income tax
The Bombay High Court ruled that reopening an assessment beyond four years from the end of the relevant assessment year is not legally valid unless the petitioner failed to fully disclose material facts. This limit has been amended to five years post Finance Act, 2024.
This petition contests the reassessment proceedings for Assessment Year 2013-2014 (AY 2013-14), initiated against the Petitioner, who filed his tax returns on September 27, 2013. The tax returns underwent scrutiny as per Section 142(2) of the Income Tax Act, 1961 (“the Act”), culminating in an assessment order dated March 11, 2016, which included an additional income of ₹1,14,329. The extra tax was paid on April 12, 2016.
On March 31, 2021, seven years after the relevant assessment year ended, the Revenue issued a notice under Section 148, claiming income from share trading, amounting to ₹20,69,450, was not assessed.
According to the first provision of Section 147, no reassessment action is permitted beyond five years from the end of the assessment year unless the income in question escaped assessment due to the assessee's failure to fully disclose all necessary material facts. This critical requirement was not met in this case.
Maximum Period Reduced:
Grandfathering Provisions:
Petitioner’s Compliance: The Petitioner maintained there were no omissions in the originally filed returns and resubmitted the same returns on April 28, 2021, in response to the notice.
Rebuttal by Revenue: The Revenue argued on December 21, 2021, that income escaped assessment due to adjustments made by the Petitioner’s stockbroker that allegedly created fictitious profits.
Objections Raised: The Petitioner submitted objections indicating that his returns had previously undergone scrutiny assessment, asserting that the claim of income escaping assessment was unfounded.
Approval of Reassessment: The Petitioner questioned the adequacy of the approval process under Section 151, asserting that the relevant authority did not give due consideration.
The Court ruled the reassessment notice dated March 31, 2021, invalid due to a lack of demonstration that the Petitioner failed to disclose necessary material facts. The provided reasons for reassessment were unsubstantiated, especially considering the prior scrutiny assessments.
Scrutiny Confirmation: Evidence confirmed that comprehensive scrutiny assessments had occurred, involving inquiries from the Petitioner backed by documentation including contract notes and financial statements.
Failure to Disclose: The Court found no evidence that the Petitioner failed to disclose material facts necessary for justifying the reassessment under Section 147.
Legal Precedents: The judgment reinforced the need for valid grounds for reassessment as prescribed in the Act.
The High Court ruled in favor of the Petitioner, resulting in the quashing of:
The Court emphasized that reassessment proceedings cannot be initiated without evidence showing the Petitioner’s failure to disclose relevant facts.
This ruling underscore the requirement for the Revenue to provide substantiated claims regarding income escaping assessment, especially after the four-year limit. It highlights the necessity of clear evidence of non-disclosure by the assessee to justify reassessment under the Income Tax Act. The Court’s decision serves as a reminder of the importance of rigorous and transparent processes in tax assessments.
The rule is made absolute, and the petition is disposed of in accordance with the Court’s findings, without any cost imposed.