The Madras High Court has refused to interfere with income-tax reassessment proceedings initiated against a partnership firm after information obtained from GST records showed sales of approximately ₹3.94 crore during the relevant financial year, even though the firm had not filed its income-tax return.
The bench of Justice Senthilkumar Ramamoorthy has observed that, at the preliminary stage, the material recorded by the Assessing Officer provided a reasonable basis for initiating reassessment proceedings for Assessment Year 2020–21.
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The bench however, permitted the assessee to raise all its objections—including the challenge concerning limitation—before the Assessing Officer by producing the relevant documents during reassessment.
The petitioner/assessee approached the High Court challenging an order dated June 29, 2026, passed under Section 148A(3) of the Income Tax Act, 1961. The order related to Assessment Year 2020–21 and paved the way for reassessment proceedings against the firm.
The petitioner sought the issuance of a writ of certiorari to quash the order. It argued that the Income Tax Department had not properly considered the explanation furnished in response to the notice issued under Section 148A(1).
Counsel for the petitioner, Mr. Karventhan A.P., referred to the firm’s reply dated April 10, 2026, and submitted that an adequate explanation had been provided regarding its transactions with Shapoorji Pallonji and Company Private Limited.
According to the petitioner, it had also requested the Income Tax Department to independently verify the transactions by exercising its powers under Section 133(6) of the Income Tax Act.
Section 133(6) empowers the prescribed income-tax authority to require persons, including banks and other entities, to furnish information that may be useful or relevant to proceedings under the Act.
The petitioner contended that the reassessment order was issued without undertaking the requested verification.
It further argued that the statutory conditions for invoking the extended reassessment limitation period under Section 149(1)(b) had not been satisfied.
Appearing for the Income Tax Department, senior standing counsel Ms. M. Sheela submitted that the Assessing Officer had recorded cogent reasons for rejecting the petitioner’s explanation regarding its dealings with Shapoorji Pallonji and Company Private Limited.
The Department particularly relied on the fact that Alpha Enterprises had not filed its income-tax return for Assessment Year 2020–21.
The impugned order recorded that information obtained from the GST records reflected total sales of ₹3,94,27,894 by the assessee during Financial Year 2019–20. The financial year corresponded to Assessment Year 2020–21.
Despite the substantial sales disclosed in the GST records, the assessee had not filed its income-tax return for the relevant assessment year.
The petitioner explained before the Court that the return could not be filed because one of the partners of the firm had passed away during the relevant period.
The High Court explained that the precondition for initiating reassessment proceedings is the existence of information suggesting that income chargeable to tax has escaped assessment.
The Court also addressed the statutory requirement for invoking the extended limitation period under Section 149(1)(b).
It observed that, to invoke the extended period, the Assessing Officer should possess documents or evidence indicating that the income chargeable to tax which escaped assessment amounts to, or is likely to amount to, more than ₹50 lakh.
The GST records indicated sales exceeding ₹3.94 crore, while the firm had failed to file its income-tax return for the corresponding assessment year.
Considering these circumstances and the findings recorded in the impugned order, the Court held that it could not be concluded, at the preliminary stage, that the Assessing Officer lacked a reasonable basis to initiate reassessment.
The Court consequently declined to quash the order passed under Section 148A(3).
It directed the petitioner to file its return of income in response to the notice issued under Section 148 and participate in the reassessment proceedings.
The Court clarified that the assessee would remain free to raise all available contentions before the Assessing Officer. This expressly included its objection regarding the limitation period applicable to the reassessment proceedings.
The petitioner was permitted to place all relevant documents and supporting materials before the Department to substantiate its contentions.
At the same time, the High Court directed the Income Tax Officer to duly consider the petitioner’s objections and documents during the reassessment proceedings before passing an assessment order under Section 147.
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