Reassessment Initiated at Direction of Higher Authorities is Bad in Law | HC

Case Details: Principal Commissioner of Income-tax vs. Agfa India (P.) Ltd. - [2025] 173 taxmann.com 875 (Bombay)

Judiciary and Counsel Details

• M.S. Sonak & Jitendra Jain, JJ.
• Akhileshwar Sharma, for the Appellant.
• P J. Pardiwalla, Sr. Adv., Harsh Kothari, Atul K. Jasani for the Respondent.

Facts of the Case

The assessee, engaged in the business of distributing photographic and electronic imaging systems, filed its return of income, declaring a total income of Rs. 11,42,17,803/-. The return was revised, declaring a total income of Rs. 12,30,39,783. The Assessing Officer (AO) issued a notice for reassessment based on the information received from the Transfer Pricing Officer (TPO). The AO initiated the reassessment proceedings based on the TPO’s determination for the subsequent assessment year.

Assessee contended that the entire process of initiating reassessment proceedings commenced with the letter from the Additional CIT, Transfer Pricing, to the Joint CIT. The Joint CIT and the CIT, acting upon the letter from the Additional CIT, Transfer pricing, virtually directed the AO to initiate proceedings for reassessment. Nothing on record indicated any independent application of mind by the AO. There was nothing to suggest that the AO who issued the notice under Section 147-148 had, himself, any reason to believe.

The matter reached the Bombay High Court.

High Court Held

The High Court held that it was apparent that the AO regarded himself as bound by the TPO’s determination for the subsequent assessment year and felt that he had no option but to issue the notice to reopen the assessment.

The directions of the Joint Commissioner of Income Tax or the Commissioner of Income Tax left the AO in no doubt about the bindingness of the TPO’s determination and the Commissioner’s directions. All this was sufficient to vitiate the initiation of reassessment proceedings. This was a classic case of the AO acting under dictation or on borrowed satisfaction. Thus, the initiation of reassessment proceedings was liable to be set aside.

List of Cases Reviewed

• Anirudhsinhji K. Jadeja v. State of Gujarat (1995) 5 SCC 302 (para 28)
• Sodexo India Services (P) Ltd. v. ACIT 141 taxmann.com 311 (Bom) (para 29)
• Balaji Mines and Minerals (P) Ltd. v. ACIT 163 taxmann.com 37 (Bom) (para 30)
• Aroni Commercials Ltd. v. DCIT (362 ITR 403) (Bom) (para 31) followed.

List of Cases Referred to

• Anirudhsinhji K Jadeja v. State of Gujarat (1995) 5 SCC 302 (para 17)
• Sodexo India Services (P.) Ltd. v. Asstt. CIT [2022] 141 taxmann.com 311 (Bombay) (para 17)
• Balaji Mines and Minerals (P.) Ltd. v. Asstt. CIT [2024] 163 taxmann.com 37 (Bombay) (para 17)
• Pr. CIT v. Shodiman Investments (P.) Ltd. [2018] 93 taxmann.com 153/[2020] 422 ITR 337 (Bombay) (para 17)
• Aroni Commercials Ltd. v. Dy. CIT [2014] 44 taxmann.com 304/224 Taxman 13/362 ITR 403 (Bombay) (para 17)
• Sheo Narain Jaiswal v. ITO [1989] 45 Taxman 213/176 ITR 352 (Patna) (para 17)
• CIT v. T.R. Rajakumari [1974] 96 ITR 78 (Madras) (para 17)
• Yeshwant Talkies v. CIT [1985] 21 Taxman 268/[1986] 157 ITR 103 (Madhya Pradesh) (para 17)
• CIT v. Kelvinator of India Ltd. [2002] 123 Taxman 433/256 ITR 1 (Delhi) (para 35).