Reassessment cannot be initiated on the same material after draft assessment proceedings lapse by limitation.

For A.Y. 2021–22, the petitioner’s return was scrutinised, including a transfer-pricing adjustment of Rs. 31,16,52,233.

The Assessing Officer issued a draft assessment order under Section 144C(1) on 29 December 2023.

The petitioner informed the AO that it would not object before the DRP, but no final assessment order was passed within the time prescribed by Section 144C(4), and the proceedings lapsed.

In 2025, relying on the same transfer-pricing adjustment flagged on the Insight Portal, the AO issued notices under Section 148A(1), rejected the petitioner’s objections, and issued a notice under Section 148.

The petitioner challenged the notices and the order under Section 148A(3).

1. Whether the AO could initiate reassessment under Section 148 on the basis of the same material considered in scrutiny proceedings that culminated in a draft assessment order, after allowing the period for passing the final order under Section 144C(4) to expire.

2. Whether reassessment could be used to address the AO’s failure to finalise the original assessment within the prescribed limitation period, where no fresh material had come to the Revenue’s notice.

Section 144C(4) requires the AO to pass the final assessment order within the prescribed period after the assessee communicates acceptance of the draft order or the period for filing DRP objections expires.

Applying the principles in Commissioner of Income-tax v. Ved & Co., [2007] 162 Taxman 366 (Delhi), and KLM Royal Dutch Airlines v. Assistant Director of Income-tax, [2007] 159 Taxman 19 (Delhi), the Court held that reassessment cannot be used to revive or extend an assessment that the AO failed to complete within time; where the original proceedings have lapsed, reopening on the same material is impermissible, particularly absent fresh material.

The transfer-pricing adjustment had been examined during scrutiny and was incorporated into the draft assessment order. The petitioner’s response to that draft was on record, but the AO did not pass a final order before the Section 144C(4) limitation expired.

The 2025 reopening relied on the same adjustment, and the Revenue did not contend that any fresh or different material had emerged.

The Court therefore concluded that the AO could not use reassessment to overcome the consequence of failing to complete the original assessment in time.

The petition was allowed; the notices dated 29 March 2025 and 16 June 2025, and the order dated 14 June 2025 under Section 148A(3), were quashed and set aside. Rule was made absolute, with no order as to costs.