High Court of Bombay at Goa Declines to Interfere in Section 148 Reassessment Proceedings Premised on Survey Material Under Income Tax Act

Writ Court Rejects Bid to Stall Tax Inquiry: High Court Upholds Reassessment Powers

In a significant ruling concerning the scope of judicial review in tax matters, the High Court of Bombay at Goa has dismissed a writ petition filed by Molbio Diagnostics Limited. The court refused to intervene in ongoing reassessment proceedings initiated by the Income Tax Department, affirming that the petitioner must face the administrative process before approaching the judiciary.

The bench, comprising Justice Bharati Dangre and Justice Nivedita P. Mehta , held that the court’s extraordinary jurisdiction under Article 226 could not be invoked to bypass the statutory framework when factual disputes regarding tax liability remain unresolved.

From Survey to Scrutiny

The dispute traces back to a survey action conducted by the Income Tax Department at the premises of Molbio Diagnostics on March 11, 2024. Following this, the department issued a notice under Section 148A(b) for the Assessment Year (AY) 2020-2021, questioning the nature of payments made to two entities— M/s Stellar Diagnostics India Pvt Ltd and M/s Nexellence Consulting Pvt Ltd .

The tax authorities alleged that the petitioner had booked "bogus expenses" totaling Rs. 1,50,50,000 as royalty and professional fees to artificially reduce profits and evade taxes. Following the petitioner's reply, an order under Section 148A(d) was passed, concluding that the case was fit for reopening the assessment.

The Clash of Contentions

Representing the petitioner, counsel argued that the reassessment notice issued beyond the three-year limitation period was legally barred. They asserted that the alleged "escaped income" did not meet the 50-lakh threshold required for such reassessments. The petitioner further contended that the funds in question were recorded as "advances" in the balance sheet and not as tax-deductible expenditures for the year 2020-2021.

Conversely, the Standing Counsel for the Revenue argued that the material unearthed during the survey—including statements and evidence of sham agreements—formed a reasonable basis for reopening the assessment. The Revenue maintained that the petitioner was attempting to stifle a legitimate investigation by seeking early judicial intervention.

Judicial Analysis: The Limits of Review

The High Court focused on the jurisdictional threshold defined by Section 149(1)(b) of the Income Tax Act, 1961. The court noted that while the petitioner disputed the characterization of the funds, these were inherently questions of fact.

The bench emphasized the distinction between a jurisdictional error (which would warrant judicial review) and a mere error of law or fact within the scope of the authority (which must be addressed via appeal). Citing the judgment in Anshul Jain v/s Principal Commissioner of Income Tax , the court maintained that the tax authorities have a right to conduct an inquiry where information indicates income has escaped assessment.

Key Observations

The judgment clarifies the court's stance on premature interference in tax inquiries:

• On Jurisdictional Validity: "The jurisdictional pre-conditions contemplated under Section 148A(b) for reopening of the Assessment after 3 years have been met and the Impugned Order cannot be said to be without jurisdiction."
• On Fact-Finding: "It is not a fit case for exercise of extraordinary jurisdiction under Article 226 of the Constitution... when there are disputed questions which arise with regard to whether the amount... is relatable to the advances or expenditure."
• On the Role of the Writ Court: "Article 226 cannot be exercised to correct errors of law/fact which are within jurisdiction and the said Act provides a remedy to rectify errors of law and fact, if any."
• On Prima Facie Belief: "Reopening is valid if it is based on the formation of a reasonable belief at the initial stage even if the proof of escapement is not established at that time."

Final Decision: The Road Ahead

The High Court dismissed the petition, directing the petitioner to participate in the ongoing reassessment proceedings. The court reasoned that no prejudice had been caused to Molbio Diagnostics, as the company retains the right to present its audit documents, ledger accounts, and balance sheets to the Assessing Officer.

This ruling serves as a cautionary tale for taxpayers: litigation aimed at preemptively halting tax reassessments, especially those rooted in fact-intensive investigations, is unlikely to find favor with the higher judiciary. The petitioner is now expected to clear its books before the tax authorities, with the doors of appeal remaining open should the eventual assessment result in an unfavorable order.