Case Law Details
Dominion Diamond (India) Private Limited Vs ACIT (Bombay High Court)
Bombay High Court dealt with a writ petition filed by Dominion Diamond (India) Private Limited challenging (i) a notice issued under Section 148 of the Income Tax Act, 1961, dated 31 March 2021; (ii) orders dated 3 March 2022 and 8 March 2023 rejecting the assessee’s objections to reopening; and (iii) the assessment order dated 31 March 2022. The Court had earlier, on 4 May 2022, granted ad-interim relief staying all these actions and restraining the tax authorities from “taking any further steps” pending final disposal of the petition. This stay order continued to remain in effect.
Despite this, the Assessing Officer (AO) proceeded to treat the Section 148 notice as a show-cause notice under Section 148A(b), relying on the Supreme Court’s decision in Union of India & Others v. Ashish Agarwal (444 ITR 1). The AO argued that since the notice dated 31 March 2021 was served on 1 April 2021, it fell under the new reassessment regime effective from that date. Based on this reasoning, the AO passed an order under Section 148A(d) rejecting the assessee’s objections, even though the High Court’s stay order explicitly restrained the authorities from proceeding further.
In its affidavit, the Revenue contended that the original assessment order of 31 March 2022 no longer survived, as it was replaced by actions under the new regime following the Bombay High Court’s earlier ruling in Emcure Pharmaceuticals Ltd. v. ACIT (W.P. No. 5293 of 2022, decided on 5 May 2022).
Senior Counsel Mr. Mistry, appearing for the petitioner, submitted that even assuming the new reassessment framework applied, the Revenue could not recover any tax under the now-nonexistent assessment order of 31 March 2022. He pointed out that no fresh assessment order had been issued following the 148A(d) proceedings, yet the Department had adjusted refunds due to the petitioner for subsequent years against the demand raised in the stayed assessment order. This refund adjustment amounted to ₹1,63,45,488. Mr. Mistry produced copies of the challans generated by the Income Tax Department confirming such adjustments and sought directions for refund of this amount, or at least for it to be deposited with the Court.
Counsel for the Revenue, Mr. Sharma, opposed this plea, asserting that the alleged adjustment was not reflected in the ITBA (Income Tax Business Application) system, and therefore no relief should be granted to the petitioner.
After hearing both sides, the High Court noted that the ad-interim stay granted on 4 May 2022 remained in force and restrained the authorities from taking any further steps. The Court expressed serious doubt as to how the AO could have proceeded to treat the Section 148 notice as a show-cause notice under Section 148A(b) or passed an order under Section 148A(d) in clear contravention of the subsisting stay. The Court observed that the impugned notices dated 31 March 2021 and 8 March 2022, as well as the assessment order dated 31 March 2022, were stayed, and the authorities were specifically restrained from further action. Hence, the AO’s conduct in proceeding under the new regime despite the stay order was prima facie impermissible.
The Court noted that no new assessment order had been passed after the 148A(d) order, and accordingly held that the petitioner was entitled to further interim protection. The Court granted additional ad-interim relief in terms of prayer clause (d1), which restrained the authorities from taking any action pursuant to the order and notice dated 28 July 2022. This interim protection was stated to be in addition to the earlier stay granted under prayer clause (d).
On the issue of refund adjustment, the Court found merit in the petitioner’s claim. It observed that once the assessment order dated 31 March 2022 had been stayed, no recovery could lawfully be initiated by the Department. Further, since the Revenue itself contended that the assessment order no longer survived under the new regime, the adjustment of refunds against a non-existent demand was indefensible. The Court thus concluded that, viewed from any perspective, the refund adjustment of ₹1,63,45,488 was prima facie invalid.
Rejecting the Revenue’s contention that the adjustment was not visible in the ITBA system, the Court accepted the petitioner’s documentary evidence—challans generated by the Income Tax Department itself—showing that refunds for later years were indeed set off against the disputed demand. The Court held that the AO’s inability to locate the transaction in the ITBA system did not absolve the Department or justify the adjustment.
Consequently, the Court directed the Revenue to deposit the sum of ₹1,63,45,488 with the High Court by 10 October 2025, clarifying that the amount would remain subject to further orders in the writ petition. The Court reiterated that the ad-interim relief granted under both prayer clauses (d) and (d1) would continue until further orders.
An additional affidavit dated 23 June 2025 filed by the Revenue was taken on record, and the matter was directed to be listed for admission on 14 October 2025, with the Court indicating that the writ petition might be disposed of on that date, time permitting. The order was to be digitally signed and circulated electronically for compliance.
In essence, the Bombay High Court held that the Assessing Officer’s actions taken in defiance of its existing stay order were prima facie illegal. It ruled that the Revenue’s adjustment of the petitioner’s refunds toward demand arising from a stayed and non-surviving assessment order was invalid. The Court ordered the Department to deposit the disputed amount in court and extended the stay on further proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This Writ Petition was originally filed challenging (i) the Notice dated 31st March 2021 issued under Section 148; (ii) the impugned Orders dated 3rd March 2022 and 8th March 2023 rejecting the objections to the reasons for reopening the assessment; and (iii) the impugned Assessment Order dated 31st March 2022. In this Writ Petition, on 4th May 2022 an order was passed granting ad-interim relief in terms of prayer clause (d) which has undisputedly continued from time to time. For the sake of convenience, prayer clause (d) is reproduced here under :-
“d. that pending the hearing and final disposal of this petition the operation of the impugned notice under section 148 of the Act dated 31st March, 2021 (Exhibit D), the impugned orders dated 3rd March, 2022 (Exhibit L) and 8th March, 2022 (Exhibit N) passed by Respondent No. 2 and the impugned assessment order dated 31st March, 2022 (Exhibit U) passed by Respondent No. 2 be stayed and the Respondents, their successors in office, subordinates, servants and agents be restrained by an order and injunction of this Hon’ble Court from taking any further steps ;.”
(emphasis supplied)
2. Despite this ad-interim order, the Assessing Officer has proceeded to treat the Notice issued under Section 148 as a Show Cause Notice under Section 148A(b) on the basis of the Judgment of the Hon’ble Supreme Court in the case of Union of India & Others Vs. Ashish Agarwal [444 ITR Page 1]. According to the Assessing Officer, though the notice was issued on 31st March 2021, the same was served upon the Petitioner on 1st April 2021 and therefore the new regime would apply which came into effect from 1st April 2021. It is on this basis that the Assessing Officer treated the notice under Section 148 as a Show Cause Notice under Section 148A(b) and thereafter has proceeded to pass the order under Section 148A(d) rejecting the objections of the Petitioner to the said Show Cause Notice. This is despite the fact that this court, by its order dated 4th May 2022 restrained the Respondents from “taking any further steps”.
3. In the affidavit-in-reply filed by the Revenue, it is stated that since the Notice under Section 148 is now treated as a Show Cause Notice under Section 148 A(b), the assessment order dated 31st March 2022 no longer survives and is given go-by by virtue of the decision of this court in the case of Emcure Pharmaceuticals Limited Vs. Assistant Commissioner of Income Tax Central Circle 2(1), Pune and others [Writ Petition No. 5293 of 2022 decided on 5th May 2022].
4. Mistry, the learned senior Counsel appearing on behalf of the Petitioner, submitted that though the Petitioner does not accept that the Assessing Officer can proceed under the new regime, assuming for the sake of argument that the new regime did apply, and the assessment order dated 31st March 2022 is given a go-by, then, the Revenue could never have recovered any tax from the Petitioner under the assessment order dated 31st March 2022. Mr. Mistry submitted that admittedly, no assessment order has been passed against the Petitioner after passing of the order under Section 148A(d) of the IT Act. Despite aforesaid, the Revenue has been adjusting the refund for subsequent years towards the demand under assessment order dated 31st March 2022, which adjustment comes to Rs. 1,63,45,488/-. In this regard, Mr. Mistry placed on record the challan receipts generated by the Income Tax
Copies of these challans have also been given to Mr. Sharma, the learned advocate appearing on behalf of the Revenue. Mr. Mistry, therefore, submitted that in these circumstances, the Revenue be asked to refund the amount of Rs. 1,63,45,488/- to the Petitioner, or at the very least, the same be deposited in this court.
5. This relief sought by Mr. Mistry, was vehemently opposed by Mr. Sharma, the learned Counsel appearing on behalf of the Revenue. He submitted that according to the Assessing Officer, the aforesaid adjustment is not reflected in the summary report taken from the ITBA system. In such circumstances, he submitted that no relief be granted to the Petitioner.
6. We have heard the learned Counsel for the parties and also perused the papers and proceedings in the above Writ Petition. It is not in dispute before us that the ad-interim order passed on 4th May 2022 continues till date. We, therefore seriously doubt that the Assessing Officer could have embarked upon the journey to treat the Section 148 notice as a Show Cause Notice under Section 148 A(b) of the IT Act or proceeded to pass the order under Section 148A(d). We say this because by virtue of the ad-interim order not only were the impugned notices dated 31st March 2021, and 8th March 2022 stayed by this court, but even the assessment order dated 31st March 2022 was stayed. Further the Respondents, their successors in office, subordinates, servants and agents were restrained by an order and injunction from taking any further steps. Once this is the case, at least, prima facie, we are of the view that the Assessing Officer could not have embarked upon the journey of treating the notice issued under Section 148 as a Show Cause Notice under Section 148 A(b) of the IT Act or pass the order under Section 148 A(d).
7. Thankfully, no assessment order has been yet been passed by the Assessing Officer after passing the order under Section 148 A(d). We are therefore of the view that the Petitioner is certainly entitled to ad-interim relief in terms of prayer clause (d1) which reads thus :-
“d1. that pending the hearing and final disposal of this petition the Respondents, their successors in office, subordinates, servants and agents be restrained by an order and injunction of this Hon’ble Court from taking any steps pursuant to the passing of the order (Exhibit Y) dated 28th July, 2022 and the issue of the notice (Exhibit Z) dated 28th July, 2022 .”
8. This will obviously be in addition to ad-interim relief in terms of prayer clause (d) granted by order dated 4th May 2022.
9. This now only leaves us to deal with the argument of Mr. Mistry as to whether the Income Tax Department ought to refund or, at the very least, deposit in this court the sum of Rs. 1,63,45,488/- which was adjusted by the Income Tax Department on the basis of the demand raised on the Petitioner pursuant to the impugned assessment order dated 31st March 2022.
10. We, after hearing the parties, are of the view that this amount should be deposited in this court. We say this for two reasons. Firstly, by order dated 4th May 2022, and which has undisputedly continued till date, the operation of the impugned assessment order was stayed. Once that order was stayed, no recovery pursuant thereto could have been initiated by the Income Tax Department. Secondly, it is also the case of the Revenue that the Revenue is proceeding under the new regime [which came into effect from 1st April 2021], and the impugned assessment order no longer survives and has to go. If this is the stand of the Revenue [which is refuted by the Petitioner] then we fail to understand how it could have adjusted the refund due to the Petitioner for subsequent years against the demand raised pursuant to the assessment order dated 31st March 2022. Hence, looking at it from any angle, we are at least prima facie of the view that this recovery could not have been made from the Petitioner. It is because of the foregoing reasons, that we are of the view that the Revenue ought to deposit the sum of Rs. 1,63,45,488/- in this court and which would then abide by further orders passed in this Writ Petition.
11. As far as the argument of Mr. Sharma regarding the fact that the aforesaid amount is not reflected in the ITBA system, as visible to the Assessing Officer, we find no force in the aforesaid argument. Mr. Mistry has in fact produced the challans generated by the Income Tax Department itself, when the refund for subsequent years has been adjusted towards the alleged outstanding demand. Once this is the case, merely because the Assessing Officer is unable to find the aforesaid adjustment in the ITBA system will not carry the case of the Revenue any further.
12. In view of the aforesaid discussion, we pass the following order :-
: O R D E R:
A) There shall be ad-interim relief in terms of prayer clause d(1) reproduced earlier. This ad-interim order is in addition to the ad-interim order granted on 4th May 2022 in terms of prayer clause (d). The ad-interim order passed by us today in terms of prayer clauses (d) and d(1) shall continue until further orders.
B) In addition to the aforesaid, the Revenue shall deposit in this court the sum of Rs. 1,63,45,488/- by 10th October 2025.
13. Mr. Sharma has tendered the additional affidavit dated 23rd June 2025 on behalf of the Revenue. A copy of the same has already been served on the advocate for the Petitioner. The said additional affidavit is taken on record.
14. We now place the above Writ Petition on board for admission on 14th October 2025 at 03.00 p.m.
15. We put the parties to notice that we may dispose of this Writ Petition at that stage itself, time permitting.
16. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
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