DCIT Vs Sahana Dwellers Private Limited (ITAT Mumbai)
One Day, Two Opposite Assessments: ₹9.68 Crore Reassessment Quashed
The Mumbai Bench of the Income Tax Appellate Tribunal upheld the CIT(A)’s order invalidating reassessment proceedings initiated under section 147 where the very same issues had already been subjected to revisionary proceedings under section 263 and subsequently examined by the Assessing Officer. The Tribunal held that the statutory scheme did not permit overlapping revisionary and reassessment jurisdiction over identical subject matter.
Sahana Dwellers Private Limited, engaged in construction of buildings, filed its return for AY 2015-16 declaring a loss of Rs.2,93,77,746/-. The original assessment was completed under section 143(3) on 28.12.2017. Thereafter, the Principal Commissioner invoked section 263 in relation to two issues: alleged capitalization of proportionate interest expenditure of Rs.7.91 crores to capital work-in-progress and an alleged differential value of Rs.1.77 crores concerning sale of flats. By order dated 10.03.2021, the assessment was set aside with directions to verify these issues.
Pursuant to the section 263 order, the Assessing Officer examined the assessee’s submissions and passed an assessment order on 28.03.2022 under section 144 read with sections 263 and 144B. The Assessing Officer expressly recorded that the assessee’s contentions had been verified and no variation was found. Consequently, no addition was made on either issue.
However, parallel proceedings had also been initiated under section 147 by a notice under section 148 dated 26.03.2021. On 29.03.2022—just one day after completing the assessment pursuant to the section 263 directions—the Assessing Officer passed a reassessment order concerning the same two issues. In that order, additions of Rs.1.77 crores towards differential value of flats and Rs.7.91 crores towards proportionate interest expenditure were made, resulting in total income of Rs.6,74,22,254/- as against the returned loss of Rs.2,93,77,746/-.
The CIT(A) held the reassessment invalid. It noted that the issues forming the basis of reopening were precisely those covered by the earlier section 263 proceedings and that the Assessing Officer had already examined them pursuant to the revisionary directions. The CIT(A) also relied upon Sri Dilip Gangaram Patil, 172 taxmann.com 115, and the third proviso to section 147, which excluded from reassessment matters that were the subject matter of appeal, reference or revision.
The Tribunal agreed. It found it undisputed that both disputed issues had specifically formed part of the section 263 proceedings and had thereafter been examined by the Assessing Officer. Once that exercise resulted in an assessment order dated 28.03.2022 recording that no variation was required, the Assessing Officer could not again invoke section 147 in respect of the identical matters.
The Tribunal also considered significant the contradictory consequences of the two orders. On 28.03.2022, the Assessing Officer found no variation after verification under the section 263 directions. On 29.03.2022, exercising reassessment jurisdiction, the Assessing Officer treated the same matters as escaped income and made aggregate additions of Rs.9.68 crores. The Tribunal held that such simultaneous or successive proceedings over identical subject matter could not be permitted in a manner defeating the statutory demarcation between revision under section 263 and reassessment under section 147.
Referring specifically to the third proviso to section 147 as it existed before 01.04.2021, the Tribunal held that matters already falling within revisionary proceedings under section 263 could not subsequently be subjected to reassessment under section 147. Since the assumption of reassessment jurisdiction itself was invalid, the additions of Rs.7.91 crores and Rs.1.77 crores could not survive independently. The Tribunal therefore found no reason to examine their merits.
Accordingly, the ITAT upheld the CIT(A)’s order declaring the reassessment proceedings and consequential assessment order dated 29.03.2022 invalid and dismissed the Revenue’s appeal.
Cases Discussed
- Sri Dilip Gangaram Patil, 172 taxmann.com 115 (Bombay High Court) — relied upon by the CIT(A) while holding that, in view of the third proviso to section 147, issues already forming the subject matter of section 263 proceedings could not again form the basis of reassessment under section 147.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
This appeal by the Revenue is directed against the order dated 15.10.2025 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre for the assessment year 2015-16, whereby the learned CIT(A) allowed the appeal of the assessee and held that the reassessment proceedings initiated under section 147 of the Income-tax Act, 1961 and the consequential assessment order dated 29.03.2022 were invalid in law.
2. Briefly stated, the assessee, a private limited company engaged in the business of construction of buildings, filed its return of income for the assessment year 2015-16 on 30.09.2015 declaring a loss of Rs.2,93,77,746/-. The return was selected for scrutiny and assessment under section 143(3) was originally completed on 28.12.2017. Thereafter, the assessment order was subjected to proceedings under section 263 of the Act on the ground that two issues had not been properly examined, namely, the alleged requirement of capitalization of proportionate interest expenditure of Rs.7.91 crores to capital work-in-progress and the alleged differential value of Rs.1.77 crores in respect of sale of flats. The learned Principal Commissioner of Income-tax, by order dated 10.03.2021 passed under section 263, set aside the assessment with a direction to the Assessing Officer to make detailed verification of the aforesaid issues and decide the same in accordance with law.
3. Pursuant to the aforesaid order under section 263, the Assessing Officer initiated proceedings and, after calling for details and examining the submissions of the assessee, passed an assessment order under section 144 r.w.s. 263 r.w.s. 144B dated 28.03.2022 without making any addition on the two issues. In the said order, the Assessing Officer specifically recorded that the contentions of the assessee had been verified and no variation was found, and accordingly the assessment was completed without making any addition.
4. However, simultaneously, proceedings under section 147 of the Act had been initiated on the same two issues and notice under section 148 was issued on 26.03.2021. In the reassessment proceedings, the Assessing Officer again examined the very same issues which had been considered in the proceedings under section 263. By order dated 29.03.2022 passed under section 147 r.w.s. 144 r.w.s. 144B, the Assessing Officer made an addition of Rs.1.77 crores on account of the alleged differential value of sale of flats and a further addition of Rs.7.91 crores on account of proportionate interest expenditure allegedly required to be capitalized to capital work-in-progress. The total income was consequently determined at Rs.6,74,22,254/- as against the returned loss of Rs.2,93,77,746/-.
5. The assessee challenged the validity of the reassessment proceedings as well as the additions before the learned CIT(A). It was, inter alia, contended that the very same issues had already been considered in proceedings under section 263 and that the Assessing Officer, after verification pursuant to the order under section 263, had passed an assessment order dated 28.03.2022 without making any addition. It was further contended that the reassessment order passed on the following day, i.e., 29.03.2022, on the very same issues was impermissible in law. The assessee also raised objections regarding the limitation prescribed under section 147, absence of failure on its part to disclose fully and truly all material facts, reliance upon material which was already available on record, and denial of adequate opportunity.
6. The learned CIT(A), after considering the material on record, accepted the principal legal contention of the assessee. The learned CIT(A) noted that the two issues forming the basis of the reassessment proceedings were precisely the same issues which had already been considered in the proceedings under section 263. It was further noted that the Assessing Officer, pursuant to the directions issued under section 263, had examined those issues and had completed the assessment on 28.03.2022 without making any addition. Despite this, the Assessing Officer proceeded, on the very next day, to pass another assessment order under section 147 r.w.s. 144 r.w.s. 144B on the identical issues and made additions aggregating to Rs.9.68 crores.
7. The learned CIT(A) observed that the Assessing Officer had thus, within a span of one day, passed two assessment orders for the same assessment year on identical issues, arriving at completely divergent conclusions. The first assessment order dated 28.03.2022, passed pursuant to the proceedings under section 263, recorded that the contentions of the assessee had been verified and no variation was found, whereas the reassessment order dated 29.03.2022 made additions of Rs.7.91 crores towards capital work-in-progress and Rs.1.77 crores towards differential value of sale of flats. The learned CIT(A) held that such contradictory action could not be sustained, particularly when the reassessment was founded upon the very issues which had already been the subject matter of the revisionary proceedings under section 263.
8. The learned CIT(A) further relied upon the judgment of the Hon’ble Bombay High Court in Sri Dilip Gangaram Patil, 172 taxmann.com 115 and held that, having regard to the statutory bar contained in the third proviso to section 147, where the issues forming the basis of reassessment proceedings had already been the subject matter of proceedings under section 263, the Assessing Officer could not again assume jurisdiction under section 147 in respect of those very issues. The learned CIT(A) accordingly concluded that the initiation of reassessment proceedings by issuance of notice under section 148 dated 26.03.2021 suffered from a fundamental jurisdictional infirmity and that the consequential reassessment order dated 29.03.2022 was invalid in law. The appeal of the assessee was accordingly fully allowed.
9. Before us, the Revenue has challenged the order of the learned CIT(A). We have considered the material placed on record and carefully examined the sequence of events. The undisputed factual position is that the original assessment for the year under consideration had been completed under section 143(3). Thereafter, the very same two issues, namely, capitalization of proportionate interest expenditure of Rs.7.91 crores to capital work-in-progress and the alleged differential value of Rs.1.77 crores in respect of sale of flats, were specifically identified in the proceedings under section 263. The order passed under section 263 directed the Assessing Officer to verify these very issues and complete the assessment in accordance with law.
10. It is equally undisputed that, in pursuance of the directions under section 263, the Assessing Officer examined the issues and passed an assessment order dated 28.03.2022 without making any addition. The assessment order itself records that the contentions of the assessee had been verified and no variation was found. Thus, the two issues which subsequently became the basis for the reassessment order dated 29.03.2022 had already been considered and dealt with by the Assessing Officer pursuant to the revisionary order under section 263.
11. In these circumstances, the action of the Assessing Officer in again invoking the reassessment jurisdiction under section 147 in respect of the identical issues cannot be sustained. The learned CIT(A) has correctly appreciated the statutory scheme and the effect of the third proviso to section 147 applicable to the facts of the present case. Once the very issues had been the subject matter of revision under section 263 and had thereafter been examined by the Assessing Officer in pursuance of the directions issued therein, the Assessing Officer could not assume jurisdiction under section 147 to reassess those very matters. The two proceedings cannot be permitted to operate simultaneously or successively in respect of the same subject matter in a manner which defeats the statutory demarcation between the revisionary jurisdiction under section 263 and the reassessment jurisdiction under section 147.
12. We also find considerable force in the observation of the learned CIT(A) that the action of the Assessing Officer resulted in two assessment orders being passed within a span of one day in respect of the same assessment year and on the very same issues, with diametrically opposite conclusions. On 28.03.2022, after verification pursuant to the order under section 263, the Assessing Officer found no variation and made no addition. On 29.03.2022, while exercising reassessment jurisdiction under section 147, the Assessing Officer treated the very same matters as having escaped assessment and made additions aggregating to Rs.9.68 crores. Such an approach cannot be accepted in the absence of lawful jurisdiction to undertake the second assessment on the identical subject matter.
13. The learned CIT(A) has also recorded a finding that the reasons for reopening were founded upon matters which had already formed part of the proceedings under section 263. The statutory scheme does not contemplate such overlapping assumption of jurisdiction. The object of the third proviso to section 147,as it existed prior to 01.04.2021, is to ensure that matters which have already fallen within the scope of revisionary proceedings under section 263 are not subjected to a parallel or subsequent reassessment under section 147. The reassessment proceedings in the present case, being directed against the very same issues which had already been considered in the proceedings under section 263, were therefore rightly held to be without jurisdiction.
14. Once the initiation of proceedings under section 147 itself is found to be invalid, the consequential additions made in the reassessment order cannot survive independently. Therefore, it is not necessary for us to examine the merits of the additions of Rs.7.91 crores and Rs.1.77 crores. The finding of the learned CIT(A) that the reassessment order dated 29.03.2022 is invalid and unsustainable in law consequently requires no interference.
15. We further note that the learned CIT(A) has dealt with the grounds relating to the validity of the reassessment proceedings and, having held the reassessment itself to be invalid, allowed the consequential grounds as well. The residuary ground was treated as dismissed. The Revenue has not brought before us any material or circumstance which would warrant interference with the findings recorded by the learned CIT(A). The findings are based upon the admitted chronology of the proceedings and the statutory position applicable thereto.
16. In view of the foregoing discussion, we find no infirmity in the impugned order of the learned CIT(A). The reassessment proceedings initiated under section 147 and the consequential assessment order dated 29.03.2022 having been correctly held to be invalid, the additions made therein cannot be sustained. Accordingly, the order of the learned CIT(A) is upheld.
17. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 22.09.2026.
