Supreme Court affirms Calcutta High Court’s annulment of reassessment made in breach of interim stay

Background of the dispute

The controversy arose from a reassessment framed against Mangalkamna Commosale Private Limited for Assessment Year 2013–14. The reassessment had been completed under Section 147 read with Section 144 of the Income Tax Act 1961 by an order dated 30 May 2023.

Prior to this reassessment, the assessee had approached the Calcutta High Court challenging the initiation of reassessment proceedings, particularly the order issued under Section 148A(d). In that earlier writ petition, registered as WPO 398 of 2023, the High Court had on 15 March 2023 granted an interim order explicitly restraining the Income Tax Department from taking any further proceedings subsequent to the order under Section 148A(d).

Despite this subsisting interim protection, the Department proceeded to pass the reassessment order dated 30 May 2023 under Section 147 read with Section 144. This alleged violation of the High Court’s stay order became the core issue in the subsequent writ proceedings.

Proceedings before the Calcutta High Court

Challenge to the reassessment order dated 30 May 2023

The assessee later filed a fresh writ petition, numbered WPO 1534 of 2023, before the Calcutta High Court. In this petition, the assessee assailed the reassessment order dated 30 May 2023 primarily on the ground that:

  • There was a specific interim stay in place from 15 March 2023 in WPO 398 of 2023, and
  • That stay order categorically barred the Department from taking further steps after the passing of the order under Section 148A(d).

The assessee argued that, notwithstanding this clear restraint, the Assessing Officer proceeded to finalize the reassessment, rendering the order a nullity in law as it was passed in the teeth of a subsisting judicial injunction.

Department’s inability to rebut the allegation

During the hearing before the Calcutta High Court, the counsel representing the Income Tax Authority was unable to deny or counter the specific assertion that the reassessment order had been passed while the interim stay remained operative. In other words, there was no effective dispute regarding the existence or continuance of the interim order dated 15 March 2023 at the time the reassessment was framed on 30 May 2023.

This factual position – that the reassessment had been completed during the pendency of a prohibitory interim order – was crucial to the High Court’s determination.

High Court’s decision: reassessment quashed

Upon examining the material placed on record and considering the submissions:

  • The Calcutta High Court concluded that the impugned reassessment order dated 30 May 2023 had indeed been passed in contravention of its interim order in WPO 398 of 2023.
  • The Court held that an assessment or reassessment order cannot stand when it is made in violation of an existing judicial stay, irrespective of the merits of the underlying reassessment proceedings.

Accordingly, the High Court:

  1. Quashed and set aside the reassessment order passed under Section 147 read with Section 144 for Assessment Year 2013–14, and