Bombay High Court: Jurisdiction Under Section 147 Requires Failure To Disclose All Material Facts During Original Assessment

Bombay High Court: Jurisdiction Under Section 147 Requires Failure To Disclose All Material Facts During Original Assessment

The Bombay High Court has recently struck down a reassessment notice issued under the previous regime of Section 148 of the Income Tax Act, clarifying that the Revenue cannot initiate reassessment merely based on its own reasons without adhering to specific jurisdictional criteria.

The Division Bench, consisting of Justices G. S. Kulkarni and Somasekhar Sundaresan, ruled that the Revenue's initiation of reassessment proceedings was invalid. The Court highlighted that under Section 147 of the Income Tax Act, reassessment is permissible only if income has escaped assessment due to the taxpayer's failure to disclose all material facts necessary for the original assessment.

The case involved an individual taxpayer whose return, declaring an income of ₹73.08 lakhs, had been subjected to a scrutiny assessment, resulting in an additional tax of ₹1.14 lakhs. Seven years later, the taxpayer received a reassessment notice under Section 148, which was sanctioned by the Principal Commissioner of Income Tax (PCIT) on the grounds that the taxpayer's returns had not been scrutinized. The reassessment was based on information that the taxpayer's stockbroker had modified client codes, allegedly leading to ₹20.69 lakhs of income from share trading escaping assessment.

The Court observed that no reassessment can be initiated after four years from the end of the relevant assessment year unless there is a demonstrated failure by the taxpayer to fully and truly disclose material facts during the original assessment. The Bench noted that the taxpayer's return had been scrutinized and the necessary information for assessment had already been provided.

The Court criticized the Revenue for basing the reassessment on incorrect assertions and found no reasonable basis for concluding that income had escaped assessment. It emphasized that reassessment cannot be justified by merely claiming that the return had not been scrutinized, especially when the information related to securities transactions had already been provided and assessed.

In conclusion, the High Court quashed the reassessment notice and the order disposing of the taxpayer's objections, reinforcing that reassessment must adhere to specific jurisdictional facts and cannot be initiated based on unfounded assertions by the Revenue.