Reopening of Assessment Invalid: Income Already Taxed on Substantive Basis in Another Assessment Year

By | June 9, 2025
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Reopening of Assessment Invalid: Income Already Taxed on Substantive Basis in Another Assessment Year

Issue:

Whether an Assessing Officer (AO) can validly reopen an assessment under Sections 147 and 148 of the Income-tax Act, 1961, for an earlier assessment year (e.g., AY 2008-09) on the ground of unexplained moneys (Section 69A), when the same alleged escaped income has already been added on a substantive basis in an assessment order for a later assessment year (e.g., AY 2011-12) and the current reopening is not on a protective basis.

Facts:

The Assessing Officer (AO) reopened the assessment of the assessee for assessment year (AY) 2008-09. This reopening was based on information derived from the assessment for AY 2011-12, where certain cash sales allegedly relating to AY 2008-09 were considered and added as income. It was crucial that this sum had already been added on a substantive basis in the assessment order for AY 2011-12, long before the impugned notice for reopening AY 2008-09 was issued. Furthermore, the current impugned reopening proceedings for AY 2008-09 were not initiated on a protective basis. The facts and issue for assessment year 2009-10 were identical.

Decision:

Yes, the court held that since the same figure had already been added on a substantive basis in assessment year 2011-12, and the present impugned proceedings were not on a protective basis, on this short point itself, there could not have been any “reason to believe” that income had escaped assessment for assessment year 2008-09. Therefore, the impugned notice under Section 148 for AY 2008-09 was hereby quashed and set aside. Furthermore, since the facts and issue for assessment year 2009-10 were identical, adopting the same reasoning, the reopening notice under Section 148 for assessment year 2009-10 was also set aside. The decision was in favor of the assessee.

Key Takeaways:

  • “Reason to Believe” for Reopening (Section 147): The fundamental condition for reopening an assessment is that the AO must have “reason to believe” that income has escaped assessment. If the income has already been taxed on a substantive basis in another year, this fundamental condition is not met.
  • No Double Taxation of Same Income: The tax machinery aims to tax income once. If a particular sum has already been brought to tax as income in one assessment year on a substantive basis, it generally cannot be taxed again in another assessment year.
  • Substantive vs. Protective Assessment:
    • Substantive Assessment: The year in which the income is actually taxable, or the year in which the department definitively chooses to tax it.
    • Protective Assessment: When there is doubt about the year in which income is taxable or in whose hands it is taxable, the department may initiate protective assessments in multiple years/hands to ensure the income is taxed at least once. However, this case explicitly states the reopening was not on a protective basis.
  • Consequence of Lack of Reason to Believe: The absence of a valid “reason to believe” renders the reassessment proceedings and the Section 148 notice invalid and liable to be quashed.
  • Judicial Consistency: The court applied the same reasoning to AY 2009-10, demonstrating judicial consistency when facts and issues are identical.
  • Favor of Assessee: The outcome is highly beneficial to the assessee, as the reopening notices for both assessment years are quashed, preventing further litigation on income already taxed.
HIGH COURT OF BOMBAY
Sai Shirdi Constructions
v.
Income-tax Officer-28(3)(1)
Jitendra Jain and M.S. Sonak, JJ.
WRIT PETITION NO. 1233 and 102 OF 2016
MAY  21, 2025
Ms. Rutuja N. Pawar, Ms. Hetal Laghave and Ms. Sneha More, Advs. for the Petitioner. Akhileshwar Sharma and Ms. Shradha Worlikar, Advs. for the Respondent.
ORDER
1. Rule, in these Petitions were granted on 16 December 2015 and interim reliefs were granted.
2. These two Writ Petitions, for assessment years 2008-09 and 2009-10, have been filed to challenge notices under Section 148 of the Income-Tax Act, 1961 (“the Act”). In both these Petitions the issue involved is common and therefore, by consent of the parties, they are being disposed of by a common order. We take the lead matter in Writ Petition No. 1233 of 2016 for assessment year 2008-09.
3. The reasons recorded in reopening the case for assessment year 2008-09 are read as under :
The information was received from Dy CIT 28(3), Mumbai that the assessment in the case of M/s Sai Shirdi Constructions for A.Y 2011-12 was completed on 27.03.2014. The assessee is into the business of building constructions. The assessee was constructing a project named “Sai Saakshaf at Plot No 9, Sector 6, Near Regency Gardens, Kharghar, Navi Mumbai. A total of four wings of 15 floors each housing 232 flats were to be constructed consisting of approx. 1,79,529 sq. ft. for residential area and approx. 22,950.36 sq. ft. for commercial area.
During the course of assessment proceedings it was seen that there was a large variation in the price of flats in short time span, for which the assessee could not give any reason for variation in the price despite several opportunities. The assessment proceedings were completed u/s 144 rws. 145 of the Act, 1961 on 27.03.2014 computing the total income at Rs. 9,89,84,780/-.
During the course of assessment proceedings it was seen that payments were received in cash for sales relevant to A.Y 2008-09 to the tune of Rs. 82,16,705/-as per the assessment order for A.Y 2011-12 which have not been shown by the Assessee in Return of Income of A. Y. 2008-09.
I have, therefore, reason to believe that income chargeable to tax to the extent of Rs. 82,16,705/ has been escaped assessment for F.Y. 2007-08 relevant to A.Y 2008-09 within the meaning of Section 147 of the IT Act, 1961. The assessment for the A. Y 2008-09 need to be reopened.
4. In this case, the return of income was filed on 16 September 2008. The said return of income was reopened by issuing notice under Section 148 of the Act on 29 December 2011 and an assessment order under Section 143(3) read with Section 147 was passed on 18 December 2012.
5. The second re-assessment notice under Section 148 of the Act, which is impugned in the present Petition, was issued on 27 March 2015, which is after a period of four years from the end of the relevant assessment year.
6. In the reasons recorded, it is alleged that the Petitioner has received cash for sales relevant to assessment year 200809 to the tune of Rs. 82,16,705/- as per the assessment order 2011-12, which have not been shown by the assessee in return of income for assessment year 2008-09 and therefore, the case is reopened.
7. On a perusal of the assessment order dated 27 March 2014 for assessment year 2011-12, an addition of Rs.8,83,43,028/- is made on the ground of alleged cash received on sale of flat. The breakup of said amount of Rs. 8,83,43,028/-can be found in the assessment order at internal page 9 to 12 and Writ Petition memo page No.81 to 83.
8. The breakup Rs.82,16,700/- which is the figure appearing in the reasons recorded for reopening the case for assessment year 2008-09 can be found at page 111, which is a part of the order rejecting the objection of the Petitioner. On a comparison of the breakup of Rs.82,16,700/- at page 111 and internal pages 9 to 10 of the assessment order of assessment year 2011-12, it is noticed that the amount proposed to be reassessed in the reasons recorded for assessment year 2008-09 has already been added in the assessment order for assessment year 2011-12.
9. The reasons for reopening the case for assessment year 2008-09 are recorded on or before 27 March 2015 whereas, the assessment order for assessment year 2011-12 is dated 27 March 2014. On the date of recording the reasons, the assessing officer had already added Rs.82,16,705/- on substantive basis in assessment year 2011-12 and further the reasons recorded for assessment year 2008-09 does not say that the said amount of Rs.82,16,705/- is supposed to added on protective basis.
10. In our view, if sum of Rs.82,16,705/- was already added in the assessment order for assessment year 2011-12 on substantive basis much prior to the issue of the impugned notice dated 27 March 2015, then we failed to understand how there could be reasons to believe that income for assessment year 2008-09 has escaped assessment, since the same figure has already been added on substantive basis in assessment year 2011-12 and the present impugned proceedings are not on protective basis.
11. On this short point itself since there could not have been any reasons to believe that the income has escaped assessment for assessment year 2008-09 after having the said amount added in assessment year 2011-12 prior to the impugned proceedings, the present impugned notice under Section 148 dated 27 March 2015 is hereby quashed and set aside.
12. Both the parties agreed that the facts and issue involved in Writ Petition No. 102 of 2016, for assessment year 2009-10, being identical, adopting the above reasoning we set aside the reopening notice under Section 148 for assessment year 200910 dated 27 March 2015.
13. Rule is made absolute in the above terms. Both the Petitions are disposed of.