2021 (10) TMI 71 - BOMBAY HIGH COURT

Reassessment conducted after 4 years by Income Tax Authorities.

Briefly the facts of the case and the consequent issue that arose in the present matter relates to whether an income tax officer can reopen the assessment of an entity after the expiry of four years.

Petitioner/assessee had taken a loan of INR 530, 43, 11,842 crores; the Petitioner assesse had paid total interest of ₹ 75, 59, 35,292/- on the above said loan. Now, out of the aforesaid amount the Petitioner assessee had also advanced loan amounting to ₹ 52, 05, 73,873/- . The Petitioner had earned interest income of ₹ 7, 73, 87,637/- . Out of total interest paid of ₹ 75,79,35,292/- an amount of ₹ 7,66,66,663/- had been claimed as deduction u/s 57 of the IT Act, 1961 and balance amount of ₹ 68,12,68,629/- had been debited to Work In Progress(WIP).

As per the assessing officer the claim of deduction u/s 57 of the Act was not correct; the assesse is a builder and had taken above mentioned loan (Rs. 530 crores) for the sole purpose of carrying out construction project at Thane. Hence, the interest paid on the said loan is related to assesses business and accordingly is allowable as deduction u/s 37(1) of the IT Act, 1961.

The reasoning being given was that since there was no business income during the year, the entire interest expenses of ₹ 75,59,35,292/- during the pre-construction should have been capitalized to the WIP (Work in progress)  as against claiming ₹ 7,66,66,663/- as deduction u/s 57 which is not an allowable deduction u/s 57 of the Act.

Further, there were reasons to believe that income of ₹ 7, 66, 66,663/-which was chargeable to tax has escaped assessment by reasonof failure on the part of the assesse to disclose fully and truly all material facts necessary and therefore, this case is a fit case for reassessment within the meaning of Section 147 of the I.T. Act, 1961 and the assessment for AN 2012-13 needs to be reopened by issue of notice u/s 148 of the I.T. Act.

Further the assessing officer wrote to the higher income tax authorities time, period of 4 years have already elapsed from the end of the relevant assessment year and the amount of income escaped exceeds ₹ 1 lakh, necessary approval may be accorded for the reopening of the A.Y. 12-13 in the case of the assessed by issuing notice u/s 148 of the IT act as per provision u/s 151(1) of the Act.

Held by the court that the record before the Court was reflective of the position that during the course of the assessment proceedings the assesse had made a full and true disclosure of all material facts in relation to the assessment.  There is no new material to which a reference is to be found and the entire basis for reopening the assessment is the disclosure which has been made by the assesse in the course of the assessment proceedings.

The Petitioner put forth the case law ofCARTINI INDIA LIMITED VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX [2009 (3) TMI 28 - BOMBAY HIGH COURT],a Division Bench of this Court has observed that where on consideration of material on record, one view is conclusively taken by the Assessing Officer, it would not be open to the Assessing Officer to reopen the assessment based on the very same material with a view to take another view.

Further alleged as a contention by the Petitioner/assesse the principle laid down in Cartini must apply to the facts of a case such as the present. The assesse had during the course of the assessment proceedings made a complete disclosure of material facts. The Assessing Officer had called for a disclosure on which a specific disclosure on the issue in question was made.

Held by the hon’ble high court, in such a case, it cannot be postulated that the condition precedent to the reopening of an assessment beyond a period of four years has been fulfilled.

The hon’ble court also quoted a paragraph from the judgment of the Apex Court in PARASHURAM POTTERY WORKS CO. LIMITED VERSUS INCOME-TAX OFFICER, CIRCLE I, WARD A, RAJKOT [1976 (11) TMI 1 - SUPREME COURT], it would be in the interest of citizens of India or we should say, civilization that those who are entrusted with the task of calculating and realising the price that we pay for the civilization should familiarise themselves with the relevant provisions and become well versed with the law on the subject.

Any remissness/laxity on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue.

Finally it was decided that it cannot be said in the present case that there was an omission/ failure on the part of the assesse to disclose fully and truly all material facts necessary for the assessment. It cannot be stated that the condition precedent to the reopening of an assessment beyond a period of four years has been fulfilled. The statement in the reasons for reopening “I have reasons to believe that income of ₹ 7,66,66,663/- which was chargeable to tax has escaped assessment by reason of failure on the part of the assesse to disclose fully and truly all facts necessary …..” is clearly made only as an attempt to take the case out of the restrictions imposed by the proviso to Section 147 of the Act.

The writ petition was allowed and observed by the Hon’ble judge, it cannot be said in the present case that there was an omission or failure on the part of the assesse to disclose fully and truly all material facts necessary for the assessment. It cannot be stated that the condition precedent to the reopening of an assessment beyond a period of four years has been fulfilled. The statement in the reasons for reopening “I have reasons to believe that income of ₹ 7, 66, 66,663/- which was chargeable to tax has escaped assessment by reason of failure on the part of the assesse to disclose fully and truly all facts necessary …..” is clearly made only as an attempt to take the case out of the restrictions imposed by the proviso to Section 147 of  Income Tax Act.

Accordingly, held “The notice dated 26th March 2019 issued by respondent no.1 under Section 148 of the Act seeking to reopen the assessment for the Assessment Year 2012-2013 and the order dated 30th September 2019 are quashed and set aside.”

This case is another example of misuse/abuse of authority by misinterpreting the relevant provisions of Income Tax Act, to cause trouble to the writ petitioner.

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Full Text:

2021 (10) TMI 71 - BOMBAY HIGH COURT

Reopening assessments beyond four years barred where full and true disclosure eliminates omission to disclose material facts. Reopening an assessment beyond four years is permissible only if there was an omission to disclose material facts; where the assessee had fully and truly disclosed loan and interest details and the assessing officer merely sought a different view on deduction versus capitalization using the same material, the condition precedent for reopening under the proviso is not met and the notice to reopen cannot be sustained.