Reassessment Beyond Four Years Without New Material

Reassessment Beyond Four Years Without New Material or Non-Disclosure Is Invalid Under Section 147

Issue

Whether the Assessing Officer can validly reopen an assessment under Section 147 of the Income-tax Act, 1961 beyond the four-year threshold without demonstrating new tangible material or any failure by the assessee to fully and truly disclose material facts.

Facts

The assessee-company, engaged in manufacturing, trading, and exporting spices and other products, claimed an exemption under Section 10AA for its Kandla unit for AY 2012-13.
The original assessment under Section 143(3) was completed on March 30, 2015.
The Assessing Officer issued a notice under Section 148 dated March 31, 2019 to reopen the assessment.
The reopening was initiated on the basis that depreciation of approximately ₹1.78 crores (including on assets of the Section 10AA unit) was allowed, allegedly resulting in double deduction and under-assessment.
The notice was issued after four years from the end of the relevant assessment year, bringing it within the scope of the proviso to Section 147.
No new tangible material came to the knowledge of the Assessing Officer following the original assessment.
The assessee did not fail to disclose fully and truly all material facts necessary for the original assessment.

Decision

Reassessment Notice Quashed: Held, yes. Reopening an assessment after four years without demonstrating a failure on the part of the assessee to fully and truly disclose material facts violates the proviso to Section 147.
Absence of New Tangible Material: Held, yes. In the absence of fresh, external tangible material showing escapement of income, the Assessing Officer lacks the jurisdiction to initiate reassessment proceedings.

Key Takeaways

Strict Statutory Preconditions: Beyond the four-year mark from the end of the relevant assessment year, the Revenue must explicitly establish non-disclosure of material facts by the assessee to invoke Section 147.
Protection Against Change of Opinion: Reassessment cannot be used as a tool to re-evaluate claims already allowed during original assessment proceedings under Section 143(3) without new external evidence.

HIGH COURT OF GUJARAT

Kitchen Xpress Overseas Ltd.

Deputy Commissioner of Income-tax

A.S. Supehia and Ms. VAIBHAVI D. NANAVATI, JJ.

R/SPECIAL CIVIL APPLICATION NO. 20593 of 2019

JUNE 22, 2026

S.N. Divatia for the Petitioner. Dev D. Patel for the Respondent.

ORDER

A.S. Supehia, J.- With the consent of learned advocates appearing for the respective parties, the matter is taken up for final hearing today. In the present writ petition the petitioner has prayed for quashing and setting aside the notice dated 31.3.2019 issued under section 148 of Income Tax Act, 1961 (for short ‘the Act’) proposing to re-assess the total income of the petitioner, for Assessment Year (for short ‘A.Y.) 2012-13. The petitioner is also challenging the order dated 04.11.2019 rejecting the objections for reopening of reassessment for A.Y. 2012-13.

2. Brief facts, the petitioner, which is engaged in a business of manufacturing, trading and export of spices and other products, filed the original return of income for A.Y. 2012-13 on 29.9.2012 declaring total income of Rs.2,55,56,292/- which included, inter-alia, a claim of exemption under Sections 10A and 10AA of the Act of profit of Rs.88,52,379/- in respect of Kandla unit. The said income of return of income was selected for scrutiny assessment under Section 143(3) of the Act on 30.3.2015. During the course of regular assessment proceedings, the respondent issued notices under Section 142(1) of the Act calling upon the petitioner to supply various documents justifying the claim of exemption under Section 10AA of the Act of Rs.88,52,379/-. The petitioner accordingly furnished all the materials and accordingly the regular assessment under Section 143(3) of the Act was completed on 30.3.2015 on the total income of Rs.3,32,61,259/- which included the disallowance of Rs.15,62,750/- with respect to claim under Section 10AA of the Act. After this scrutiny assessment was over, the respondents issued a notice under Section 148 of the Act on 31.3.2019 proposing to re-assess the total income. The petitioner accordingly submitted its objection for reopening in a reply dated 13.5.2019 and 18.9.2019. The objections were ultimately rejected by the respondent vide order dated 4.11.2019. Thereafter notice under Section 142(1) of the Act was issued on 8.11.2019 fixing the hearing on 15.11.2019 which are all the aforesaid subsequent action of reassessment has been assailed by the petitioner.

3. At the outset, learned advocate Mr.S.N.Divitia appearing for the petitioner submitted that the provision of Section 147 of the Act will not apply in the present case since the Assessing Officer is empowered to reopen the assessment if he has a prima facie case on the basis of material that there is an escapement of income.

3.1 It is submitted that first proviso to Section 147 of the Act mandates that there should be a failure or omission on part of the assessee to disclose truly and correct material facts or failure to furnish return of income, which is not satisfied in the present case, and hence, the reopening under the proviso to Section 147 of the Act, after a period of four years, is uncalled for.

3.2 It is thus submitted that after the scrutiny assessment was undertaken under Section 143(3) of the Act, and the assessment order was passed for the very same materials which were scrutinized by the Assessing Officer under the scrutiny assessment, which includes disallowance under Section 10A of the Act, the subsequent reopening is nothing but change of opinion and hence, it is urged that the reopening of the assessment may be quashed and set aside.

4. Objecting to the foregoing submissions and the present writ petition, learned Senior Standing Counsel, Mr.Dev D. Patel has submitted that after the assessment was finalized under Section 143(3) of the Act on 30.3.2015, upon verification of case records, it was noticed that, the assessee has claimed depreciation of Rs.1,77,67,714/- and the claim was allowed in the original assessment including the depreciation on assets which were used in unit eligible for Section 10AA of the Act. It is submitted that this would amount to double deduction and resulted into the under assessment of income of the petitioner.

4.1 It is submitted that after obtaining appropriate approval from the then Principal Commissioner of Income Tax, notice under Section 148 of the Act was issued on 31.3.2019. It is submitted that at this stage the adequacy or sufficiency of the reasons may not be examined, and the petitioner may be relegated to face the assessment proceedings.

5. We have heard the learned advocates appearing for the parties at length. The facts which are established from the pleadings and from record are that the assessee company filed a return of income for A.Y. 2012-13 on 29.9.2012 declaring total income at Rs.2,55,56,292/-. The return was subjected to scrutiny assessment under Section 143(3) of the Act. Accordingly, the petitioner was called upon to furnish various documents, justifying the claim of exemption under Section 10AA of the Act Rs.88,52,379/- pursuant to the notices issued under Section 142(1) of the Act dated 13.8.2014, 9-9-2014 and 26.2.2015 the petitioner furnished all the relevant documents and ultimately, after examining such documents including the dis-allowance under Section 10AA of the Act, the Assessing Officer passed an order dated 30.3.2015 under Section 143(3) of the Act for A.Y. 2012-13. Regular assessment order dated 30.3.2015 included the dis-allowance of Rs.15,62,750 with respect of claim made under Section 10AA of the Act. Ultimately, the deduction under Section 10AA of the Act is revised at Rs.72,89,629/- against the claim of Rs.88,52,379/- and the difference of Rs.15,62,750/- is disallowed and added to the total income of the assessee. A penal proceedings under Section 271(1)(c) of the Act was also ordered to be initiated separately for filing inaccurate particulars of income.

6. After the aforesaid assessment order was passed under Section 143(3) of the Act, the petitioner is subjected to reopening of the assessment on the same claim of deduction under Section 10AA of the Act while issuing a notice under Section 148 of the Act on 31.3.2019. The petitioner accordingly raised the objections by pointing out that in the scrutiny proceedings deduction of depreciation relating to Section 10AA of the Act was already examined and he requested not to reopen the same. The objections were rejected vide order dated 04.11.2019. Perusal of the same would reveal that the assessing officer has very perfunctorily rejected the same. The objection raised by the petitioner to the extent that the reopening would amount to change of opinion is brushed aside by recording that the omission to disclose the material failure may be deliberate or inadvertent is immaterial, but if there is omission to disclose material facts, then subject to other conditions, jurisdiction to reopen is attracted.

7. In our opinion, the assessing officer has failed to appreciate the settled legal precedent on the aspect of reopening of assessment which is premised on change of opinion. By perfunctorily rejecting the objections, the petitioner is further issued notices under Section 142(1) of the Act.

8. From the documentary evidence which form part of the scrutiny assessment under Section 143(3) of the Act and the subsequent reopening of assessment, we do not find that any new tangible material has come to the knowledge of the Assessing Officer to conclude that there was escapement of income. The petitioner had fully disclosed the material/documentary evidence in the scrutiny proceedings. Thus, the reopening of assessment is merely an ipse dixit of the respondent Assessing Officer. It is not in dispute that reopening of the assessment in the case of the petitioner fall beyond the period of four years from the end of relevant assessment year and as per proviso to Section 147 of the Act the reopening is only permissible if there is a failure on the part of the assessee to file a return or disclose fully and truly material facts necessary for the assessment. This quintessential feature is missing in the present case and hence, the writ petition deserves to be allowed. The same is hereby allowed by quashing and setting aside impugned notice dated 31.03.2019 and impugned order dated 04.11.2019.