Bombay High Court Rules Assessment Based on Quashed Revision Order Cannot Survive for Bombay Dyeing

Bombay High Court Rules Assessment Based on Quashed Revision Order Cannot Survive for Bombay Dyeing

In a significant ruling reinforcing the legal chain of tax proceedings, the Bombay High Court has held that an income tax assessment order loses its foundation when the revision order on which it was based has been quashed—even if the Revenue has challenged that quashing before a higher forum.

The Bench and the Parties

A Division Bench comprising Justice G.S. Kulkarni and Justice Dr. Neela Gokhale dismissed an appeal filed by the Principal Commissioner of Income Tax 2, Mumbai (the Revenue) against The Bombay Dyeing and Manufacturing Co. Ltd. (the assessee). The court found no substantial question of law arose from the impugned order of the Income Tax Appellate Tribunal (ITAT).

A Timeline of Tangled Proceedings

The dispute traces back to the assessment year 2015-16. On March 18, 2020, the Principal Commissioner passed a revision order under Section 263 of the Income Tax Act, 1961, deeming the original assessment erroneous and prejudicial to the Revenue. However, the ITAT quashed that Section 263 order on September 13, 2021, in an appeal filed by the Department itself.

Despite the quashing, the Assessing Officer proceeded to pass a fresh assessment order on October 31, 2021, under Section 143(3) read with Section 263. Bombay Dyeing challenged this before the Commissioner of Income Tax (Appeals), who allowed the appeal and annulled the assessment on the ground that the underlying revision order no longer existed. The ITAT upheld that decision, leading the Revenue to file the present appeal under Section 260A.

Revenue’s Reliance on Pending Appeal

The Revenue’s sole argument was that its challenge to the ITAT’s order quashing the Section 263 revision was already pending before the Bombay High Court in Income Tax Appeal No. 938 of 2024. It urged that the present appeal should be admitted and tagged with that pending matter.

Assessee’s Position: No Jurisdiction Without Subsisting Order

Counsel for Bombay Dyeing, Mr. Madhur Agrawal, countered that once the Section 263 order was set aside, the Assessing Officer had no jurisdiction to pass the assessment order. The pendency of a separate appeal against the quashing did not revive the revision order or confer jurisdiction.

The Court’s Reasoning: Quashing Strips the Foundation

The High Court agreed with the assessee. It observed that the Section 263 order of March 18, 2020, was “not in existence” after being quashed by the ITAT. The court emphasised:

“Once the order dated 18 March 2020 passed under Section 263 of the Act itself was not in existence being quashed by the Tribunal, the Assessing Officer could not have proceeded to pass an assessment order under Section 143(3) read with Section 263 of the Act.”

On the Revenue’s argument about the pending appeal, the court clarified:

“Merely because the Revenue is in appeal against the order dated 13 September 2021 passed by the Tribunal, whereby the order dated 18 March 2020 passed by the PCIT under Section 263 of the Act was quashed and set aside, would not bring about a situation where, in the absence of any subsisting order under Section 263 of the Act, the Assessing Officer would nonetheless have jurisdiction to proceed to pass the assessment order dated 31 October 2021.”

No Substantial Question of Law

Finding no infirmity in the ITAT’s order, the court dismissed the appeal. It ruled that the Revenue failed to raise any substantial question of law under Section 260A.

What Lies Ahead?

The court, however, left the door open: if the Revenue ultimately succeeds in its separate appeal against the quashing of the Section 263 order, “the legal consequences would follow and a fresh assessment order in that regard would be required to be passed in accordance with law.” All contentions in the pending appeal were expressly kept open.

This judgment underscores a key principle in tax jurisprudence: procedural orders in the assessment chain are interdependent, and the pendency of a challenge does not breathe life into an order that has already been quashed.