The assessing officer's power to re-open assessments is based on the 'reason to believe' and the obligation of the assessee to provide full material disclosures.

JUDGMENT :

[WP(C) Nos.14875/2022 & 15023/2022]

The present two writ petitions have been filed by the very same petitioner, an assessee under the provisions of the Income Tax Act, 1961 and the Rules made thereunder, impugning the fresh assessment orders, Exts.P9 and P12, passed on reopening of the earlier assessment orders and penalty notices, Exts.P10 and P13, in respect of the assessment years 2013-14 and 2014-15, respectively.

2. The petitioner is the proprietor of M/s.Greenland Condiments. The petitioner deals in spices and condiments. He is also a partner in several firms and drawing income from those firms. He is also the Managing Director of a limited Company named 'Greenland Particle Boards Pvt. Ltd.', which is involved in the business of manufacture of products of wood, cork, straw and plaiting materials. The petitioner filed returns of his income for the assessment years 2013-14 and 2014-15 on 28.1.2014 and on 31.3.2015 returning income of Rs.60,20,910/- and Rs.42,35,870/-, respectively. The assessments in respect of both the assessment years got completed under Section 143(3) of the Income Tax Act, 1961 ('Act', for short) on 23.3.2016 and 30.6.2016, respectively.

3. Subsequently, with respect to the assessment year 2014-15, the case was re-opened under Section 147 and assessment was completed on 18.6.2019 assessing the income at Rs.50,74,280/-.

4. In respect of both the assessment years, i.e. 2013-14 and 2014-15, notices under Section 148 of the Act were issued on 31.3.2021 (Exts.P2 and P4, respectively) stating that the assessing officer had reasons to believe that the petitioner's income chargeable to tax for these assessment years had escaped assessment within the meaning of Section 147 of the Act. The petitioner was required to deliver within 30 days from service of the notices, returns in the prescribed form in respect of the assessment years 2013-14 and 2014-15. Notices under Section 142(1) in respect of the aforesaid assessment years came to be issued on 24.1.2022, (Exts.P3 and P5, respectively) directing the petitioner to furnish documents mentioned in the notices on or before 3.2.2022. The petitioner filed objections, (Exts.P4 and P6, respectively) to the notices under Section 148 requesting to provide the reasons for re-opening of the assessments.

5. The assessing officer vide Exts.P5 and P7 communications dated 23.2.2022 addressed to the petitioner furnished the reasons for re-opening of the assessments. The reasons as intimated to the petitioner would disclose that the assessee had debited interest paid by him on loans availed from Banks as business expenditure. The petitioner had claimed deduction of interest paid to the Kotak Mahindra Bank on property loan at Rs.11,10,815/- for the assessment year 2013-14. For the assessment year 2014-15 also, he claimed total deduction of Rs.37,06,094/- towards the interest paid to Kotak Mahindra Bank. The said amount includes the interest paid on the loan availed for investment in petitioner's another business concern also. The assessing officer was of the view that under Section 14A of the Act, the expenditure incurred by a tax payer in relation to income that excludes total income as per the provisions of the Act should not be considered as an expenditure while computing the total income of the tax payer. Therefore, the interest paid by the assessee on loans for the purpose of investment in M/s.Greenland Particle Board Pvt. Ltd. ought to have been disallowed. Since ineligible deduction was allowed to the petitioner/assessee, the aforesaid two amounts have escaped assessment in the relevant assessment years. It was also noticed that the petitioner had not truly and fully disclosed material facts necessary for completing the assessments for these two years. Therefore, decision was taken to reopen the assessments as the petitioner/assessee had not truly and fully disclosed the material facts necessary for completion of the assessment proceedings for the years under considera