Court’s Decision
The Bombay High Court quashed reassessment notices and orders issued against Bharat Petroleum Corporation Limited for Assessment Years 2013-14 and 2014-15, holding that the Income Tax Department could not reopen concluded assessments beyond four years under the first proviso to Section 147 of the Income Tax Act in the absence of failure by the assessee to fully and truly disclose all material facts. The Court held that the reopening was based on a mere change of opinion, not permissible under law, and lacked jurisdictional foundation.
Facts
Bharat Petroleum Corporation Limited, engaged in refining and marketing petroleum products, received dividends from the BPCL Trust formed after the merger with Kochi Refineries, treating such income as exempt under Section 10(34) of the Income Tax Act. The company disclosed all relevant details in its returns and during assessments, and assessments were completed under Section 143(3) for AYs 2013-14 and 2014-15. After more than four years, reassessment notices were issued claiming that the dividends were not exempt as the BPCL Trust was not a company under Section 115-O. For AY 2014-15, an additional ground of alleged incorrect claim of deduction under Section 32AC was cited.
Issues
- Whether reassessment can be initiated beyond four years under the first proviso to Section 147 without failure by the assessee to disclose material facts fully and truly.
- Whether dividends received from BPCL Trust were wrongly claimed as exempt under Section 10(34).
- Whether the reassessment was impermissible as it was based on a mere change of opinion.
Petitioner’s Arguments
The petitioner argued that:
- All material facts regarding the BPCL Trust dividends and the claim under Section 10(34) were fully and truly disclosed during the original assessments, which were completed under Section 143(3).
- There was no new tangible material justifying reassessment; the reopening was based solely on a change of opinion.
- The reassessment notices were issued beyond four years, and in the absence of any failure to disclose material facts, such reopening was invalid under the first proviso to Section 147.
- They cited multiple precedents, including Hindustan Lever Ltd., Bombay Stock Exchange Ltd., Kelvinator of India Ltd., Lupin Ltd., and Ananta Landmark Pvt. Ltd., asserting that a mere change of opinion cannot trigger reassessment proceedings.
Respondent’s Arguments
The Income Tax Department argued that:
- Dividend income from the BPCL Trust did not qualify for exemption under Section 10(34) since the Trust was not a company under Section 115-O.
- The reassessment was valid as there was non-disclosure of the applicability of Section 115-O in claiming the exemption.
- The Revenue Audit had flagged the exemption, which was examined, and the assessment was reopened accordingly after due approval under Section 151.
Analysis of the Law
The Court analysed:
- Section 147, particularly its first proviso, which bars reassessment beyond four years unless there was a failure to disclose material facts fully and truly by the assessee.
- The principle from Calcutta Discount Co., Kelvinator of India Ltd., and Gemini Leather Stores that mere change of opinion does not confer jurisdiction to reopen assessments.\
- The fact that the petitioner had made full disclosures, including dividend receipts, treatment under Section 10(34), and payment of dividend distribution tax, during the original assessments.
- It reiterated that audit objections cannot be the sole basis for reopening if there is no fresh material indicating failure to disclose material facts by the assessee.
Precedent Analysis
- Hindustan Lever Ltd. v. R.B. Wadkar (2004): Reasons for reassessment must clearly indicate failure to disclose material facts.
- Kelvinator of India Ltd. (2010): Reopening based on change of opinion is invalid.
- Bombay Stock Exchange Ltd. (2014): Full disclosure during scrutiny bars reopening beyond four years.
- Gemini Leather Stores (1975): If all primary facts were before the Assessing Officer, reassessment cannot cure his oversight.
- Calcutta Discount Co. (1961): Full disclosure of facts disallows reassessment on reinterpretation of law.
These were applied to conclude that the reassessment lacked jurisdictional validity.
Court’s Reasoning
The Court found:
- The petitioner disclosed the dividend income and treatment under Section 10(34) fully during the original assessments.
- The Assessing Officer had examined these aspects while completing assessments under Section 143(3).
- The reasons for reopening did not specify any fact not disclosed by the assessee, only stating a bald assertion of non-disclosure without details.
- The initiation of reassessment was based on a mere change of opinion, which is impermissible, and the audit objection did not constitute tangible new material.
- The statutory bar under the first proviso to Section 147 was triggered, making the reassessment notices and orders invalid.
Conclusion
The Bombay High Court:
- Quashed the reassessment notices dated 23 March 2021 and 26 March 2021 and the subsequent orders rejecting the objections for AYs 2013-14 and 2014-15.
- Held that reopening assessments beyond four years without failure by the assessee to disclose material facts fully and truly is invalid.
- Clarified that reassessment on the basis of change of opinion is impermissible.
Implications
- Reinforces limits on the Income Tax Department’s power to reopen assessments beyond four years without proving failure to disclose material facts.
- Establishes that full disclosure during original assessments bars reassessment on reinterpretation of law.
- Strengthens taxpayer protection against arbitrary reassessment notices, ensuring procedural safeguards under Section 147 are respected.
Summary of Cases Referred and Their Relevance
- Hindustan Lever Ltd.: Disclosure requirements in reassessment.
- Kelvinator of India Ltd.: Invalidity of reassessment based on change of opinion.
- Bombay Stock Exchange Ltd.: Requirement of full disclosure limits reassessment.
- Gemini Leather Stores: Reassessment cannot cure assessment oversights.
- Calcutta Discount Co.: Disclosure principles governing reassessment powers.
These judgments formed the backbone of the Court’s reasoning in quashing the reassessment.
FAQs
1. Can the tax department reopen an assessment after four years if there was no failure to disclose material facts by the taxpayer?
No, under the first proviso to Section 147, reassessment beyond four years is barred unless there is a proven failure to disclose material facts fully and truly.
2. Does a change in the interpretation of law justify reassessment?
No, a mere change of opinion or reinterpretation of law does not provide valid grounds for reassessment.
3. Are audit objections sufficient to reopen concluded assessments?
No, audit objections alone do not constitute tangible new material to justify reassessment unless they reveal failure by the taxpayer to disclose facts.