GKN Driveshafts Procedure Violated: ITAT Mumbai Quashes Reassessment of Roomy Exports Over Delayed Reasons and Undecided Objections

Case Background

Case Name: Roomy Exports Vs ACIT (ITAT Mumbai)
Appeal Number: ITA No. 2178/Mum/2026
Date of Order: 24/09/2026
Assessment Year: 2007-08

The Income Tax Appellate Tribunal (ITAT), Mumbai recently set aside a reassessment order in the case of Roomy Exports Vs ACIT, holding that the Assessing Officer had committed a clear breach of the procedural framework mandated by the Supreme Court in GKN Driveshafts (India) Ltd. vs. Income-tax Officer [2002] 125 Taxman 963 (SC). The case turned entirely on procedural compliance — specifically, the unreasonable delay in furnishing recorded reasons and the failure to dispose of the assessee's objections through a speaking order.

Original Return and Initiation of Reassessment

Roomy Exports had originally filed its return of income on 28 September 2007, declaring a total income of ₹23,74,231/-, which was subsequently processed under Section 143(1) of the Income Tax Act, 1961.

The matter resurfaced years later when the Assessing Officer received information from the Directorate of Investigation wing, which had conducted a search in the matter of the Rajendra S. Jain Group. Based on this information, the Assessing Officer formed a belief that the assessee had availed certain accommodation entries in the form of bogus unsecured loans and bogus sales, and that income chargeable to tax amounting to ₹58,84,676/- had escaped assessment.

Acting on this belief, the Assessing Officer issued a notice under Section 148 of the Income Tax Act, 1961 on 27 March 2014, after recording reasons in writing and obtaining the requisite sanction under Section 151 of the Act.

The reassessment proceedings were concluded on 23 March 2015 by way of an order under Section 143(3) read with Section 147. In this order, the Assessing Officer treated purchases amounting to ₹58,84,676/- as unexplained — notably, a departure from the recorded reasons which referenced bogus loans and sales — and assessed total income at ₹82,58,910/-.

Noteworthy: The recorded reasons cited bogus unsecured loans and sales, whereas the actual addition in the reassessment order related to purchases — a factual divergence that, however, the Tribunal did not need to examine given the procedural findings.

The Chronology That Decided the Case

The sequence of events leading up to the reassessment order became the central focus of the Tribunal's analysis. The following timeline was placed on record: