Bombay HC quashes Section 148 Notices as Assessment could not have been reopened at all by Jurisdictional Assessment Officer [Read Order]

The Bombay High Court has quashed the Section 148 notices as assessment could not have been reopened at all by the Jurisdictional Assessment Officer.

This is a case where the notice under Section 148 of the Act has been issued after the expiry of 4 years from the end of the relevant assessment year and assessment under Section 143(3) of the Act has also been completed. Hence, proviso to Section 147 of the Act shall apply. Respondents have to show that there was failure on the part of the petitioner to truly and fully disclose material facts relevant for the assessment. 

Respondents have failed in discharging its onus to show that petitioner has failed to disclose truly and fully all material facts. From the reasons itself as well as the documents annexed to the petition, it is quite clear that there has been full disclosure by the petitioner. The Jurisdictional Assessment Officer (JAO) has raised 4 heads, under which he feels that income chargeable to tax has escaped assessment.

After completion of assessment under Section 143(3) of the Act respondents had issued a communication to petitioner mentioning about the various objections raised by the audit department and one of that relates to this amount of Rs.29,30,000/- towards interest expenditure. 

Petitioner by its letter explained to respondents that the amount of Rs.29,30,000/- was not debited towards security deposit but was debited towards interest paid on security deposit. In their reply, petitioner has explained that the amount of Rs.29,30,000/- being debited under the head of other income in the profit and loss account and is reduced from interest income represents interest expenditure incurred for security deposits. 

It was also brought to the notice of respondents that the interest on security deposit has been inadvertently considered as security deposits in the audit findings and, therefore, the amount of Rs.29,30,000/- representing interest expenditure is deductible as a revenue expenditure and not capital in nature.

The division bench of Justice N.J.Jamadar and Justice K.R.Shriram has held that petitioner is therefore directed to pay the amount of Rs.30,54,398/- as mentioned in the revenue audit objections. Respondents are directed to raise the demand on petitioner for this amount and petitioner shall pay the amount within time prescribed in the demand. 

“We are making it clear that as noted earlier, the entire 148 notice is quashed and set aside and we have held that assessment could not have been reopened at all by respondents. We have only included this portion in this order in view of the without prejudice offer made by Mr. Thakkar and that cannot be construed as an admission of any liability by the petitioner. No penalty proceedings can be initiated by respondents under this head,” the court said.

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