Supreme Court upholds reopening of assessment, dismisses firm's appeal in income tax case.

Case Name:

Girilal and Company vs. Income Tax Officer and Others

Civil Appeal No(s).4735/2008

Key Takeaways:

- The Supreme Court found no merit in the firm's appeal against the reopening of its assessment.

- The court upheld the Income Tax authorities' decision to reopen the assessment under Section 148 (of Income Tax Act, 1961).

- The court ruled that the firm had not made a true and full disclosure of the relevant facts, specifically the actual size of the plot, which was necessary for claiming deductions under Section 80(1B)(10) (of Income Tax Act, 1961).

- The decision reinforces the principle that the Assessing Officer has the authority to reopen an assessment if there is a reason to believe that income has escaped assessment due to the non-disclosure of relevant facts.

Issue:

The central legal question in this case was whether the Income Tax authorities had valid grounds to reopen the assessment of Girilal and Company for the Assessment Year 2001-02 under Section 148 (of Income Tax Act, 1961).

Facts:

- Girilal and Company, a partnership firm, was engaged in the business of construction and real estate development.

- In the year 2000, the firm was developing two housing projects on a plot in Andheri, Mumbai.

- The firm had originally acquired the plot as a capital asset but later converted a portion of it into stock-in-trade.

- The firm filed its return of income for the Assessment Year 2001-02 on 29.10.2001, claiming deduction under Section 80(1B)(10) (of Income Tax Act, 1961).

- The Income Tax Officer (ITO) later issued a notice under Section 148 (of Income Tax Act, 1961), stating that the firm had not correctly disclosed the actual size of the plot and was therefore not entitled to the deduction claimed.

- The firm objected to the assumption of jurisdiction under Section 148 (of Income Tax Act, 1961), arguing that it had made a full and true disclosure of facts.

- The objections were rejected by the Income Tax authorities.

- The firm then filed a writ petition before the High Court, challenging the notice under Section 147 (of Income Tax Act, 1961).

- The High Court dismissed the writ petition, leading to the firm's appeal in the Supreme Court.

Arguments:

- The firm's counsel, Mr. S. Ganesh, argued that there was no reason to reopen the assessment as the firm had made a full disclosure of all relevant facts in its return. He contended that it was merely a case of a change of opinion, which is not a valid ground for reopening an assessment.

- The Revenue's counsel argued that the firm had not correctly disclosed the actual size of the plot, which was necessary for claiming the deduction under Section 80(1B)(10) (of Income Tax Act, 1961). The information regarding the actual size was available only in the valuation report, which the Assessing Officer was not expected to go through.

Key Legal Precedents:

- The court cited the case of Raymond Woolen Mills Ltd. while considering the tests for determining whether the Assessing Officer had a prima facie reason to believe that income had escaped assessment.

- The court also referred to Explanation 2(c)(iv) of Section 147 (of Income Tax Act, 1961), which deals with the non-disclosure of relevant facts.

Judgement:

The Supreme Court dismissed the appeal filed by Girilal and Company. The court agreed with the High Court's observations that there was no true disclosure of the exact size of the plot when the new construction commenced, and the information was available only in the annexures (valuation report). Therefore, the case fell under Explanation 2(c)(iv) of Section 147 (of Income Tax Act, 1961), which allowed the Assessing Officer to reopen the assessment.

The court held that the Revenue was right in reopening the assessment, as the firm had not correctly disclosed the actual size of the plot, which was necessary for claiming the deduction under Section 80(1B)(10) (of Income Tax Act, 1961). The court found no merit in the firm's contention that it was merely a case of a change of opinion, as the non-disclosure of relevant facts was a valid ground for reopening the assessment.

FAQ:

Q1: What was the main issue in this case?

A1: The main issue was whether the Income Tax authorities had valid grounds to reopen the assessment of Girilal and Company for the Assessment Year 2001-02 under Section 148 (of Income Tax Act, 1961).

Q2: Why did the Income Tax authorities reopen the assessment?

A2: The authorities reopened the assessment because they believed that the firm had not correctly disclosed the actual size of the plot, which was necessary for claiming the deduction under Section 80(1B)(10) (of Income Tax Act, 1961).

Q3: What was the firm's argument against the reopening of the assessment?

A3: The firm argued that it had made a full and true disclosure of all relevant facts in its return, and that the reopening was merely a case of a change of opinion, which is not a valid ground for reopening an assessment.

Q4: What was the court's reasoning for dismissing the firm's appeal?

A4: The court agreed with the High Court's observations that there was no true disclosure of the exact size of the plot, and the information was available only in the annexures (valuation report). Therefore, the case fell under Explanation 2(c)(iv) of Section 147 (of Income Tax Act, 1961), which allowed the Assessing Officer to reopen the assessment.

Q5: What is the significance of this decision?

A5: This decision reinforces the principle that the Assessing Officer has the authority to reopen an assessment if there is a reason to believe that income has escaped assessment due to the non-disclosure of relevant facts. It also highlights the importance of making a true and full disclosure of all relevant facts in tax returns.

Heard learned counsel for the parties.

The appellant, a partnership firm, is engaged in the business of construction of buildings and development of real estate. In the year 2000, the appellant/firm was engaged in developing two housing projects on a plot bearing CTS No. 329 B(Part) of village Kondiwita in Andheri (East) Mumbai (hereinafter referred to as 'the said plot'). The said plot was acquired by the appellant originally as a capital asset but portion thereof was converted at different points of time into stock-in-trade. The appellant on 29.10.2001 filed its return of income for the Assessment Year 2001-02. After scrutiny of the said return of income, a notice dated 15.03.2007 was served on the appellant under Section 148 (of Income Tax Act, 1961) (hereinafter referred to as 'the Act') inter alia alleging that the appellant's income chargeable to tax for the Assessment Year 2001-02 has escaped assessment within the meaning of Section 147 (of Income Tax Act, 1961). On 1st May, 2003, an assessment order was passed under Section 143(3) (of Income Tax Act, 1961) determining the total income at Rs. 12,36,393/- after allowing deduction under Section 80 (of Income Tax Act, 1961)-1B(10) of the Act. Vide communication dated 11.04.2007 the appellant sought the reason recorded for re-opening the assessment which were made available to the appellant on 12.04.2007. It was found that the appellant had not correctly disclosed the actual assets of the said plot and hence the appellant was not entitled for deduction under Section 80(1B)(10) (of Income Tax Act, 1961). It was noted that the information regarding the actual size of the plot used for the construction was only available in the valuation report and hence the case is covered under Explanation 2(c)(iv) of Section 147 (of Income Tax Act, 1961). The appellant objected assumption of jurisdiction under Section 148 (of Income Tax Act, 1961) for the reason that the appellant had disclosed all the facts fully and truly and respondent no. 1 was fully aware of the FSI. Respondent no. 2 rejected the objections. Being aggrieved, the appellant preferred a writ petition before the High Court challenging the notice dated 15.03.2007 issued under Section 147 (of Income Tax Act, 1961). The High Court vide impugned judgment dated 12.12.2007 dismissed the writ petition. Hence, the present appeal.

Mr. S. Ganesh, learned senior counsel appearing on behalf of the appellant/firm submits that there was no reason to open the assessment when in the return filed by the appellant full disclosure of all the relevant facts was made. On this basis, it is further argued that it was merely a case of change of opinion which is not a valid ground for reopening of the assessment. In order to buttress his submission he has drawn our attention to the communication dated 10.02.2003 addressed by the appellant to the Assessing Officer. In para 11 thereof, there is a mention about the land in question. After going through the same, we are constrained to reject the aforesaid submission of the learned senior counsel for the appellant. In para 11, only the value of the land is stated and in support, a certificate from the registered Architect & Engineer is filed.

It is clear from the above that this information was supplied as there was some query about the value of the land. Obviously, while going to this document the Assessing Officer would examine the value of the land. However, the reason for issuing notice under Section 148 (of Income Tax Act, 1961) was that the appellant had not correctly disclosed the actual assets of the plot and hence, it was not entitled for deduction under Section 80(1B)(10) (of Income Tax Act, 1961). The Income Tax Authority itself has mentioned in the notice under Section 148 (of Income Tax Act, 1961) that such information was available only in the valuation report. Giving the information in this manner shall be of no help to the appellant as the Assessing Officer was not expected to go through the said information available in the valuation report for the purpose of ascertaining the actual construction of the plot.

On the facts of this case, therefore, we find that the Revenue was right in reopening the assessment and the High Court has rightly dismissed the writ petition of the appellant challenging the validity of the notice under Section 148 (of Income Tax Act, 1961) with the following observations:

“6. Considering the tests laid down by the Supreme Court in Raymond Woolen Mills Ltd. (supra) the question is whether the Assessing Officer had prima facie reason to believe that the income had escaped assessment. We have earlier noted explanation 2(c)(iv) of Section 147 (of Income Tax Act, 1961). In our opinion as there was no true disclosure of the exact size of the plot when the new construction commenced it prima facie cannot be said that there were no reasons to believe. The information was in the annexures and consequently the explanation 2(c)(iv) of Section 147 (of Income Tax Act, 1961) will apply. The various judgment relied upon on behalf of the petitioner assessee are distinguishable in as much as either there was no failure to disclose the full and true relevant information and/or it was merely a change of opinion. The question is whether the petitioners considering the size of the plot and part of it having already been developed could claim the benefit under Section 10 (of Income Tax Act, 1961)-1B(10) of the Income-tax Act. The issue as to whether the size of the plot of land has to be considered at the time the new construction is being put up or whether the building already constructed including various deductions like R.G. Area, set back had to be considered in computing the size of the plot is an issue which we do not propose to answer at this stage in the exercise of our extra ordinary jurisdiction. The petitioner to invoke the extra ordinary jurisdiction of this Court must also make out a case that no part of the relevant material had been kept out from the Assessing Officer and/or that it would not be unreasonable for the Assessing Officer to draw inference from the annexures produced.”

We, thus, do not find any merit in this appeal. The appeal is dismissed accordingly.

......................J.

[A.K. SIKRI]

......................J.

[ROHINTON FALI NARIMAN]

NEW DELHI;

AUGUST 08, 2016.