S. 149 Income Tax Act | Reassessment Beyond Limitation Period Is Valid Where 'Bogus' Royalty Payments Exceed ₹50 Lakh: Bombay High Court

Justices Bharati Dangre and Nivedita P. Mehta upheld the reassessment proceedings initiated beyond three years, in the present case, where the alleged bogus royalty expenses exceeded 50 Lakhs.

The bench opined that Section 149(1)(b) of the Income Tax Act is a jurisdictional fact which must be established prior to reopening of assessment on the ground that income has escaped assessment.

The assessee/petitioner is a medical diagnostic device company that provides a single point of care platform for accurate disease diagnostics.

The assessee appointed M/s Nexellence Consulting Pvt. Ltd. as technical/commercial consultants for the tenders issued by the Central/State Government for the supply of products manufactured or for the services rendered by the assessee company.

The return filed by the assessee was processed and accepted under Section 143(1) of the Income Tax Act.

By notice issued under section 148A(b) of the Act, the respondent no.1 (Assistant Commissioner of Income Tax) has alleged that he has information indicating that income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act.

It was concluded in the show cause notice that the payment made towards advance royalty is bogus in nature and has only been booked as an expense to reduce the net profit.

By an order issued under Section 148A(d) of the Act, the respondent no.1 held that the case was fit for the opening of assessment under Section 147 of the Act and accordingly, notice under Section 148 of the Act was issued.

The impugned order was passed by the respondent no.1, holding that the assessee has booked bogus expenses on account of royalty and for charges for AY 2020-2021, and the income chargeable to tax has escaped assessment amounting to 50 lakhs or more, and the case falls within 149(1)(b) of the Act.

The assessee argued that the impugned order and notice are barred by limitation since the income that has escaped assessment for AY 2020-2021 can at the highest be assessed to Rs. 1,00,00,000/-.

The respondent no.1 and 2/department submitted that no case is made out warranting interference under Article 226 and the assessee should substantiate their case before the Assessing Officer in the reassessment proceedings.

The issue in the matter is whether the amount of Rs. 1,50,50,000/- can be construed as an income chargeable to tax which has escaped assessment in terms of Section 149(1)(b)(i)(ii)(iii).

As per the bench, Section 149(1)(b) is a jurisdictional fact which requires to be established prior to reopening of assessment on the ground that income has escaped assessment. The assessee has claimed that the expenditure is less than Rs. 50,00,000/- in respect of M/s Stellar and M/s Nexelence. This claim of the assessee cannot be considered and accepted outrightly which is the import of the impugned order.

The bench further opined that the impugned order is based on formulation of a reasonable belief at the initial stage based on survey under Section 133A of the Act. The assessee has the necessary opportunity to establish its case by producing necessary material including the ledger accounts which have to be considered by the respondent no.1.

The bench stated that the jurisdictional pre-conditions contemplated under Section 148A(b) for reopening of the Assessment after 3 years have been met and the Impugned Order cannot be said to be without jurisdiction.

In view of the above, the bench dismissed the petition.

Case Title: Molbio Diagnostics Limited v. Assistant Commissioner of Income Tax

Case Number: WRIT PETITION NO.142 OF 2025

Counsel for Petitioner/Assessee: Pramod Vaidhya with Nigel Fernandes

Counsel for Respondent/Department: Swati Kamat Wagh

Click Here To Read/Download The Order