Failure of Full Disclosure Valid Ground for Reassessment: Bombay High Court [Read Judgment]

In Ajeet Seeds Pvt. Ltd vs Union of India, the Bombay High Court approved the reopening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961 on the ground that the assessee had failed to fully and truly disclose all material facts.

The assessee-petitioner is engaged in the business of development of new variety of seeds and selling them. The petitioner set up an in-house research and development facility which is recognized by the Ministry of Science and Technology. Recognition was renewed from time to time without a break up to 31st March 2009. The petitioner had claimed deduction against expenditure incurred on in-house research and development relating to Section 35(2AB) of the Income Tax Act, 1961. However, the scrutiny assessment made was reopened by the Assessing Officer (A.O) on the ground that the petitioner had wrongly claimed certain deductions which it was not entitled to as it failed to disclose all material facts. The contention of the A.O was that the Petitioner, at the time of assessment had concealed the fact that it didn’t get Form 3CM from 31st March 2009 and that such form was a precondition for availing deduction under Section 35(2AB) of the Income Tax Act,1961. The petitioner approached the High Court for relief.

The Counsel for the petitioner argued that Form 3CM is only a matter of form and substance and that the compliance of the rule is directory. He further stated that the A.O could not go behind the approval accorded by the prescribed authority. He further contended that the issue regarding entitlement was considered by the A.O at the time of assessment and no additions were made. This reassessment was a result of the change of opinion and hence not permissible. He further submitted that once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inference of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences, whether of facts or law should be drawn.

The Counsel for the Revenue argued that only because the assessing officer could not have made further enquiry into the matter, but the fact that he did not make any further enquiry would not take away the case out of ambit of reopening U/Sec. 147 and 148 of the I. T. Act. He asserted that the petitioner had not disclosed that it did not possess Form 3CM and as such did not disclose the material facts truly and fully. He submitted that unless and until petitioner has a certificate in Form No. 3CM, the petitioner would not be entitled for the benefit of deduction U/Sec. 35(2AB) of the I. T. Act.

The bench comprising of Justice A.M. Dhavale and Justice S.V. Gangapurwala limited themselves from considering the legality of reassessment notice by the A.O. They found that the petitioner had not disclosed that its was not granted certificate under Form No.3CM for the period under consideration. It opined that the petitioner ought to have fully and truly disclosed that after 2009, it couldn’t get Form No.3CM for the purpose of Section 35(2AB) of the Income Tax Act,1961.

“It cannot be said that the reopening of assessment is only based on change of opinion. However, it is observed that, the petitioner failed to fully and truly disclose the fact that it did not possess Form No. 3CM U/Sec. 35(2AB) of the I. T. Act. If the petitioner would have disclosed said fact at the time of scrutiny assessment U/Sec. 143(3) of the I. T. Act and still the assessing officer would have allowed the deduction, then the petitioner would have been justified in challenging the reopening of the assessment. However, the same is not the fact.” observed the Court.