena Estate (P.) Ltd. (Supra) was distinguishable. The ITAT had rightly followed the Full Bench in the case of Mohd. Farhan A. Shaikh (supra).

The Appeal was accordingly dismissed.

BCAJ Admin

5. M/s. Mahindra & Mahindra Ltd. vs. CIT

City – II, Mumbai

[ITXA No. 416 OF 2003, Dated: 2^nd May, 2025 (Bom)(HC)][AY 1990-91]

Section 37 : Disallowing write-off of the deposits and interest – the business loss incurred by the appellant company u/s 28 of the Act in the course of its business – commercial expediency:

Section 115J : The provision does not contain any reference to concept of ‘above the line’ or ‘below the line’:

The appeal pertains to Assessment Year 1990-91. Facts are that the assessee is a public limited company and is engaged in the manufacture of Jeeps, Tractors, Implements and other products. The assessee filed the return of income for the period from 1^st April, 1989 to 31^st March, 1990 (Assessment Year 1990-91). The Assessing Officer, by an order of assessment dated 26^th March, 1993, inter alia; held that the assessee had placed deposits with certain concerns, who have declined to pay the deposits and interest on the ground that the deposits are linked to the amounts provided to M/s. Machinery Manufacturers Corporation Ltd. (MMC) by them, which have now become irrecoverable as MMC was directed to be wound-up by the Bombay High Court by an order passed on 16^th April, 1989. It was further held that amount of deposit and interest due to the assessee has been adjusted by various concerns against loan given by them to MMC. Therefore, the assessee cannot claim to have not recovered its dues. It was also held that the assessee had liquidated the liability of MMC which act is for consideration other than business. The Assessing Officer, therefore, disallowed a sum of ₹49,18,786/- claimed under the head miscellaneous expenses as well as a sum of ₹200.47 lac claimed by the assessee on account of deduction of write-off of deposits and interest.

On appeal, the CIT(Appeals) held that the assessee did not incur the expenditure to carry on the business and the business of the MMC was not the business carried out by the assessee. Therefore, the expenses incurred by the assessee are not admissible under Section 37(1) of the 1961 Act. The CIT (Appeals), while computing the book profit under Section 115J of the 1961 Act, held that the provision for warranties made by the assessee cannot be allowed.

The Tribunal, by an order dated 25^th February, 2003 confirmed the disallowance in view of the order passed by the Tribunal in assessee’s own case being ITA No.6886/Bom/92 for the Assessment year 1989-90. The Tribunal further held that the provision for warranties made by the assessee on the estimated basis in view of the past experience cannot be termed as an ascertained liability. It was also held that a provision for past services liability in respect of retirement gratuity has to be added back. It was also held that the amount was debited in the profit and loss account below the line and hence, it cannot be said that the profit and loss account was prepared as per Part II and III of Schedule VI to the Companies Act and cannot be disturbed.

The Hon. High Court referred to the decision of Hon. Supreme Court, in CIT vs. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC) wherein the court examined the question, whether an expenditure incurred on account of commercial expediency is admissible as deduction under Section 37 of the 1961 Act. The Supreme Court held that the expenditure incurred was a deductible expenditure.

The Court observed that the claim of the assessee for the expenditure of 42.89 lac and the deduction of write-off ₹622.01 lac being the amount lent to MMC including interest due and advances for purchase of machinery given in the course of dealing with MMC was disallowed by the authorities under the Act for the preceding year i.e. the year 1989-90. The assessee filed an appeal viz. ITXA No.626 of 2002 which was decided by a Division Bench of Bombay High Court vide order dated 9^th June, 2023 in Mahindra & Mahindra Ltd. vs. Commissioner of Income Tax.

It was observed that the revenue, while negating the claim of the assessee for allowing the expenses, has relied upon the order passed by it in ITA No.6886/Bom/92 for the Assessment Year 1989-90. The aforesaid order passed by the Tribunal was set aside by a Division Bench of Bombay High Court in Mahindra & Mahindra Ltd. vs. Commissioner of Income Tax (order dated 9^th June, 2023). The order passed by the Division Bench of the Bombay High Court has been accepted by the revenue and it has not filed any SLP against the judgment of the Division Bench.

The Hon. Court agreed with the view taken by Division Bench of this Court in assessee’s own case in Mahindra & Mahindra Ltd. vs. Commissioner of Income Tax (order dated 9^th June, 2023) for the following reasons. Admittedly, MMC is a subsidiary of the assessee and assessee held 27% equity capital of MMC since its incorporation. The assessee promoted MMC on 15^th May, 1946. From the date of incorporation of the assessee, it was the managing agent of MMC and the assessee has acted as a managing agent till 1974 when the Companies Act, 1974 abolished the Managing Agency System. However, due to severe recession in the textile industry, MMC started making losses. Thereupon, the MMC was wound-up. The assessee, in its board meeting held on 27^th March, 1989 agreed to incur expenditure for maintenance of MMC. Thereafter, on 10^th July, 1990, the Board of Directors of the assessee agreed to resolve the dispute to meet the expenditure till the affairs of MMC were wound-up. The Board of Directors approved the expenditure of ₹49,19,000/- (Rupees Forty-nine lac nineteen thousand only) made by the assessee in the previous year relevant to Assessment Year 1990-91. The assessee held substantial portion of equity capital of MMC and MMC was regarded in public and official circles as a Mahindra Company. The assessee, in order to protect and preserve the assets and to protect the value of goodwill attached to the assessee by various sections of the society and on the ground of commercial expediency, incurred expenditure, which is permissible as deduction.

The contention urged on behalf of the revenue in opposition to the aforesaid claim had already been dealt with by a Division Bench of the Bombay High Court. Therefore, even otherwise, the assessee is entitled to deduction of the sum of ₹49,18,786/- as well as a sum of ₹200.47 lac.

As far as the second substantial question of law on Section 115J of the Act, the same mandates that in case of a company whose total income as computed under the provisions of the Act is less than 30% of the book profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and III of Schedule VI of the Companies Act 1956, after certain adjustments, the total income chargeable to tax will be 30% of the said book profit. Explanation to Section 115J (1A) provides that the net profit so computed is to be increased by certain amounts and it is to be reduced by certain amounts which are mentioned therein. The provision does not contain any reference to concept of ‘above the line’ or ‘below the line’.

The Hon. Court referred to decision of the Hon.Supreme Court, in Apollo Tyres Ltd. vs. Commissioner of income tax [2002] 255 ITR 273 (SC) wherein it dealt with the issue whether the Assessing Officer can question the correctness of the profit and loss account prepared by the assessee and certified by the statutory auditors of the Company as having been prepared in accordance with the requirements of part II and III of Schedule VI to the Companies Act. It was held that sub section (1A) of Section 115J mandates the company to maintain its accounts in accordance with the requirements of Companies Act and is bodily lifted from the Companies Act into the Act of 1961 for the limited purpose of making the said account so maintained as a basis for computing the company’s income for levy of income-tax. It was also held that the provision does not empower the authority under the Act to probe into the account accepted by the authorities under the Companies Act. It was also held that if the legislature intended the Assessing Officer to reassess the company’s income, then it would have stated in Section 115-J that “income of the company is accepted by the Assessing Officer”.

The aforesaid principle was reiterated by the Supreme Court in Malayala Manorama Company Limited vs. Commissioner of Income Tax, Trivandrum [2008] 300 ITR 251. Thus, from the aforesaid enunciation of law by the Supreme Court, it is evident that the Assessing Officer does not have jurisdiction to go behind the net profit shown in profit and loss account except to the extent provided in Explanation to Section 115J. For the aforementioned reasons the second substantial question of law was answered in favour of the assessee.

In the result, the appeal of the assessee was allowed.

BCAJ Admin

7 Echjay Industries (P.) Ltd. vs. Rajendra

WP No. 122 OF 2009 & 2309 OF 2010

A.Y. 2008–09

Dated: 10^th May, 2024. (Bom.) (HC).

Section 132 of the Act — Search and seizure — Condition precedent — Revenue authorities must have information in their possession on basis of which a reasonable belief can be formed — Contents of satisfaction note did not disclose any information which would lead authorities to have a reason to believe that any of contingencies as contemplated by Section 132(1)(a) to (c) were satisfied — Search and seizure action was to be quashed and set aside.

Petitioner no. 1 is a private limited company. Petitioner no. 2 is the Chairman and Managing Director of petitioner no. 1. Other Petitioners are Directors, their spouses and family members.

Respondent no. 1 was the officer empowered by the Central Board of Direct Taxes (CBDT) to issue authorisation under Section 132 of the Act for carrying out search and seizure under the Act. In the exercise of his powers under Section 132 of the Act, respondent no. 1 issued authorisations dated 7^th July, 2008 in favour of respondent no. 2 and others, authorising them to enter upon and search various premises belonging to petitioners.

Petitioner company was incorporated on 31^st December, 1960 under the Companies Act 1956 and was a leading manufacturer of forging and engineering products required in the automobile industry. Petitioners were regularly assessed to income-tax and wealth tax. It is stated in the petition that the income tax assessments of petitioner company for the last 20 years have been made under Section 143(3) of the Act by way of detailed scrutiny. It is also stated that no penalty under Section 271(1)(c) of the Act has ever been levied upon petitioners for any concealment or furnishing inaccurate particulars of income.

On or about 9^th and 10^th July, 2008, a search was conducted at the business premises of petitioner company as well as at residential premises of Chairman and directors, pursuant to an authorisation dated 7^th July, 2008, issued by respondent no. 1 under Section 132(1) of the Act. Respondent no. 2 and other authorised officers entered into various premises and conducted the search. Panchnamas were also drawn up in the course of the search proceedings. It is stated that petitioners submitted various clarifications and explanations to respondents as and when they were called upon to do so. Petitioners stated that by the initiation of search proceedings and also the manner in which the proceedings were conducted, they are apprehensive that respondents will, without jurisdiction or authority of law, proceed against petitioners to make assessments and / or reassessments of past six assessment years in the case of all petitioners and raise huge demands by way of tax, interest and penalties, which will cause hardship and prejudice to petitioner. It is petitioners’ case that authorisations dated 7^th July, 2008 issued against petitioners are unconstitutional, ultra vires, invalid, without jurisdiction, etc., and are liable to be quashed and set aside.

The stand taken by the revenue basically is that the grounds raised in the petition are based on presumptions and conjectures. It was submitted that respondent no. 1 had information in his possession of undisclosed assets / documents which represented income or property which has not been or would not be disclosed by petitioners under normal circumstances. There was also reason to believe that petitioners were in possession of documents relating to such undisclosed income, which would not be produced if called for under relevant provisions of the Act. Proper inquiries were made and the relevant material placed on record to give rise to reasons for such belief. It was also stated that authorised officers have not seized the entire cash and jewellery found at various premises but have seized only a part, which remained unexplained by petitioners at the relevant time or in respect of which explanation was not to the satisfaction of the authorised officers. If a bonafide belief was formed on the basis of material available on record which was the case, it is not open to petitioners to challenge the same by way of plea of lack of alternate remedy against such action by respondent no. 1.

It was also submitted by revenue that there was credible basis to believe that petitioners were in possession of assets / documents which were not disclosed or which would not be disclosed. It was stated that there were proper enquiries and application of mind by four different Statutory Authorities. The reasons for authorizing action under Section 132 of the Act are duly recorded in a Satisfaction Note which shows due application of mind by various statutory authorities. All the procedures and safeguards provided in the Act were duly followed and the search has been carried out within the framework of Section 132 of the Act.

As regards making available the details of the information received and the satisfaction note, the Learned ASG and later department counsel both strongly opposed disclosing / making available copies thereof and for that relied upon the decision of the Apex Court in Principal Director of Income-tax (Investigation) vs. Laljibhai Kanjibhai Mandalia [2022] 140 taxmann.com 282/446 ITR 18/288 Taxman 361 (SC). The Learned ASG further submitted that it is settled law that copy of the material leading to the search should not be made available to assessee. It was also submitted that in view of the explanation inserted in Section 132(1) by the Finance Act 2017 with retrospective effect from 1^st April, 1962, the reason to believe as recorded by the Income Tax authorities under Section 132(1) shall not be disclosed to any person or any authority or the Appellate Tribunal.

It was also submitted by the Learned ASG that the court may examine the information / documents based on which the authorisations of search and seizure were issued and decide the matter within the principles elaborated in paragraph 33 of Laljibhai Kanjibhai Mandalia (supra).

It was further submitted that the reason behind insertion of the Explanation is to remove the ambiguity created by judicial decisions regarding disclosure of reasons recorded to any person or to any authority.

The Petitioner relied upon the decision of the Apex Court in the matter of ITO vs. Seth Brothers (1969) 74 ITR 836 and Pooran Mal vs.Director of Inspection (Investigation)(1974) 93 ITR 505, and submitted that the court has opined that the necessity of recording of reasons was to ensure accountability and responsibility in the decision-making process. The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. At the same time, it would not confer in the assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorisation as it would be counterproductive of the entire exercise contemplated by Section 132 of the Act. At the same time, it is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee. It was submitted that since the assessment proceedings were commenced, the time is now ripe to disclose the requisite material to petitioners.

The Honourable court noted that a similar matter came up for consideration before the Division Bench of this Court (Nagpur bench) in the case of Balkrushna Gopalrao Buty & Ors. vs. The Principal Director (Investigation), Nagpur & Ors. Judgment dated 23^rd April, 2024 in Writ Petition No.1729 of 2024. In that case also, assessee was questioning the search and seizure carried out in his premises pursuant to the provisions of Section 132 of the Act. Assessee has also submitted that a search and seizure has necessarily to be in consequence of some information in possession of the Authority, which provides him a reason to believe that any of the actions, as indicated in Section 132(1)(a) to (c) of the said Act, are likely to occur, which would be the only grounds on which the search and seizure could be made under Section 132 of the said Act. It was assessee’s case therein that the seizure was based on certain transactions which were all disclosed in the returns filed and, therefore, there was no material which would entitle the revenue to conduct the search and seizure in terms of the language and requirement of Section 132 of the said Act. The court analysed Section 132 of the Act and decided not to disclose the reasons recorded in the file for the sake of maintaining secrecy but expressed its view on the satisfaction note. The satisfaction note and the information was made available only to the court for consideration and upon its consideration, the court concluded that the requirement of Section 132(1) of the Act was not satisfied. The Court also held that the department cannot rely upon what was unearthed on account of opening of the lockers of petitioners, as the information and reason to believe as contemplated under Section 132(1) of the Act must be prior to such seizure.

The Honourable court noted that the same approach would be adopted in present matter. The court further relied on the decision in case of Director General of Income Tax (Investigation), Pune vs. Spacewood Furnishers Private Limited (2015) 12 SCC 179.

The Honourable Court noted that as per Section 132(1) of the Act, the Authority must have information in his possession on the basis of which a reasonable belief can be founded that, the person concerned has omitted or failed to produce the books of accounts or other documents for production of which summons or notice has been issued, or such person will not produce such books of accounts or other documents even if summons of notice is issued to him, or such person is in possession of any money, bullion or other valuable articles which represents either wholly or partly income or property which has not been or would not be disclosed, is the foundation to exercise the power under Section 132 of the said Act. The Apex Court in Laljibhai Kanjibhai Mandalia (supra)and in Spacewood Furnishers Pvt Ltd. (supra) has specifically held that such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the Competent Authority in which event the Court would be entitled to examine the reasons for formation of the belief, though not the sufficiency or adequacy thereof.

The Honourable Court noted that no notice or summons have been issued to petitioners calling for any information from them at any point of time earlier to the action under Section 132(1) of the Act to give rise to an apprehension of non-compliance by petitioners justifying action under Section 132(1) of the Act. Therefore, no reasonable belief can be formed that the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued, or that such person will not produce such books of accounts or other documents even if summons or notice is issued to him.

The Honourable Court agreed with the view expressed in Balkrushma Gopalrao Buty (supra) that respondents cannot rely upon what has been unearthed pursuant to the search and seizure action as the information giving a reason to believe as contemplated under Section 132(1) of the said Act must be prior to such seizure.

The Honourable Court read the contents of the file of the department given to court in a sealed envelope by counsel for respondents. Having considered the contents thereof, the court opined that it does not disclose any information which would lead the Authorities to have a reason to believe that any of the contingencies as contemplated by Section 132(1)(a) to (c) of the said Act are satisfied. The reasons recorded only indicate a mere pretence. The material considered is irrelevant and unrelated. For the sake of maintaining confidentiality, the Court did not discuss the reasons recorded in the file, except that the information noted therein is extremely general in nature. The Honourable Court further noted that the reasons forming part of the satisfaction note have to satisfy the judicial conscience. The satisfaction note does not indicate at all the process of formation of reasonable belief. The Honourable Court noted that it has not questioned the adequacy or sufficiency of the information. That apart, the note also does not contain anything altogether regarding any reason to believe, on account of which there is total non-compliance with the requirements as contemplated by Section 132(1) of the said Act which vitiates the search and seizure. It does not fulfil the jurisdictional pre-conditions specified in Section 132 of the Act.

Hence, the action of respondents taken under Section 132(1) of the Act was quashed and set aside. The Honourable Court further observed that even though the search is held to be invalid, the information or material gathered during the course thereof may be relied upon by revenue for making adjustment to the Assessee’s income in an appropriate proceeding.

BCAJ Admin

6 Ashok Kumar Makhija vs. Union of India

WP (C) NO. 16680 OF 2022

A.Y.: 2017–18

Dated: 7^th May, 2024, (Delhi) (HC)

Section 151, r.w.s 147 and 148 of the Act — Reopening of assessment — Beyond three years — Sanction for issue of notice — Appropriate authority for issuance of notice under Sections 148 and 148A(b) should have been either Principal Chief Commissioner or Principal Director General, or in their absence, Chief Commissioner or Director General – Principal Commissioner of Income Tax, do not fall within specified authorities outlined in Section 151.

The petitioner is engaged in the business of wholesale trading of pan masala and beetle nut (supari) through his proprietorship concerns namely, M/s Neelkanth Trades and M/s Prem Supari Bhandar. On 28^th March, 2017, he was served with a summon under Section 131(1A) of the Act, seeking verification of cash deposits made by him in his bank account during the period of demonetisation, i.e., 8^th November, 2016 to 31^st December, 2016.

Accordingly, on 14^th October, 2017, ITR was filed by the petitioner for A.Y. 2017–18, declaring a total income of ₹1,70,43,590. The said ITR was subjected to scrutiny assessment on the issues of capital gains / loss on sale of property and cash deposits made during the demonetisation period.

The petitioner claimed that the said cash deposit in his bank account represents the sale proceeds of the business. While issuing notice dated 20^th November, 2019 under Section 133(6) of the Act, the Revenue sought confirmation from M/s Mahalaxmi Devi Flavours Pvt. Ltd., from whom the petitioner claimed to have made the purchases. Consequently, on 28^th December, 2019, an assessment order under Section 143(3) of the Act came to be passed accepting the aforesaid ITR.

On 8^th April, 2021, a notice under Section 148 of the Act was issued, reopening the assessment of the petitioner for A.Y. 2017–18 on the grounds that the income of the petitioner which was chargeable to tax had escaped assessment. However, the said notice was quashed following the decision rendered by in the case of Man Mohan Kohli vs. ACIT 2021 SCC OnLine Del 5250, which inter alia declared that all notices issued under Section 148 of the Act after 1^st April, 2021 under the erstwhile law (un-amended provision of Section 148 of the Act) could not have been issued.

In the meantime, the Supreme Court in the case of Union of India vs. Ashish Agarwal 2022 SCC OnLine SC 543 rendered a decision declaring that notices issued under Section 148 of the Act between 1^st April, 2021 to 30^th June, 2021, under the old provisions shall be treated as notices under Section 148A(b) of the Act, and the same shall be dealt with in the light of the directions contained in the aforesaid decision.

Thereafter, the Revenue issued the impugned notice dated 26^th May, 2022, under Section 148A(b) of the Act and initiated reassessment proceedings by supplying the petitioner with the information in its possession, i.e., an exponential increase in the sales turnover of the petitioner during A.Y. 2017–18, alleging that the same has escaped assessment. Consequently, the impugned order under Section 148A(d) dated 30^th July, 2022 was passed by the Revenue.

The petitioner submitted that the reassessment proceedings for A.Y. 2017–18 are after a lapse of more than three years, the appropriate authority for issuance of the notice under Sections 148 and 148A(b) of the Act should have been either the Principal Chief Commissioner or Principal Director General, or in their absence, the Chief Commissioner or Director General, instead of the Principal Commissioner of Income Tax, Delhi-10, who does not fall within the specified authorities outlined in Section 151 of the Act. He relied on the decision of this Court in the case of Twylight Infrastructure Pvt. Ltd. vs. ITO &Ors. 2024 SCC OnLine Del 330.

The Honourable Court held that there is no approval of the specified authority, as indicated in Section 151(ii) of the Act.Accordingly, for the reasons assigned in the Twylight Infrastructure (supra) judgment, the impugned notices dated 26^th May, 2022 and 30^th July, 2022 and the impugned order dated 30^th July, 2022 were quashed with liberty to the revenue to commence reassessment proceedings afresh.The writ petition was disposed accordingly.

BCAJ Admin