Case Note & Summary
The petitioner, IOT Infrastructure & Energy Services Ltd., challenged a notice under Section 148 of the Income Tax Act, 1961, seeking to reopen its assessment for Assessment Year 2004-05. The assessee had filed its return on 29 October 2004 declaring nil income under normal provisions and book profits of Rs.23.35 crores under Section 115JB. An assessment order under Section 143(3) was passed on 28 December 2006. On 16 March 2009, the Assessing Officer issued a notice under Section 148, alleging that the assessee had debited a provision for diminution in the value of assets of Rs.1,41,50,927/-, which was capital in nature and should have been disallowed. The assessee objected, pointing out that in its computation of income, it had already disallowed an amount of Rs.1.12 crores as a write-down of assets, and the Tax Audit Report under Section 44AB disclosed the write-down. The Assessing Officer rejected the objections on 22 March 2010. The High Court held that the reasons for reopening were based on the same material that was already before the Assessing Officer during the original assessment. The provision for diminution in value of assets was disclosed in the balance sheet and the Tax Audit Report, and the assessee had itself disallowed the write-down in its computation. Therefore, there was no failure to disclose material facts, and the reopening was a mere change of opinion. Since the notice was issued after four years from the end of the relevant assessment year, the proviso to Section 147 required that the income escaped assessment must be due to the assessee's failure to disclose fully and truly all material facts. As the assessee had made full disclosure, the reopening was invalid. The court quashed the notice and the order rejecting objections.
Headnote
A) Income Tax - Reassessment - Section 147, 148 Income Tax Act, 1961 - Reopening of assessment based on provision for diminution in value of assets - The Assessing Officer sought to reopen assessment on the ground that the assessee had debited a provision for diminution in value of assets which was capital in nature. However, the assessee had already disallowed the same in its computation of income and the Tax Audit Report disclosed the write-down. The original assessment under Section 143(3) had considered the matter. Held that reopening is based on mere change of opinion and is invalid, especially when the assessee had made full and true disclosure, and the four-year period from the end of the relevant assessment year had expired (Paras 2-8).
Issue of Consideration
Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961, based on the same material already considered in the original assessment, is valid when the assessee had made full and true disclosure.
Final Decision
The court allowed the writ petition, quashed the notice under Section 148 dated 16 March 2009 and the order dated 22 March 2010 rejecting the objections. Rule made absolute with no order as to costs.
Law Points
- Reassessment under Section 147 requires reason to believe based on fresh material
- not mere change of opinion
- Provision for diminution in value of assets is a capital expenditure not allowable as revenue deduction
- Full and true disclosure by assessee bars reopening after four years under Section 147 proviso
Case Details
2010 LawText (BOM) (06) 119
WRIT PETITION NO.805 OF 2010
DR.D.Y.CHANDRACHUD, J.P.DEVADHAR
Mr.R.Murlidhar with Mr. Atul Jasani for the Petitioner, Mr.Vimal Gupta with Ms.Padma Divakar for Respondent No.1
IOT Infrastructure & Energy Services Ltd.
The Assistant Commissioner of Income Tax 10(3) & Anr.
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Nature of Litigation
Writ petition challenging reopening of assessment under Section 147 of the Income Tax Act, 1961.
Remedy Sought
Quashing of notice under Section 148 dated 16 March 2009 and order rejecting objections dated 22 March 2010.
Filing Reason
The Assessing Officer sought to reopen assessment on the ground that the assessee had debited a provision for diminution in value of assets which was capital in nature, whereas the assessee contended that the same was already disclosed and considered in the original assessment.
Previous Decisions
Original assessment under Section 143(3) was completed on 28 December 2006. The Assessing Officer rejected the assessee's objections on 22 March 2010.
Issues
Whether the reopening of assessment under Section 147 is valid when based on the same material already considered in the original assessment?
Whether the assessee had made full and true disclosure of all material facts necessary for assessment?
Submissions/Arguments
Petitioner argued that the provision for diminution in value of assets was already disclosed in the balance sheet and Tax Audit Report, and the assessee had itself disallowed the write-down in its computation of income. The original assessment under Section 143(3) had considered the matter, and reopening is a mere change of opinion.
Respondent argued that the provision for diminution was capital in nature and should have been disallowed, and the Assessing Officer had reason to believe that income had escaped assessment.
Ratio Decidendi
Reopening of assessment under Section 147 after four years from the end of the relevant assessment year requires that the income escaped assessment must be due to the assessee's failure to disclose fully and truly all material facts. Where the assessee has made full disclosure and the Assessing Officer had considered the same material in the original assessment, reopening based on a mere change of opinion is invalid.
Judgment Excerpts
The Assessing Officer has purported to exercise the power under Section 147 of the Income Tax Act, 1961, by issuing a notice under Section 148 on 16 March 2009.
In the computation of income, among the items disallowed by the assessee, was an expenditure in the amount of Rs.1.12 crores incurred during the construction period, which was a write down.
The reasons which have been furnished to the assessee indicate that the Assessing Officer has purported to reopen the assessment on the ground that the provision for diminution in the value of assets was not a proper charge on the profit of the company as it was capital in nature.
The assessee had itself disallowed the write down in the computation of income. The Tax Audit Report disclosed the write down. The Assessing Officer had the material before him at the time when the original assessment was framed.
In the circumstances, the impugned notice and the order rejecting the objections would have to be quashed and set aside.
Procedural History
The assessee filed return on 29 October 2004. Assessment under Section 143(3) was completed on 28 December 2006. Notice under Section 148 was issued on 16 March 2009. Reasons were intimated on 18 June 2009. Assessee filed objections on 18 March 2010. Assessing Officer rejected objections on 22 March 2010. Writ petition filed on 21 June 2010 and disposed of on the same day.
Acts & Sections
- Income Tax Act, 1961: 147, 148, 143(3), 115JB, 44AB
