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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
DHIRAJ SINGH THAKUR, KAMAL KHATA, JJ.
Kapstone Constructions Private Limited – Petitioner
Versus
Assistant Commissioner of Income Tax, Mumbai – Respondent
Writ Petition No. 3234 of 2019
Decided On : 27-06-2023
Notice - Income Tax Act - Failure to disclose material facts
Fact of the Case:
The petition challenges a notice issued under section 148 of the Income Tax Act for Assessment Year 2012-13 and the order rejecting the objections. The notice was issued after the expiry of four years, triggering the proviso to section 147 of the Act.
Finding of the Court:
The court found that there was no failure to disclose any material fact, as the Assessment Officer had considered all documents and accepted the Business Loss and allowed Unabsorbed Depreciation to be carried forward as per the Act.
Issues: The issues revolved around the validity of the notice issued under section 148 of the Income Tax Act and the alleged failure to disclose material facts.
Ratio Decidendi: The court held that the notice and order were quashed and set aside, prohibiting further action, as there was no failure to disclose material facts.
Final Decision: The court quashed the impugned notice and order and prohibited further action in respect thereof.
JUDGMENT :
KAMAL KHATA, J.
1. This Petition under Article 226 of the Constitution impugns notice dated 27th March 2019 issued under section (u/s) 148 of the Income Tax Act, 1961 (Act) for Assessment Year (AY) 2012-13 and the order dated 5th October 2019 rejecting the objections.
2. The record indicates that the Assessment Order u/s 143(3) was passed on 26th March 2015 after the case was selected for scrutiny. Evidently, the notice u/s 148 of the Act is issued after expiry of four years and the proviso to section 147 of the Act applies. Respondents have to show there was failure to truly and fully disclose material facts as held by this Court in Ananta Landmark (P) Ltd. vs. DCIT CC 5(3) Mumbai, (2021) 131 Taxmann.com 52.
3. We have examined the reasons recorded annexed to the Petition that are evidently premised on ‘perusal of the case records’. The Assessment Officer (AO) records that the assessee had paid interest on borrowed funds for projects which are project funds and consequently the interest expense ought to have been disallowed and added to the Work in Progress (WIP) of the assessee. We find nothing to indicate failure to disclose any material fact. Upon examining the order u/s 143(3) we find that the AO has considered all documents and accepted the Business Loss at Rs. 12,14,41,599/- and allowed Unabsorbed Depreciation at Rs. 2,15,94,618/- to be carried forward to the subsequent years as per the Act.
4. We, therefore pass the following order:
(ii) Rule made absolute in above terms. No costs.
Failure to disclose material facts is a key consideration in the validity of notices issued under section 148 of the Income Tax Act.
The main legal point established is that a notice for reassessment cannot be based on a change of opinion but must be grounded on the grounds of income escaping assessment.
The main legal point established is that the delay in issuance of a notice beyond the limitation period and the inchoate nature of a digitally signed notice can lead to the quashing of the notice and....
The judgment established the importance of tangible material and the prohibition of a mere change of opinion in the exercise of power under section 147 of the Income Tax Act.
The true test of income chargeable to tax escaping assessment is whether there exists fresh 'tangible material' on the basis of which appropriate conclusion is reached.
A notice under Section 148 of the Income Tax Act is invalid if issued beyond the limitation period and based on previously available information, constituting a change of opinion.
A notice under Section 148 of the Income Tax Act issued beyond four years without proper examination of material facts is invalid and lacks jurisdiction.
Notices for reassessment under the Income Tax Act must be based on new information, not merely a change of opinion, and are subject to a four-year limitation period.
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