Bombay High Court cautions tax department against changing stance without legal basis

The court has reaffirmed that the Income Tax Department cannot reverse an accepted position on unchanged facts without statutory or legal justification, while stressing that tax must be imposed only under valid authority of law.

The Bombay High Court has reinforced a familiar but important tax principle: where the facts and law remain materially unchanged, the Income Tax Department should not shift positions without a proper legal basis. The ruling, discussed in reports on Nirmala L. Mehta v. CIT and Balmukund Acharya v. DCIT, underlines that tax administration must remain consistent, fair and anchored to statute rather than convenience. According to commentary on those decisions, the court linked that approach to the constitutional rule in Article 265 that no tax may be levied or collected except by authority of law.

That matters because income tax disputes often repeat across assessment years. A receipt, an expense, an accounting method or the treatment of a business activity may be accepted in one year and then questioned in the next. Tax practitioners say consistency is especially important where the department has already examined the issue and found no fault, since taxpayers are entitled to some certainty if neither the law nor the underlying facts have changed. The Bombay High Court’s approach, as reflected in the materials reviewed, is that the Revenue cannot simply “blow hot and cold” on the same issue.

At the same time, the doctrine of consistency is not absolute. The department can depart from an earlier view if the law has changed, the facts are different, a higher court has given a fresh ruling or the earlier position was plainly unsustainable. What the court rejected, however, was an arbitrary change of stance without explanation. The distinction is important: tax authorities may correct errors through the legal mechanisms available to them, but they cannot create a levy simply by deciding later that a previous view was mistaken.

That point is reinforced by Article 265 of the Constitution. The principle is straightforward: tax must have statutory authority. Commentary on the Bombay High Court decisions says this means neither departmental practice nor a taxpayer’s silence can substitute for a valid charge under the Act. If the statute does not authorise the levy, the demand remains vulnerable, no matter how long the department may previously have accepted a different treatment.

The court’s reasoning in Nirmala L. Mehta, according to the secondary reports, has long been treated as a reminder that tax officers must help ensure only lawful taxes are collected, even where an assessee may have been over-assessed through mistake or misconception. The later discussion of Balmukund Acharya carries the same message: the Revenue is bound by law, and estoppel has only limited relevance in tax matters because it cannot override a taxing statute.

Another practical issue raised by the commentary is the effect of earlier acquiescence by a taxpayer. A taxpayer’s failure to object in one year does not necessarily erase a statutory entitlement in another year, just as departmental acceptance does not by itself create a permanent legal position. The law remains controlling. That is why advisers often stress that each year should be tested against the current statute, the actual facts and any binding judicial authority, rather than against administrative habit.

The materials also note that a High Court decision cannot be ignored merely because an appeal has been filed in the Supreme Court. Unless there is a stay or a later binding ruling changes the position, the judgment remains effective within its jurisdiction. For taxpayers, that point can be crucial in reassessment disputes and in cases involving centralised or automated processing, where notices may be issued mechanically despite settled local precedent.

For taxpayers facing a new demand after years of acceptance, the practical response is to build a clear record: identify the earlier orders, show that the facts are unchanged, check for amendments or later case law and raise the jurisdictional point if the levy lacks statutory support. The Bombay High Court’s broader message is that consistency is not a technicality. It is a safeguard against arbitrariness, and a reminder that in tax matters the department may change its view, but it cannot change the law.