Calcutta High Court Validates Reassessment Proceedings When Original Assessment Dropped Issue Due to Insufficient Evidence
Background of the Dispute
In the matter of Mark Steels Limited Vs ACIT, the Calcutta High Court delivered a significant judgment addressing the procedural validity of reassessment proceedings initiated under Section 148A(3) of the Income-tax Act, 1961. The assessment year under consideration was 2021–22. The company challenged both the order dated 26th June, 2025 passed under Section 148A(3) and the subsequent notice issued under Section 148, contending that these actions were fundamentally flawed as they represented a mere change of opinion.
The assessee company, constituted as a limited liability entity under the provisions of the Companies Act, 2013, argued that the revenue authorities were attempting to reopen matters that had been previously examined and abandoned during the original scrutiny assessment proceedings conducted under Section 143(3). The central grievance revolved around alleged cash transactions with an entity known as the Majee Group concerning coal procurement.
Facts Leading to Reassessment
Initial Scrutiny Assessment
The revenue department had initially commenced scrutiny proceedings for the relevant assessment year by issuing a notice under Section 142(1) dated 15th November, 2022. In this notice, the Assessing Officer specifically questioned the assessee regarding several identified cash transactions allegedly made to the Majee Group, which purportedly involved coal purchases. The information available to the department indicated transactions aggregating approximately Rs. 2,45,00,000/- as cash payments to the said group.
The assessee operates manufacturing facilities producing steel products, with a factory location in Purulia where coal serves as an essential raw material for production processes. Nine separate transactions during the relevant period were flagged by the investigation wing, suggesting significant cash-based procurement from Anup Majee Group.
Assessee's Response to Initial Inquiry
When confronted with these allegations through the notice issued under Section 142(1), the assessee responded vide letter dated 28th November, 2022, categorically denying any business relationship or commercial dealings with the Majee Group. The company maintained that no cash transactions of the nature alleged had ever been executed, and that the allegations were entirely without foundation.
Conclusion of Original Assessment
The Assessing Officer subsequently passed an assessment order under Section 143(3) dated 22nd December, 2022. In this order, the officer recorded that despite attempts to verify the alleged transactions, no data or documentary evidence relating to Anup Majee or the Majee Group could be collected. The officer noted that verification requests sent to relevant parties, including to Central Circle-2(1), Kolkata, and to Anup Majee himself, yielded no responses.
Upon analyzing the income tax return filed for the assessment year 2021-22 and the accompanying audit report for the financial year 2020-21, the Assessing Officer could not identify any information confirming business relations between the assessee and the Majee Group. Consequently, due to the absence of supporting documentation and the inability to establish the alleged business relationship, the issue was dropped, and the assessment was completed without making any addition on this account.
Initiation of Reassessment Proceedings
Show Cause Notice Under Section 148A(1)
Subsequently, on 11th March, 2025, the department issued a notice under Section 148A(1) proposing to reopen the assessment for the year 2021-22. This notice was founded on information uploaded in the Insight Portal of the Income Tax Department, from which it was deduced that income chargeable to tax amounting to Rs. 383,56,66,066/- had escaped assessment. This amount comprised Rs. 2,45,00,000/- relating to alleged cash purchases of coal from the Majee Group, and Rs. 381,11,66,066/- reflected in the taxpayer annual summary (TAS) report.
The show cause notice was accompanied by complete documentation received from the investigation wing, including detailed information contained in communication F. No. ADIT (Inv.), Unit-2(4), Kolkata dated 24th February, 2022.
Assessee's Response to Reopening Notice
The assessee submitted its response to the notice issued under Section 148A(1) through a detailed reply dated 20th March, 2025. The company reiterated that the assessment proceedings had been concluded with an order passed under Section 143(3) dated 22nd December, 2022, wherein no addition was made regarding the alleged Majee Group transactions.
The assessee further pointed out that similar allegations had been raised for the assessment year 2018-19, which could not be substantiated by the revenue authorities. Concerning the TAS report, the assessee clarified that all transactions reflected therein were properly recorded in the regular books of account and could not be characterized as income escaping assessment. Therefore, the company requested that the proposed reopening proceedings be dropped.
Final Order Under Section 148A(3)
The Assessing Officer passed the impugned order under Section 148A(3) dated 26th June, 2025, authorizing the reopening of the assessment. In paragraph 7 of this order, the officer noted that for the assessment year 2018-19, reassessment proceedings had been initiated through a notice under Section 148, and in those proceedings, transactions with the Majee Group were examined in the hands of the assessee.
Contentions Before the High Court
Arguments Advanced by the Assessee
The senior counsel representing the assessee company advanced comprehensive arguments challenging the validity of the reassessment proceedings. The primary contention was that the reopening constituted an impermissible change of opinion. It was emphasized that during the original scrutiny assessment, the very same issue of alleged cash transactions with the Majee Group had been examined in detail.
The counsel submitted that the notice issued under Section 142(1) dated 15th November, 2022 specifically identified nine transactions and explicitly required the assessee to explain cash payments allegedly made to the Majee Group. After receiving the assessee's denial and examining available materials, the Assessing Officer had dropped the issue in the order passed under Section 143(3) dated 22nd December, 2022.
It was argued that once an issue has been scrutinized and subsequently dropped in a concluded assessment order, the jurisdictional Assessing Officer loses competence to review that opinion and pass a fresh order to reopen proceedings by issuing a notice under Section 148. The counsel contended that the department cannot resurrect an abandoned issue merely by gathering additional material at a later stage, as this would amount to a review of the earlier assessment order, which is impermissible.
The assessee also challenged the bona fides of the Assessing Officer, alleging that in paragraph 7 of the order passed under Section 148A(3), the officer had suppressed material information regarding the outcome of reassessment proceedings for the assessment year 2018-19. According to the petitioner, in those earlier proceedings as well, similar allegations regarding transactions with the Majee Group could not be substantiated and were ultimately dropped.
Supporting Case Law Cited by Assessee
In support of these contentions, the assessee relied upon the following judicial precedents:
- Mangalam Publications v. Commissioner of Income Tax, reported in [2024] 461 ITR 159 (SC)
- Seema Gupta v. Income Tax Officer & Ors., reported in [2023] 457 ITR 642 (Delhi)
- Bajaj Allianz Life Insurance Company Ltd. v. Deputy Commissioner of Income Tax, Circle 1(1), reported in [2020] 113 com 238 (Bombay)