Case Note & Summary
The petitioner, Kapstone Constructions Private Limited, challenged a notice dated 27 March 2019 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2012-13, and the subsequent order dated 5 October 2019 rejecting its objections. The original assessment under Section 143(3) had been completed on 26 March 2015 after scrutiny. The reassessment notice was issued after the expiry of four years from the end of the relevant assessment year, thus attracting the proviso to Section 147 of the Act, which requires the Assessing Officer to show that there was a failure on the part of the assessee to truly and fully disclose all material facts necessary for assessment. The reasons recorded for reopening were based on a 'perusal of the case records' and alleged that the assessee had paid interest on borrowed funds for projects, which should have been disallowed and added to Work in Progress. The court examined the original assessment order and found that the Assessing Officer had considered all documents and accepted the business loss of ₹12,14,41,599 and allowed unabsorbed depreciation of ₹2,15,94,618 to be carried forward. The court held that there was nothing to indicate any failure to disclose material facts, and the reassessment was based on a mere change of opinion. Consequently, the court quashed the impugned notice and order.
Headnote
A) Income Tax - Reassessment - Section 147 proviso, Section 148 Income Tax Act, 1961 - Reassessment after four years requires showing failure to truly and fully disclose material facts - The court examined the reasons recorded for reopening assessment, which were based on 'perusal of case records' and alleged that interest on borrowed funds should have been disallowed and added to Work in Progress. The court found nothing to indicate failure to disclose any material fact, as the original assessment under Section 143(3) had considered all documents and accepted the business loss and unabsorbed depreciation. Held that the reassessment notice was invalid as the condition precedent for reopening after four years was not satisfied (Paras 2-4).
Issue of Consideration
Whether the reassessment notice under Section 148 of the Income Tax Act, 1961 issued after four years from the end of the relevant assessment year was valid when there was no failure on the part of the assessee to truly and fully disclose all material facts.
Final Decision
The court quashed the impugned notice dated 27th March 2019 issued under Section 148 of the Income Tax Act, 1961 and the order dated 5th October 2019 rejecting the objections. The writ petition was allowed.
Law Points
- Reassessment after four years requires failure to truly and fully disclose material facts
- Reassessment notice based on mere change of opinion is invalid
- Section 147 proviso
- Section 148 Income Tax Act
- 1961
Case Details
2023 LawText (BOM) (06) 118
WRIT PETITION NO. 3234 of 2019
DHIRAJ SINGH THAKUR, KAMAL KHATA
Mr. Harsh M. Kapadia for the petitioner, Mr. Suresh Kumar for the respondents
Kapstone Constructions Private Limited
Assistant Commissioner of Income Tax – Central Circle 2(4), Principal Commissioner of Income-Tax (Central) 1, Union of India
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Nature of Litigation
Writ petition under Article 226 of the Constitution challenging a reassessment notice under Section 148 of the Income Tax Act, 1961 and the order rejecting objections.
Remedy Sought
Quashing of the notice dated 27th March 2019 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2012-13 and the order dated 5th October 2019 rejecting the objections.
Filing Reason
The petitioner challenged the reassessment notice on the ground that it was issued after four years without any failure to truly and fully disclose material facts, and was based on a mere change of opinion.
Previous Decisions
The original assessment under Section 143(3) was completed on 26th March 2015 after scrutiny, accepting the business loss and unabsorbed depreciation. The reassessment notice was issued on 27th March 2019, and the objections were rejected on 5th October 2019.
Issues
Whether the reassessment notice under Section 148 of the Income Tax Act, 1961 issued after four years from the end of the relevant assessment year was valid when there was no failure on the part of the assessee to truly and fully disclose all material facts.
Submissions/Arguments
The petitioner argued that the reassessment notice was invalid as it was issued after four years without any failure to disclose material facts, and the reasons recorded were based on a mere change of opinion.
The respondents contended that the reassessment was justified as the assessee had not disclosed that the interest on borrowed funds should have been disallowed and added to Work in Progress.
Ratio Decidendi
For reopening an assessment after four years under Section 147 of the Income Tax Act, 1961, the Assessing Officer must show that there was a failure on the part of the assessee to truly and fully disclose all material facts. Mere change of opinion or perusal of case records without indicating such failure is insufficient to justify reassessment.
Judgment Excerpts
Respondents have to show there was failure to truly and fully disclose material facts as held by this Court in Ananta Landmark (P) Ltd. v DCIT CC 5(3) Mumbai.
We find nothing to indicate failure to disclose any material fact.
Upon examining the order u/s 143(3) we find that the AO has considered all documents and accepted the Business Loss at ₹12,14,41,599/- and allowed Unabsorbed Depreciation at ₹2,15,94,618/- to be carried forward to the subsequent years as per the Act.
Procedural History
The original assessment under Section 143(3) was completed on 26th March 2015. On 27th March 2019, a notice under Section 148 was issued for reassessment. The petitioner filed objections, which were rejected by order dated 5th October 2019. The petitioner then filed the present writ petition under Article 226 of the Constitution.
Acts & Sections
- Income Tax Act, 1961: Section 147, Section 148, Section 143(3)
- Constitution of India: Article 226
