Reopening of Income Tax Assessment Ignoring Appellate Orders Invalid: Supreme Court Upholds Gujarat HC Ruling [Read Judgement]

The Supreme Court upheld the Gujarat High Court’s ruling that reopening of income tax assessment under Section 148 cannot be done by ignoring binding appellate orders and dismissed the Revenue’s challenge against the quashing of reassessment proceedings initiated.

The case arises from a judgment of the Gujarat High Court in Venus Infrastructure and Developers Pvt. Ltd, where the High Court ruled in favour of the assessee and set aside the reassessment notice issued for Assessment Year 2016-17.

The petitioner company, engaged in real estate development, had claimed deduction under Section 80IB(10) in respect of its project “Venus Parkland.” In earlier proceedings for Assessment Year 2012–13, the Assessing Officer had disallowed the deduction on the ground that the project was not completed within the prescribed time. The Commissioner (Appeals) allowed the deduction and the Income Tax Appellate Tribunal later upheld that decision in favour of the assessee.

For Assessment Year 2016-17, the assessee again claimed deduction under Section 80IB(10), and the return was processed under Section 143(1) without scrutiny. Subsequently, the Assessing Officer issued a notice under Section 148 dated 31 March 2021 to reopen the assessment on the ground that the deduction was not allowable, relying on the earlier findings of the Assessing Officer for Assessment Year 2012-13.

Before the High Court, the assessee’s counsel argued that the reopening was based on findings that had already been set aside by appellate authorities and that the Assessing Officer had ignored binding decisions of the Commissioner (Appeals) and the Tribunal.

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The High Court observed that the reasons recorded for reopening were solely based on the earlier assessment order for Assessment Year 2012-13, even though the disallowance made in that year had already been reversed by the Commissioner (Appeals). The Court observed that the Assessing Officer could not assume jurisdiction to reopen the assessment on a ground that no longer survived in law.

The High Court explained that reopening of assessment must be based on valid and existing material, and not on conclusions that have already been set aside in appellate proceedings. It held that the assumption of jurisdiction under Section 148 was invalid and quashed the impugned notice.

The Revenue challenged the High Court’s decision before the Supreme Court by filing a Special Leave Petition.

The Supreme Court Bench comprising Justice Dipankar Datta and Justice Vipul M. Pancholi, observed that it was not inclined to interfere with the judgment of the High Court and dismissed the Special Leave Petition. The Gujarat High Court’s ruling stands affirmed, holding that reassessment proceedings initiated by ignoring binding appellate orders are legally unsustainable.

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