Bhavesh Developers vs. AO (Bombay High Court)

DATE: (Date of pronouncement)
DATE: January 25, 2010 (Date of publication)

Click here to download the judgement (bhavesh_developers_reopening_80IB_10.pdf)

Reopening u/s 147 not valid if there is no finding regarding failure to disclose material facts

In AY 2002-2003, the assessee claimed deduction u/s 80-IB (10) of Rs. 3.85 crs which was allowed by the AO vide s. 143 (3) order. The assessment was reopened u/s 147 after the expiry of four years from the end of the assessment year on the ground that the claim for deduction u/s 80IB (10) included ineligible items of other income such ‘society deposit’, ‘stilt parking’ and sundry credit balances and that income had thereby escaped assessment. The assessee filed a writ petition to challenge the s. 148 notice. HELD upholding the challenge:

(i) Under the proviso to s. 147, an assessment made u/s 143 (3) can be reopened after the expiry of 4 years from the end of the assessment year only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment;

(ii) On facts, the assessee had furnished details of the claim u/s 80IB (10) including the break up of the other income. Even the recorded reasons showed that the inference that the income has escaped assessment was based on the disclosure made by the assessee itself. Further, there was no finding in the recorded reasons that that there was a failure to disclose necessary facts;

(iii) Accordingly, the condition precedent to a valid exercise of the power to reopen the assessment was absent. An exceptional power has been conferred upon the Revenue to reopen an assessment after a lapse of four years and the conditions prescribed by the statute for the exercise of such a power must be strictly fulfilled and in their absence, the exercise of power would not be sustainable in law.

Note: In Kelvinator (Supreme Court) it was held that reassessment even within 4 years had to based on “tangible material” and could not be based on ‘change of opinion”. See also: Core Principles of Reassessment with Important Case Laws