In Writ Petition No. 10859 of 2012 -BOM HC- Bombay High Court rules Income Tax Officer responsible to draw inferences from disclosed facts, not Assessee
Justice K.R. Shriram & Justice Firdosh P. Pooniwalla [14-07-2023]

Read Order: Mukand Limited v. The Union of India and Ors.

Chahat Varma

New Delhi, August 3, 2023: In a relief to Mukand Limited (petitioner), the Bombay High Court has quashed the notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, holding that the re-opening of the assessment was based on a clear case of change of opinion, which was not a valid ground for re-opening an assessment. The Court stated that the petitioner had fully and truly disclosed all material facts necessary for the assessment, and there was no failure on their part to disclose anything relevant.

The issue of the case was that for the AY 2006-2007, the petitioner had filed a return of income declaring total income as Nil. Along with the return, the petitioner also filed a note on the computation of income. In the original return, the petitioner calculated the total income as Nil after claiming a set-off of brought forward unabsorbed depreciation against long-term capital gains and business income. Subsequently, the Deputy Commissioner of Income Tax assessed the income of the petitioner as Nil after considering the set-off of unabsorbed depreciation. Subsequently, the petitioner received a notice for initiating proceedings under Section 147 of the Income Tax Act.

The two-judge bench of Justice K.R. Shriram & Justice Firdosh P. Pooniwalla observed that the reason for re-opening the assessment was a judicial pronouncement in the case of Deputy Commissioner of Income-tax, Circle 1(3), Mumbai v. Times Guaranty Ltd [LQ/ITAT/2010/511], subsequent to the original assessment under Section 143(3) of the Income Tax Act. Based on this judicial pronouncement, the Assessing Officer alleged that there was a reason to believe that income amounting to Rs. 80,36,05,717 had escaped assessment.

The bench pointed out that more than four years had elapsed since the end of the relevant assessment year, and the assessment could only be re-opened if there was a failure to fully and truly disclose all material facts. However, there was no such allegation in the reasons to believe provided by the Assessing Officer. Furthermore, the Assessing Officer had already considered and discussed the issue of set off of brought forward unabsorbed depreciation under the head profits and gains of business or profession in the original assessment order passed under Section 143(3) of the Act on 16th November, 2009. As a result, the bench concluded that this was a clear case of change of opinion and that the Assessing Officer had no jurisdiction to re-open the assessment.

The bench also emphasized that the duty of the assessee was to fully and truthfully disclose all primary facts necessary for the purpose of assessment. It was not the assessee's responsibility to point out what legal inferences should be drawn from the disclosed facts; rather, it is the duty of the Income Tax Officer to draw the proper inference. In this case, the petitioner had provided all the necessary details, including the information about the brought forward unabsorbed depreciation, which was duly considered while passing the original assessment order under Section 143(3) of the Act. Therefore, the Assessing Officer had all the primary facts in his possession, and it was his responsibility to draw the appropriate inference regarding the adjustment of the brought forward unabsorbed depreciation against capital gains or profits and gains from business or profession. As such, the bench found that there was nothing more for the petitioner to disclose, and it cannot be said that the petitioner omitted or failed to disclose anything when they had no knowledge of such information.