Income Tax Dept Cannot Reopen Assessment on New Grounds Without Due Notice: Calcutta High Court

The Calcutta High Court has recently held that the income tax department cannot reopen a completed assessment by raising new issues without first following the mandatory procedure under the Income Tax Act. On this basis, the court set aside the reassessment notice issued against a government-owned company.

Under the tax law, Sections 148 and 148A require the department to first issue a detailed notice explaining why it believes income may have escaped tax, give the taxpayer an opportunity to respond, and pass a reasoned order before formally reopening an assessment. Section 147, which allows the department to assess income that was earlier missed, operates only after this initial process is completed.

Explaining this statutory scheme, Justice Om Narayan Rai observed, "The power of the Assessing Officer to assess or reassess income in respect of issues which come to his notice subsequently can be exercised only after the assessment or reassessment proceedings have commenced. The emboldened and underscored portion of the Explanation to Section 147 of the said Act of 1961 makes the said aspect very clear.”

The court said reopening an assessment is a serious statutory exercise and must be undertaken strictly in accordance with these safeguards. It clarified that while the tax department does have the power to reassess income, it cannot bypass the notice-and-hearing process by relying on Section 147 at the threshold stage itself.

The case concerned reassessment proceedings for the assessment year 2019–20 against Balmer Lawrie and Company Limited, a government-owned company under the Ministry of Petroleum and Natural Gas. Among its various businesses, Balmer Lawrie provides travel services. As part of its air travel operations, the company facilitates travel insurance for customers through empanelled insurers and earns a commission for this service.

For the relevant year, Balmer Lawrie filed its income tax return and disclosed the commission it had earned from Reliance General Insurance Company. The return was processed in the normal course, and the department did not take it up for scrutiny at that stage.

That position changed in March 2025, when the tax department issued a fresh notice under Section 148A saying it had information suggesting that some income may have escaped assessment.

The notice pointed to Balmer Lawrie's dealings with Reliance General Insurance Company and asked the government owned company to explain those transactions.

The company responded by furnishing transaction details, payment records, and sample insurance policies.

It also pointed out that its accounts had been audited by the Comptroller and Auditor General of India and that no adverse observations had been made for the relevant year.

However, when the Assessing Officer later passed an order approving the reopening of the assessment and issued a notice under Section 148, the basis of the case shifted. Instead of proceeding on the transactions identified in the notice, the order alleged that certain receipts routed through Prudent Insurance Brokers had not been explained, even though this issue had not been put to Balmer Lawrie in the earlier notice.

The High Court held that this change of approach was impermissible. It noted that the notice had framed the inquiry specifically around transactions with Reliance and that the documents supplied were to be examined only from that perspective.

In these circumstances, the court observed that “reasonably be expected to analyse the other information supplied along with the notice in the light of the charge levelled in order to answer the same.”

Rejecting the tax department's argument that Section 147 permitted such an approach, the court held that the provision becomes operative only after the statutory procedure under Sections 148 and 148A has been followed, and not before.

Holding that the reassessment was initiated on shifting grounds and in violation of procedural safeguards, the High Court allowed the petition and quashed the reassessment notice. It clarified that the tax department remains free to initiate fresh proceedings in accordance with law, provided the statutory conditions are duly fulfilled.

Citation: 2026 LLBiz HC (CAL) 9

Case Title: Balmer Lawrie And Company Limited v. Union of India & Ors.

Case Number: WPO 656 of 2025

Counsel for Petitioner: Pratyush Jhunjhunwala, Sruti Datta, Sakshi Singhi

Counsel for Respondent: Siddhartha Lahiri, Amit Sharma, Abhishek Kr. Agrahari