Court Rules Assessment Order under Section 143(3) read with Section 263 Cannot Survive Without Valid Section 263 Order; Revenue's Appeal Lacks Substantial Question of Law
In a significant ruling impacting income tax proceedings, the Bombay High Court has dismissed the appeal filed by the Principal Commissioner of Income Tax (Revenue) challenging the Income Tax Appellate Tribunal's (ITAT) decision to quash an order passed under Section 263 of the Income Tax Act, 1961. The judgment in the case of Principal Commissioner of Income Tax 2 Mumbai vs. The Bombay Dyeing and Manufacturing Co. Ltd. (Income Tax Appeal (L.) No. 20200 of 2024) was delivered on August 28, 2026, by a Division Bench comprising Justices G. S. Kulkarni and Dr. Neela Gokhale.
The dispute arose from an assessment year 2015-16 assessment order dated October 31, 2021, which was passed by the Assessing Officer under Section 143(3) read with Section 263 of the Act following an order under Section 263 dated March 18, 2020. However, the ITAT had earlier quashed the Section 263 order in an appeal filed by the Revenue, effectively annulling the foundation on which the subsequent assessment order was based.
The assessee, Bombay Dyeing and Manufacturing Co. Ltd., contested the validity of the assessment order on the ground that the quashing of the Section 263 order by the ITAT rendered the assessment order invalid. The Commissioner of Income Tax (Appeals) supported this position and allowed the assessee's appeal, stating the assessment order could not survive without a valid Section 263 order.
The Revenue sought to challenge this in the High Court, arguing that their appeal against the ITAT's quashing of the Section 263 order was pending before the Court and that the current appeal should be heard alongside it. They contended that the Assessing Officer's order under Section 143(3) read with Section 263 should be considered valid until the pending appeal was decided.
The High Court, after hearing both parties, upheld the ITAT and CIT(A) decisions. The Court emphasized that once the Section 263 order was quashed by the Tribunal, the Assessing Officer had no jurisdiction to pass an assessment order under Section 143(3) read with Section 263. The pendency of the Revenue's appeal challenging the quashing order did not create a legal basis to validate the subsequent assessment order.
The Court observed, "Merely because the Revenue has not accepted the decision of the co-ordinate Bench, without pointing out any material on record or submitting that the assessment order is sustainable, we are not inclined to upset the order of the CIT(A)." It further clarified that if the Revenue succeeds in its separate appeal against the ITAT's quashing of the Section 263 order, the legal consequences would follow, including the necessity of a fresh assessment order in accordance with law.
The appeal was dismissed for lack of any substantial question of law, and no costs were awarded. The judgment reinforces the principle that an assessment order under Section 143(3) read with Section 263 cannot survive independently if the underlying Section 263 order is quashed.
This decision provides clarity on the procedural jurisdiction of the Assessing Officer and the effect of appellate orders under the Income Tax Act, ensuring that the validity of assessment proceedings is contingent on the existence of a legally sustainable Section 263 order.
Bottom Line:
Income Tax Act - Assessment order passed under Section 143(3) read with Section 263 of the Act cannot survive if the underlying order under Section 263 has been quashed by the Income Tax Appellate Tribunal (ITAT).
Statutory provision(s):
Income Tax Act, 1961 - Section 143(3), Section 263, Section 260A, Section 250
