Bombay HC Quashes Income Tax Reassessment Over Change of Opinion and No Failure to Disclose Facts [Read Order]

The High Court of Bombay, quashed an income tax reassessment proceedings initiated against the assessee for Assessment Year(AY) 2014–15, holding that the reopening was based on a mere change of opinion and lacked any failure to fully and truly disclose material facts.

Tata Communications Limited, petitioner-assessee, had filed its return of income for AY 2014–15 on 24 November 2014, which was later revised twice in March 2016 and again in November 2016. In the original return, it had offered Rs.152.66 crore as guarantee fees to its Associated Enterprises, calculated at 1.5%. Later, it revised this amount to Rs.34.07 crore, reducing Rs.118.59 crore after realising the earlier figure was excessive. Since the accounts for FY 2013–14 were already closed, the reversal was recorded in the books of FY 2015–16.

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In the revised return, the assessee claimed a deduction of Rs.118.59 crore under 'allowable deductions', explaining that the revised amount was considered for tax in AY 2014–15 though reflected in the books later.

The return was picked for scrutiny, and the Transfer Pricing Officer ( TPO ) proposed a transfer pricing adjustment of Rs.1875.56 crore, including Rs.120.80 crore towards corporate guarantee fees, using a 1.5% rate. The Dispute Resolution Panel(DRP) upheld this adjustment, and a final assessment order was passed on 25 October 2018. The petitioner filed an appeal before the tribunal, which is still pending.

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While the appeal was ongoing, a notice under Section 148 was issued on 30 March 2021. The petitioner asked for the reasons and requested that the earlier revised return be treated as a response. The reasons were shared only later through a draft order on 24 March 2022, which claimed that the deduction was not allowable in AY 2014–15 since the reversal was booked in FY 2015–16.

On 28 March 2022, a final reassessment order was passed, adding Rs.118.59 crore and raising a demand of Rs.542 crore. A rectification application was filed for not crediting prepaid taxes, which is still pending. To safeguard limitation, the petitioner also filed an appeal before CIT(A) and approached the High Court challenging the reassessment proceedings initiated under the old law.

Read More: Mere Change of Opinion cannot form the basis for initiating Reassessment proceedings under Income Tax Act: Delhi HC

The division  bench comprising Jitendra Jain(Judge) and M.S.Sonak(Judge) heard both sides and examined the provisions of Section 147 as they stood at the time.It noted that the original assessment was completed on 25 October 2018, and the reassessment notice under Section 148 was issued after four years. As per the law, reassessment beyond four years is allowed only if there was a failure to fully and truly disclose material facts.

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In this case, the court found no such failure. The reasons provided initially did not mention any non-disclosure or show how income had escaped assessment. Later reasons filed by the department were different and could not be accepted, as only the original reasons could be considered.

The bench also observed that the reasons were based on documents already part of the original assessment. Since there was no new information, the reassessment amounted to a change of opinion, which is not allowed.

Further, the issue in question,guarantee fee,was already examined and added in the original order and was pending before the tribunal. Under the law, reassessment cannot be done on issues already under appeal.

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The assessee had also asked the department to treat its earlier return as a response to the Section 148 notice, which the court accepted as valid compliance.As the reassessment proceedings lacked legal basis, the court quashed both the reassessment notice and the assessment order.

To Read the full text of the Order CLICK HERE

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