AI Drafter 
TaxTMI 
TaxTMI 
2026 (4) TMI 1791
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....y and handed it over to JW Marriott. For the construction of the said Hotel, the Petitioner incurred capital expenditure amounting to Rs. 639,73,36,790/- as per its return of income. In its return of income, the said amount of capital expenditure was claimed as a deduction under Section 35AD of the Act. Thereafter, the case of the Petitioner was selected for scrutiny assessment. During the course of the said assessment, the Assessing Officer issued Notices and raised certain queries. He specifically called for the details in respect of the expenditure and in particular sought an explanation as regards the claim of deduction under Section 35AD. In response, the Petitioner filed various submissions before the Assessing Officer. In particular, vide submissions dated 19.09.2016 and 27.12.2016 filed before the Assessing Officer, the Petitioner provided explanation and details as regards the deduction claimed under Section 35AD. These letters are annexed as Exhibit C to the present petition [Ref. Pgs. 78 and 79 of the Petition]. Thereafter, the assessing officer went on to pass the assessment order under Section 143(3) of the Act, whereby he specifically mentioned and allowed the claim o....
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....usiness in the following manner: Tangible Capital work in progress (Closing balance) (During the year expenditure Is Rs. 57,67,40,629) Rs. 3,48,67,64,186 Training and marketing development cost (Through reversal of earlier claimed expenses) Rs. 4,68,06,212 Preoperative expenses pending capitalisation (Note 10.2) Rs. 293,39,48,980 Total expenses capitalised as per books Rs. 646,75,19,379 Miscellaneous expenditure as given in Annexure 7 of 3CD Rs. 73,87,325 Total Rs. 647,49,06,704 Less: Net foreign exchange gain post capitalisation (annexure 7 of 3CD) Rs. 7,75,69,914 Net amount claimed under section 35AD Rs. 639,73,36,790 It is seen From the above that during the year the assassee has capitalised pre-operative expenses of Rs. 293,39,48,980 in the books of accounts (claimed expenditure u/s 35AD) and accordingly claimed loss of the same under section 73A and not as normal business loss under section 72 of the IT Act. On further verification of schedule 10.2 of the balance sheet it is seen that the various expenditures booked as preoperative expenses pending capitalisation are merely of revenue nature and not of capital nature as ....
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....ated 09.02.2022. Thereafter, another order disposing objections came to be passed on 18.02.2022, whereby, for the first time, the Petitioner was informed that the reopening was initiated on the basis of the opinion of the revenue audit party whereby an audit objection was raised in respect of a part of the claim (Rs. 293,39,48,980/- in respect of pre-operative expenses) under Section 35AD stating that the said expenditure is Revenue in nature and not Capital in nature, and therefore, should have been allowed only for a period of 8 years under Section 72 of the Act. 6. Against the said order disposing of objections and challenging the very initiation of reassessment proceedings by issue of a Notice under Section 148 of the Act, the Petitioner has approached this Court. SUBMISSIONS: 7. Mr. Gandhi, the learned Counsel for the Petitioner, furnished a brief synopsis of his propositions to challenge the impugned Notice under Section 148 and the reasons for reopening, on the following primary counts among others: i. The reasons for reopening clearly state that the claim for deduction under Section 35AD was considered by the Assessing Officer in the original assessment an....
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....g of assessment was based on the objection raised by the Revenue Audit Party. He submitted that reasons could not be improved upon by the Assessing Officer; Mr. Gandhi has also relied upon certain judgements in support of the propositions raised by him. 8. On the other hand, Mr. Mishra, the learned Counsel for the Revenue, stated that: i. The Respondent's action of reopening the assessment was justified based on the reasons for reopening; ii. He also submitted that as per the second order disposing objections, it is clearly pointed out that the claim of expenditure was to be treated as revenue in nature and not Capital in nature, and therefore, the same had to be allowed only for a period of 8 years in terms of Section 72 instead of an indefinite period as per Section 35AD; iii. He also fairly admitted that the reopening of assessment is based on the audit objections raised by the revenue audit party. iv. He further relied on the Affidavit in Reply filed by the Respondent. Consequently he submitted that the Writ Petition be dismissed. RULING: 9. We have heard the learned counsel for the parties and have also perused the material on....
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....ch comes to his notice subsequently in the course of the proceedings. The first proviso to section 147 reads as under : "Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year ;" (Emphasis supplied) A perusal of the said proviso makes it clear that where an assessment under section 143(3) or section 147 has been carried out for the relevant assessment year, no action under section 147 can be taken after the expiry of four years from the end of the relevant assessment year unless income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to make a return under s....
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....is well founded. The relevant portion of the said judgment reads as under (page 337) : "The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The....
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....ng Officer. No substitution or deletion is permissible, and no addition can be made to those reasons. Further, no inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to reach the conclusion as to whether there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment for the concerned assessment year. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on the material on record. What is important is that he must disclose in the reasons as to which fact or material was not disclosed by the Assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and the evidence. That vital link is a safeguard against the arbitrary reopening of a concluded assessment. ... 29. In the present case, admittedly there are no details given by the Assessing Officer (the 1st Respondent) as to which fact or material was not disclosed by the Petitioner that led to its income escaping assessment. There is merely a bald assertion in the reasons that there was a failure on the pa....