Bald Assertion Of Non-Disclosure Not Enough To Reopen Assessment After 4 Years: Bombay High Court Quashes Notices To BPCL - 2025-07-04

Bald Assertion of Non-Disclosure Insufficient to Reopen Tax Assessment After 4 Years, Rules Bombay High Court

Mumbai: The Bombay High Court has quashed two reassessment notices issued by the Income Tax Department to Bharat Petroleum Corporation Limited ( BPCL ), holding that a mere "bald assertion" of non-disclosure by an assessee is insufficient to reopen a concluded assessment after the expiry of four years.

A division bench of Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla ruled that for the Income Tax Department to invoke its powers under Section 147 of the Income Tax Act, 1961, beyond the four-year limitation period, it must specifically detail which material facts the assessee failed to disclose.

The Court set aside notices seeking to reopen BPCL 's assessments for the Assessment Years (AY) 2013-14 and 2014-15, which involved a potential tax demand of over ₹200 crores.

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Background of the Case

BPCL had challenged two notices issued under Section 148 of the IT Act in March 2021, seeking to reassess its income for AY 2013-14 and 2014-15. The original assessments for both years had already been completed through a detailed scrutiny process under Section 143(3) of the Act.

The Income Tax Department's reasons for reopening the assessments were:

1. Improper Exemption (Both Years): BPCL had claimed tax exemption under Section 10(34) on income received from the BPCL Trust for Investment in Shares. The department argued that since the trust is not a company, the income distributed was not a "dividend" under Section 115-O and thus was not eligible for exemption.

2. Improper Deduction (AY 2014-15): BPCL had wrongly claimed an investment allowance deduction of ₹127.39 crores under Section 32AC for investments in LPG cylinders and pressure regulators, which the department contended did not qualify as "plant and machinery".

The department alleged that BPCL had failed to "disclose fully and truly all material facts," which allowed it to reopen the assessments even after the four-year period had lapsed.

Arguments Presented

BPCL 's Contentions: - Senior Advocate J.D. Mistri, appearing for BPCL , argued that the reopening was barred by limitation. Since the original assessments were completed via scrutiny and four years had passed, the proviso to Section 147 applied, which requires a failure to disclose material facts. - He asserted that BPCL had disclosed all relevant facts concerning the trust income and the investment allowance during the original assessment proceedings. The Assessing Officer (AO) had even considered the trust income while calculating disallowance under Section 14A. - The reopening, therefore, was not based on any new material but was merely a "change of opinion" by a subsequent AO, which is impermissible in law.

Income Tax Department's Contentions: - Advocate Akhileshwar Sharma, for the Revenue, submitted that a revenue audit had pointed out the inadmissible exemption. - He argued that BPCL ’s failure to explicitly state that the BPCL Trust was not a domestic company for the purposes of Section 115-O amounted to a failure to disclose material facts, justifying the reopening.

Court's Analysis and Ruling

The High Court decisively sided with BPCL , finding that the jurisdictional requirements for reopening the assessment were not met. The bench highlighted that where a scrutiny assessment has been completed and four years have elapsed, the onus is on the Revenue to prove a failure to disclose material facts.

The judgment emphasized a crucial legal principle, referencing its earlier decision in Bombay Stock Exchange Ltd. vs. Deputy Director of Income tax :

"It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts... He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment... That vital link is the safeguard against arbitrary reopening of the concluded assessment."

Applying this principle, the Court observed:

"In the present case, admittedly there are no details given by the Assessing Officer (the 1st Respondent) as to which fact or material was not disclosed by the Petitioner 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 Petitioner to disclose fully and truly all material facts, without giving any details thereto."

The Court found that BPCL had, in fact, provided all necessary details during the original scrutiny. The AO had access to the annual report, details of the trust, and a specific annexure detailing the assets for which the Section 32AC deduction was claimed, including the LPG cylinders.

The bench concluded that the reopening was based on the very same material that was available to the AO during the original assessment. This amounted to a "change of opinion," which cannot be a valid ground for reassessment, especially when there is no failure on the assessee's part to disclose facts.

Final Decision

In light of these findings, the High Court allowed both writ petitions filed by BPCL . It quashed the reassessment notices for AY 2013-14 and 2014-15, along with the orders that had rejected BPCL 's objections, thereby providing significant relief to the public sector undertaking.