Bombay High Court: Assessment cannot be Reopened on Mere Ground of Disclosure of Income Received Differently by Another Director of Same Company

Bombay High Court: Assessment cannot be Reopened on Mere Ground of Disclosure of Income Received Differently by Another Director of Same Company

The Bombay High Court while adjudicating a petition challenging the impugned notice under Section 148 of the Income Tax Act, 1961 (the 'Act') and the impugned order on objection in addition to the impugned reassessment proceedings for Assessment Year (A.Y.) 2014- 15 observed that merely because another director of the same company had disclosed the income received differently, the same cannot be a ground for reopening of assessment.

In the present case, the petitioner- Deepak Marda was a director of Cinepolis India Pvt. Ltd., Gurgaon and was assessed to tax in Ichalkaranji, Kolhapur. In 2007 petitioner had collaborated with the Cinepolis Group to set up Cinepolis India and had acquired certain shares and irrevocable vested rights to equity in Cinepolis India.

In Financial Year (F.Y.) 2013-14, the petitioner transferred the equity shares and rights in Cinepolis India for Rs.33,55,12,980 under a settlement agreement. The petitioner incurred an expense of Rs.1,31,87,400 towards lawyers, Chartered Accountants, Escrow Agents etc. for the said transaction.

The petitioner filed his return of income for A.Y 2014-15 on 31st July 2014 whereby the proceeds receipt from transfer of equity shares in Cinepolis India was disclosed under the head "Capital Gains'' and claimed deduction of legal expenses under the head "Cost of Improvement", the said return was duly processed under Section 143(1) of the Act.

On 11th July 2016 a notice was issued to the petitioner under Section 142(1) for scrutiny in exercise of power conferred under Section 143(2) of the Act. By responses dated 23rd August 2013 and 24th August 2013, the petitioner submitted required information and documents with detailed explanation as regards the acquisition and transfer of equity shares in Cinepolis India. The Assessment Officer (AO) accepted the explanation and on being satisfied with the information and documents passed an order accepting the total income u/s. 143(3) of the Act.

On 31st March 2021, the petitioner was issued the impugned notice under Section 148 of the Act to reopen the assessment AY 2014-15.

Mr. Naniwadekar learned counsel for the petitioner submitted that the reopening of the assessment vide impugned notice dated 31st March 2021 is made beyond four years from the end of the relevant assessment year 2014-15 without demonstrating any failure on the part of the petitioner, to disclose material facts and consequently is vitiated in terms of the first proviso to section 147.

He submitted that the statutory requirements under the section 147 i.e., the assessee failed to disclose, truly and fully, any material facts necessary for the assessment is not established inasmuch as no such allegation is made either in the impugned notice or in the reasons recorded.

On the contrary, the Assessment Order dated 8th December 2016 under Section 143 (3) of the Act explicitly mentions the acceptance of the total income disclosed by the petitioner in the return after due verification and examination of the information furnished. He submitted that the reopening was initiated solely on the basis of information received from the ACIT, Gurgaon without application of mind.

He submitted that no new material was mentioned in the notice apart from the purported information from the ACIT, Gurgaon. He accordingly prayed that the petition be made absolute.

The division bench of Justices Dhiraj Singh Thakur and Kamal Khata concurred with Mr. Naniwadekar, that it was a clear case of change of opinion. The Court held that there was no failure on the part of the assessee to disclose fully and truly the material facts, nor there was any tangible material with the A.O. which would have otherwise justified the reopening of the assessment by issuing the notice impugned.

The Court observed, "in the present case, the AO has not specifically mentioned in the order, what was the tangible material, to conclude that there was an escapement of income. The AO has also failed to aver what material fact the assessee has failed to disclose fully and truly. It is evident that based on the case of Milan Saini who had disclosed his income under the head 'income from salary' that the AO sought to reopen the case of the assessee. Apart from different heads on which the assesses have offered their income to be taxed i.e., there is no other ground based on which the AO is seeking to reopen. It is clearly the very same material on which a different view is being taken."

The bench opined that in the present case there was full and true disclosure by the petitioner, which transaction has been accepted under the head claimed by the petitioner. Consequently, merely because another director of the same company had disclosed the income received differently, cannot be a ground for reopening and the same is evidently a change of opinion not only based on conjectures and surmises but also a case of blindly relying on information and borrowed satisfaction which is not permitted for reopening, stated the bench.

The bench further commented that, "it is an imperative duty of the authorities to be updated with the law and to apply it to the case at hand before taking decisions and passing orders. Feigning ignorance of law by authorities only increases the burden of the Courts."

Accordingly, the Court allowed the petition and set aside the impugned notice and order.