In a recent ruling, the Bombay High Court (HC) has clarified that income tax reassessment under Section 147 can’t be done after four years unless the taxpayer has clearly failed to disclose important facts.
However, the court took note of the fact that during the original assessment made under Section 143(3) of the Act, the assessee had made true and full disclosure regarding the dividend income received from the Trust, which was claimed to be exempt in terms of Section 10(34) of the Act
In a recent ruling, the Bombay High Court (HC) has clarified that income tax reassessment under Section 147 can’t be done after four years unless the taxpayer has clearly failed to disclose important facts.
It is necessary to note that the issue dealt with in the Bombay HC judgment in the case of Macrotech Developers is very specific - whether the department can initiate reassessment beyond the four-year limitation period when subsequent information reveals the non-genuine nature of the previously disclosed income.
Reassessment Beyond Four Years: What The Law Says
“In this context, it is pertinent to note that the first proviso to Section 147 of the Income-tax Act, 1961, protects a taxpayer only when the credibility of the disclosed facts is not in question,” says Kunal Savani, partner, Cyril Amarchand Mangaldas.
Further, the HC has carefully distinguished it from the Supreme Court's judgment in the case of NDTV, by holding that the facts in the current case relate to the reopening based on information specific to the assessment year in question, not the findings from a subsequent year, and the information that was not known to the assessing officer during the original assessment.
Therefore, this judgment highlights that the subsequent information revealing the non-genuine nature of the previously disclosed income is sufficient for initiating reassessment beyond four years of time.
The assessment year concerned, inter-alia, was AY 2013-14 and the notice under section 148 was issued on 23.03.2021. At the relevant point in time, the Income Tax Act provided a window of 6 years for reopening an assessment, i.e., a notice under Section 148 could have been issued within six years from the end of the relevant assessment year for which the case is sought to be reopened.
Final Verdict: Why The HC Quashed The Reassessment Notice
“However, in cases where an assessment has been made earlier under Section 143 of the Act or Section 147, the law provided that no action for reopening shall be taken after the expiry of four years from the end of the relevant assessment year unless the income which has escaped assessment is because of the assessee not filing its return of income or because of the assessee not disclosing fully and truly all material facts necessary for his assessment for that assessment year,” says Nischay Kantoor, director, Ved Jain and Associates
The Bombay HC was concerned with the case where the notice under section 148 was issued on 23.03.2021 for AY 2013-14 alleging escapement of income on the ground that the income received from Trust is taxable and same is not eligible for exemption under Section 10(34) of the Act.
However, the Court took note of the fact that during the original assessment made under Section 143(3) of the Act, the assessee had made true and full disclosure regarding the dividend income received from the Trust, which was claimed to be exempt in terms of Section 10(34) of the Act. Such disclosure was also, in fact, considered by the AO in the original assessment to make a disallowance under Section 14A, which disallowance is made when there is any expenditure that has been incurred in relation to income that is exempt.
“Keeping in view the aforesaid facts, the Bombay HC held that the assessee had made true and full disclosure regarding the exemption claimed in respect of the income received from a trust accordingly held that the notice issued on 23rd March 2021 for Assessment Year 2013-14 is illegal as it has been issued beyond 4 years despite the escapement, not on account of true and full disclosure,” says Kantoor.