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2025 Supreme(Guj) 1746
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
BHARGAV D. KARIA, PRANAV TRIVEDI, JJ.
Niko Resources Ltd - Petitioner
Versus
Assistant Commissioner Of Income Tax - Circle 6 – Respondent
R/Tax Appeal No. 248 of 2012
Decided On : 13-11-2025
The court established that deductions under Section 42 require a specific agreement with the Central Government, which was not provided, validating the reopening of assessment under Section 147.
Headnote:(A) Income Tax Act, 1961 - Sections 42 and 147 - Reopening of assessment - Appellant filed return declaring significant losses; after scrutiny, the assessment was originally finalized. The case was reopened due to failure to disclose necessary details for claiming deductions under Section 42 - Tribunal upheld the reopening on grounds of incomplete disclosure regarding the required agreement with the Central Government for the claim. (Paras 3, 10, 25)
(B) Deductions - Claim under section 42 denied as the necessary precondition of agreement with Central Government was not met; deduction is only allowable if specified in the agreement. (Paras 25, 30)
Facts of the case:
The appellant filed a return for the assessment year 1998-1999 showing substantial losses and claimed deductions which were disallowed upon reopening for missing the required contractual agreement with the Central Government.
Findings of Court:
The Tribunal confirmed the assessments and the reopening stating appellant failed to provide mandatory documentation required for deductions.
Issues: Whether the reopening of assessment was justified based on the claim of non-disclosure of material facts and validity of denying Section 42 deductions.
Ratio Decidendi: The court reasoned that substantial conditions under Section 42, particularly the requirement for an agreement with the Central Government, were not fulfilled, justifying the reopening of the case and disallowance of deductions.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. assessment reopening conditions (Para 2 , 4 , 5) |
| 2. assessee's disclosure obligations (Para 6 , 10 , 11) |
| 3. tribunal's interpretation on non-disclosure (Para 12 , 17 , 18) |
| 4. refusal of deductions under section 42 (Para 27 , 28 , 29 , 30) |
| 5. final decision of appeal (Para 32) |
JUDGMENT :
BHARGAV D. KARIA, J.
1. Heard learned advocate Mr. B.S. Soparkar for the appellant and learned Senior Standing Counsel Mr. Karan G. Sanghani for the respondent.
2. This appeal is filed under section 260A of the Income Tax Act, 1961 (For short “the Act”) arising out of order dated 25.11.2011 passed by the Income Tax Appellate Tribunal, Ahmedabad (For short “the Tribunal”) in ITA No.93/AHD/2007 for Assessment Year 1998-1999.
3. The appeal is admitted vide order dated 3.12.2012 for consideration of the following substantial questions of law:
“1) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in confirming the action of the Assessing Officer of re-opening of the assessment under Section 147 of the Income-tax Act, 1961?
2) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not allowing the special deduction under section 42 of the Income-tax Act, 1961 to the assessee for the years under consideration?”
4. Brief facts of the case are that the appellant assessee filed return of income for the Assessment Year 1998-1999 declaring total loss of Rs.10,92,27,877/- on 30.11.1998. Same was processed under section 143(1) of the Act on 15.03.2000. Thereafter revised return was submitted by the appellant on 16.03.2000 declaring loss of Rs.4,09,24,063/-. Case of the appellant assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 27.09.1999 which was served on assessee on 4.10.1999. The assessment order under section 143(3) of the Act was finalised on 29.03.2001 with assessed loss of Rs.4,08,35,802/-.
5. Thereafter case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act on 24.03.2005.
6. The appellant assessee by letter dated 07.06.2005 raised preliminary objections against the reopening of the case which was disposed of by order dated 05.09.2005. Reasons recorded for reopening are as under:
"In this case, assessment was made u/s. 143(3) of the I.T.Act on 29.3.2001 determining total loss of Rs. 4,08,35,802/- In the revised return filed by the assessee on 16/3/2000, it has claimed deduction w/s. 42 of the I.T.Act of Rs. 8,37,15,984/-. The deduction claimed u/s. 42 included claim of deduction in respect of expenditure of Rs.195,26,261/-in respect of Bhandut, Hazira, Cambay and Baroda and Surat.
2. During the course of assessment proceedings for the subsequent assessment years it is held that the assessee is not entitled to deduction u/s. 42(1) of the I.T.Act, as it was not specified in the agreement entered into by the assessee with the Central Government. In view of the provisions of Section 42(1) of the I.T.Act, the expenditure incurred by the assessee in respect of drilling and exploration activities or for services or in respect of physical asset used in that connection is allowable only if such allowance is specified in the agreement entered into by the assessee with the Central Government. The assessee has not submitted copy of the agreement with the Central Government either in the return of income filed or during the course of assessment proceedings. This makes it clear that the assessee has sought to avail of the deduction wrongfully by not disclosing full facts necessary for the entitlement for the deduction. Though the assessee has made passing reference of the agreement in the note attached to the financial statement along with return what was specified in the agreement is not mentioned. The assessee has claimed deduction u/s 42 without disclosing some of the expenditure specified in the agreement. The income has therefore escaped assessment for fail
