'First Decide Assessee’s Objections, Then Reopen Completed Tax Assessment': Bombay HC

The Bombay High Court has ruled that an Assessing Officer must first decide an assessee’s objections to reopening a completed tax assessment before issuing a Section 143(2) scrutiny notice. The court quashed notices issued to H.P. Diamonds India, also finding that the department breached the required four-week period before taking further action.

The Bombay High Court has reiterated the procedural safeguards that must be followed before reassessment proceedings can advance | AI Generated Image

Mumbai, October 3, 2026: The Bombay High Court has held that the Income Tax Department cannot begin reassessment proceedings until it first decides an assessee’s objections to reopening a completed tax assessment, stressing that the prescribed procedure must be followed before scrutiny can commence.

The ruling came while quashing reassessment notices issued to diamond trading firm H.P. Diamonds India Pvt. Ltd. for the 2012-13 assessment year. A bench of Justices B.P. Colabawalla and Firdosh Pooniwalla held that issuing a scrutiny notice before deciding the objections would amount to “putting the cart before the horse”.

Dispute Over Reassessment Notice

The dispute arose after the department issued a notice under Section 148 of the Income Tax Act in March 2019, seeking to reopen the company’s assessment over certain share premium transactions.

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However, the Assessing Officer issued a scrutiny notice under Section 143(2) on September 2, 2019, even before supplying the reasons for reopening the assessment. The reasons were provided to the company a day later, on September 3.

The company filed its objections to the reopening in October 2019. The Assessing Officer rejected them on October 31 and subsequently issued a notice under Section 142(1) on November 12, seeking further information from the company.

Arguments Over Assessment Procedure

Advocate Devendra Jain, appearing for H.P. Diamonds, argued that the department had not followed the procedure laid down by the Supreme Court. He submitted that once an assessee objects to the reopening of an assessment, the Assessing Officer must first decide those objections by passing a speaking order before proceeding with the reassessment.

Jain argued that commencing scrutiny before deciding the objections effectively amounted to “putting the cart before the horse”.

Appearing for the Revenue, advocate Akhileshwar Sharma contended that the requirement to dispose of objections only prevented the department from passing a final assessment order before deciding them. He argued that there was no bar on issuing an initial scrutiny notice.

Court Rejects Revenue’s Argument

The bench rejected this argument and held that a notice under Section 143(2) marks the commencement of assessment proceedings. Therefore, the department must first decide the assessee’s objections to reopening before proceeding with the assessment.

“If one were to issue a Section 143(2) Notice and proceed with the assessment without first disposing of the objections, it would really amount to putting the cart before the horse,” the bench observed.

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The court also noted that the department had failed to follow the mandatory four-week period after rejecting the objections before taking further steps.

Reassessment Proceedings Quashed

The High Court accordingly quashed the notices and the consequential reassessment proceedings.

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