Reassessment Beyond Four Years Invalid Without New Tangible Material: Bombay HC Quashes Section 148 Notices to BPCL [Read Order]

The Bombay High Court, in a recent decision, has ruled that reassessment proceedings initiated against Bharat Petroleum Corporation Ltd. (BPCL) for AY 2014-15 on the alleged wrongful claim of deduction under Section 32AC were void, as they were issued beyond four years without any new tangible material.

The petitions arose from reassessment notices issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, seeking to reopen BPCL’s assessments for AY 2013–14 and 2014–15. BPCL challenged the notices and subsequent rejection of its objections, contending that the proceedings were barred by limitation and without jurisdiction.

For AY 2013–14, the assessment had originally been completed under Section 143(3) on 30 January 2017. The AO later issued a notice alleging that BPCL wrongly claimed exemption of ₹ 37.10 crore under Section 10(34) on dividend income received from the BPCL Trust (formerly Kochi Refineries Ltd. Trust).

For AY 2014–15, reassessment was initiated on 26 March 2021, not only on this ground but also on the claim of deduction of ₹ 127.39 crore under Section 32AC.

BPCL submitted that all facts regarding the BPCL Trust and dividend exemption were fully disclosed during the earlier assessment, which had been concluded after detailed scrutiny, including a disallowance under Section 14A read with Rule 8D.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The petitioner contended that the reopening was barred by the first proviso to Section 147 as more than four years had elapsed, and there was no failure to disclose material facts. It was further argued that the notice was based solely on an audit objection and that the sanction of the Principal Commissioner under Section 151 was mechanical and unsigned.

The Revenue defended the reopening, stating that the BPCL Trust was not a company and therefore not covered by Section 115-O; the dividend distributed by it did not qualify as exempt income under Section 10(34).

It was submitted that BPCL failed to disclose this crucial fact during the original proceedings, resulting in income escaping assessment. The Department admitted that the issue had been pointed out by the internal revenue audit but maintained that reopening based on such audit information was valid.

The Division Bench framed the core issue as whether the reassessment was valid under the first proviso to Section 147, which restricts reopening after four years unless income has escaped assessment due to the assessee’s failure to make a full and true disclosure of material facts.

The Court noted that BPCL’s scrutiny assessment for both years was completed under Section 143(3) and that the reopening notices were issued after more than four years. Therefore, jurisdiction to reopen could arise only if there was a demonstrable failure by BPCL to disclose material facts.

Examining the record, the Bench found that BPCL had made complete disclosures: its return and annual report reflected the BPCL Trust investment of ₹ 659.10 crore, and the AO during the original assessment had specifically considered dividend income from the Trust while making a disallowance under Section 14A. The assessment order itself recorded “income from KRL Trust” as part of the exempt income. Hence, there was no failure to disclose any material fact.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The Court held that the AO’s “reason to believe” merely stated in a bald manner that there was a failure to disclose fully and truly all material facts, without specifying which facts were suppressed. Relying on Hindustan Lever Ltd. v. R.B. Wadkar (2004) and Bombay Stock Exchange Ltd. v. DDIT (Exemption) (2014), the Bench reiterated that reasons must clearly identify the facts allegedly not disclosed; a vague assertion is insufficient to confer jurisdiction under Section 147.

On the Department’s claim that the reopening was supported by an audit objection, the Court referred to precedents holding that reassessment based solely on an audit opinion is invalid, especially where the AO himself had earlier accepted the view in scrutiny.

The Court also found the approval under Section 151 perfunctory, noting that the sanctioning authority had not applied its mind or signed the document.

The Division Bench comprising B.P. Colabawalla (Judge) and Firdosh P. Pooniwalla (Judge) emphasised that the reassessment was a classic case of change of opinion, as the same issue, taxability of income from BPCL Trust, had been examined earlier.

Even if the AO had erred in granting the exemption originally, such an error could not be rectified through reassessment beyond four years. Citing CIT v. Kelvinator of India Ltd. (2010) and Gemini Leather Stores v. ITO (1975), the Court held that reassessment cannot be used to remedy the AO’s own oversight.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates