Income Tax Reassessment Proceedings Initiated during Pendency of Rectification Application is Invalid: Supreme Court [Read Order]

The  Supreme Court comprising the Two-judge Bench of  Justices M.R. Shah and C. T. Ravi Kumar, decided in an appeal moved by M/S S. M. Overseas Pvt. Ltd. that the Revenue department was not entitled to commence the Reassessment process while the Rectification Application was still pending.

The assessee submitted an appeal with the Supreme Court after being aggrieved by the impugned judgment of the High Court of Punjab and Haryana and the denial of the review plea.

In accordance with the underlying fact, the assessee claimed a benefit of deduction in respect of profits retained for export business for the tax year 1995–1996 as per the Section 80 HHC of the Income Tax Act, 1961. However, the assessee claimed the bad debt in the ensuing year on the grounds that the export hadn’t yet materialized the preceding year. Furthermore, the department began the Re-assessment proceedings under Sections 147 and 148 of the Income Tax Act, for the A.Y. 1996–1997, and the Assessing Officer (AO)  issued an Assessing order.

The assessee carried the order before the Income Tax Appellate Tribunal (ITAT), which was decided in favour of the assessee. The tribunal quashed and set aside the re-assessment proceedings by holding the rectification petition is already pending against the assessee. Further, the order of the Tribunal was challenged by the department before the High Court.

The High Court, by the impugned judgement and order, observed that “as the proceedings under Section 154 of Income Tax Act were beyond the period of limitation prescribed under clause (7), the said notice was invalid and therefore, the re-assessment proceedings under Sections 147 and 148 would be maintainable.” Moreover, the High Court rejected the assessee’s request for a review.

After hearing arguments from both parties, the Apex Court stated that during the pendency of the proceedings under Section 154 of the Income Tax Act, it was not permissible on the part of the Revenue to initiate the proceedings under Section 147 and 148 of the Income Tax Act. The High Court has erred in presuming and observing that the proceedings under Section 154 of the Income Tax Act, were invalid because the same were beyond the period of limitation.

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