[Income Tax Act] Reassessment Beyond 4 Years Requires Specific Non-Disclosure By Assessee, Not Mere Allegations: Bombay High Court

Section 147 of the Income Tax Act, 1961 provides for the reopening of assessment proceedings. This section gives discretion to the Assessing Officer (AO) to reopen the assessment proceedings when he/she has reason to believe that some of the income has escaped assessment.

Justices B.P. Colabawalla and Firdosh P. Pooniwalla stated that “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”, added the bench.

In this case, the assessee also challenges the Order rejecting the objections filed by the assessee to the validity of the Notice. The reasons given in the Notice for reopening the assessment of the assessee for the AY 2013-14 was that the Assessee had claimed exemption under Section 10(34) of the IT Act of Rs.179.44 crores on account of dividend income.

Out of this total income claimed as exempt, an amount of Rs.37.10 crores was on account of receipts from an entity called the Bharat Petroleum Corporation Ltd. Trust for Investment in Shares.

It was observed that the said Trust was formed through a merger of Kochi Refineries Ltd. with the assessee in the year 2006-07, and the sole beneficiary of the Trust was the assessee.

According to the Assessing Officer (1^st Respondent), it is from this Trust that the assessee (BPCL) has received dividend income to the tune of Rs.37.10 crores. Since the said Trust is not a Company and is not required to declare dividend as mandated by the Companies Act, 2013, and nor was the said Trust covered under Section 115-O of the IT Act, the amounts distributed by the said Trust to the assessee did not qualify as exempt income under Section 10(34) of the IT Act.

According to the Assessing Officer, the full and true facts relating to earning of such income were not disclosed by the Assessee during the course of assessment proceedings, and hence, he had reason to believe that income to the extent of Rs.37.10 crores received by the assessee from the said Trust had escaped assessment for AY 2013-14.

The assessee submitted that the Notices issued under Section 148 for both the assessment years were beyond the period of 4 years from the end of the concerned assessment year. Further for both assessment years, an Assessment Order was passed under Section 143(3).

The department submitted that once this is the case, and which was then flagged by the Audit, the Assistant Commissioner of Income Tax was certainly invested with the jurisdiction to reopen the assessment proceedings and issue a Section 148 Notice. Therefore, there is no “change of opinion”. The assessment proceedings have been reopened under Sections 147 and 148 because clearly there was a failure on the part of the assessee to fully and truly disclose all material facts in relation to the concerned assessment year.

The bench noted that admittedly there are no details given by the Assessing Officer as to which fact or material was not disclosed by the assessee that led to its income escaping assessment. There is merely a bald assertion in the reasons that there was a failure on the part of the assessee to disclose fully and truly all material facts, without giving any details thereto.

The bench opined that “merely because the Assessing Officer is now of the opinion that the deduction is wrongly granted, cannot invest him with the jurisdiction to reopen the assessment, especially in a case where reassessment proceedings are initiated when there is already a scrutiny assessment under Section 143(3) and which is after a period of 4 years from the date of the relevant assessment year and there has been no failure to disclose fully and truly all material facts in relation to the concerned assessment year.”

In view of the above, the bench allowed the petition.

Case Title: Bharat Petroleum Corporation Ltd. v. Assistant Commissioner of Income Tax

Case Number: WRIT PETITION NO. 1752 OF 2022

Counsel for Petitioner/ Assessee: J.D. Mistri

Counsel for Respondent/ Department: Akhileshwar Sharma