Wp3452_19.Doc v. The Petitioner Has Sought To Question The Legality Of Anotice Dated 27 March 2019 Issued By The Assessing Officer Undersection 148 Of The Income Tax Act, 1961 (

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3452 OF 2019 Macrotech Developers Limited)(Successor to Palava Dwellers Pvt. Ltd.))a company incorporated under the Companies)Act, 1956, having its registered office at)Lodha Excelus, N. M. Joshi Marg,)Mahalaxmi, Mumbai 400 001 and registered)Office at 412, Floor-4, 17G Vardhaman Chamber)Cawasji Patel Road, Horniman Circle,)Fort, Mumbai 400 001)PetitionerVs.1.Assistant Commissioner of Income Tax, Central)Circle 7(3), Mumbai having his office at Room)No.655, 6[th] floor, Aayakar Bhavan,)Maharishi Karve Road, Mumbai 400 020)2.The Principal Commissioner of Income Tax,)Central-4 having his office at Floor Aayakar Bhavan)Maharishi Karve Road, Mumbai 400 020)3.The Union of India,)Through the Secretary, Department of Finance)Ministry of Finance, North Block,)New Delhi 110001)Respondents Mr. Prakash Shah i/b. PDS Legal for Petitioner.Mr. Sham V. Walve for Respondents. CORAM : K. R. SHRIRAM &R. N. LADDHA, JJ.DATE :JANUARY 17, 2022 JUDGMENT:- (Per R. N. Laddha, J.) The petitioner has sought to question the legality of aNotice dated 27 March 2019 issued by the Assessing Officer underSection 148 of the Income Tax Act, 1961 (for short ‘the Act’) seeking to re-open the assessment for the Assessment Year 2012-13. There is also achallenge to the order dated 13 November 2019 passed by the AssistantCommissioner of Income Tax - Respondent No.1 rejecting the objectionsraised by the petitioner to the validity of the impugned notice. 2.Petitioner is a company registered under the CompaniesAct, 1956 and is engaged in the business of developing and constructionof real estate properties. The National Company Law Tribunal, Mumbaiby its order dated 09 January 2018 has sanctioned the Scheme ofArrangement between the Lodha Developers Private Limited and PalavaDwellers Private Limited and their respective shareholders and creditors.By the said Scheme, Palava Dwellers Private Limited was merged withLodha Developers Private Limited. Subsequently, the name of LodhaDevelopers Private Limited was changed to Macrotech DevelopersLimited i.e., the petitioner with effect from 24 May 2019. 3.During the year under consideration, the petitioner hadfiled on 30 September 2012 e-return of income tax disclosing totalincome of Rs.208,86,67,827/- and claimed deduction of interest expenseamounting to Rs.74,30,91,206/- in the computation of income underSection 36(1)(iii) of the Act. The petitioner had subsequently revised itsincome and filed revised return declaring total income ofRs.120,94,29,942/- on 31 March 2014. 4.Thereafter, on 22 December 2014, a notice under Section143(2) of the Act was issued to the petitioner calling upon the petitionerto attend the office of the Assessing Officer and produce the copies ofbalance sheet, profit and loss account, computation of income and auditreport etc. The petitioner responded by its letters dated 12 February2015, 23 March 2015, 24 March 2015 and 30 March 2015 and providedrequisite information and details with the supporting documents askedfor. Subsequently, assessment order dated 31 March 2015 under Section143(3) of the Act was passed by the Assessing Officer. 5.On 15 October 2015, the petitioner moved an applicationfor rectification under Section 154 of the Act before the then AssessingOfficer seeking to rectify certain mistakes in the order dated 31 March2015. The Assessing Officer vide his order dated 03 November 2015 waspleased to rectify the assessment order dated 31 March 2015. 6.Thereafter, the Assessing Officer issued a notice dated 27March 2019 under Section 148 of the Act to the petitioner seeking to re-open the assessment for the Assessment Year 2012-13 for the purposesof re-assessment. On receipt of the notice, the petitioner sought thereasons for re-opening of the assessment. In response, the AssessingOfficer vide his letter dated 30 August 2019 communicated the followingreasons for proposed re-opening of the assessment:- 5.On 15 October 2015, the petitioner moved an applicationfor rectification under Section 154 of the Act before the then AssessingOfficer seeking to rectify certain mistakes in the order dated 31 March2015. The Assessing Officer vide his order dated 03 November 2015 waspleased to rectify the assessment order dated 31 March 2015. 6.Thereafter, the Assessing Officer issued a notice dated 27March 2019 under Section 148 of the Act to the petitioner seeking to re-open the assessment for the Assessment Year 2012-13 for the purposesof re-assessment. On receipt of the notice, the petitioner sought thereasons for re-opening of the assessment. In response, the AssessingOfficer vide his letter dated 30 August 2019 communicated the followingreasons for proposed re-opening of the assessment:- “The return of income for A.Y.2012-13 was filed by theassessee on 30.09.2012, declaring an income ofRs.208,86,67,827/-. Subsequently, the assessee filed revisedreturn on 31.03.2014 declaring total income ofRs.120,94,29,942/-. Further, the assessment u/s.143(3) waspassed on 31.05.2015 and determined the total income120,94,29,940/-. In this case, it is observed that the assessee company had,during the year claimed interest expenses of Rs.74,30,91,206which is also allowed by AO. It was also observed that theassessee has borrowed fund for its construction project onwhich this interest was paid. Thus borrowing has direct nexuswith its project. As per the matching concept of restrictingexpenses to the income offered during that particular year,expenses relating to future income should be capitalised andallowed in the year in which the income is offered. Accordingly,interest expenses of Rs.74,30,91,206 should have beencapitalised. It was also observed that similar claim of interest forAssessment Years 2013-14 and 2014-15 had been disallowedand added to Work in Progress. .After examine the case it is submitted that, the assesseeengaged in the business of construction activity. Theaccounting of the construction activity is governed by theAccounting Standard 7 as well as guidance note on accountingfor real estate transaction issued by the Institute of CharteredAccountants of India (ICAI). The said guidance notecategorically states that all the expenses directly related to the project have to be carried over and debited to the cost ofproject. Such expenses can be claimed as deduction in the yearin which the corresponding income of the project is credited inthe books of account and offered to tax. The assessee hadallocated all other expenses to the work in progress exceptinterest. If the interest cost has been claimed in the year of itsincurrence for the reason that it is periodic cost then going bythe same logic the entire salary cost should also have beenclaimed as deduction for the same reason that it is also aperiodic fixed cost. However, the assessee has allocated thesalary cost to the work in progress which is directly related tothe project. Thus, the treatments given by the assessee toexpenses are contradictory to each other. It is not out of theplace to state that the assessee had not followed the correctmethod of accounting for accounting the expenses towards theproject being developed by the assessee. Thus, the entireinterest expenses have to be carried over to the work inprogress and shall be allowable as deduction in the year inwhich the revenue pertaining to the said interest shall beoffered for taxation. The above view is fully supported by thejudgment of Hon’ble Special Bench Mumbai in the case of M/s.Wall Street Construction Limited [102 TTJ 505] wherein theHon’ble Bench has held that the interest cost shall be debitedto work in progress and allowed to be claimed as deductiononly in the year in which corresponding income is offered totax. Proviso to Section 36(1)(iii) as under: Provided that any amount of the interest paid, inrespect of capital borrowed for acquisition of anasset for extension of existing business or profession(whether capitalized in the books of account or not)for any period beginning from the date on which thecapital was borrowed for acquisition of the asset tillthe date on which such asset was first put to use,shall not be allowed as deduction. In the light of the discussion in the precedingparagraphs, I have reasons to believe that income chargeableto tax to the tune of Rs.74,30,91,206/- has escaped assessmentfor the Assessment Year 2012-13. The amount ofRs.74,30,91,206 has escaped assessment due to failure on thepart of the assessee to disclose fully and truly all material factsnecessary for its assessment for the Assessment Year 2012-13.” 7.On 04 November 2019, the petitioner filed its objections tothe reasons for re-opening of the assessment for Assessment Year 2012-13, which came to be rejected by the impugned order dated 13November 2019. 8.In assailing the impugned notice under Section 148, thelearned counsel appearing on behalf of the petitioner submitted thatthere was no failure to truly and fully disclose material and there was nofresh tangible material for initiating re-assessment proceedings. It wasfurther contended that the assessment for Assessment Year 2012-13 issought to be re-opened on the basis of a mere change of opinion. It isargued that since the notice under Section 148 was issued beyond theperiod of four years from the end of the relevant assessment year andsince there was failure on the part of the respondents to disclose whichare the material facts not disclosed, the initiation of re-assessmentproceedings was bad in law by virtue of the first proviso to Section 147of the Act. 9.On the other hand, it has been urged on behalf of theRevenue that the reasons which have been indicated in thecommunication dated 27 March 2019 are sufficient to re-open theassessment. It was submitted that while finalizing the assessment forAssessment Year 2012-13, the Assessing Officer found that the assesseehad calculated depreciation on goodwill by adopting wrong method ofpurchase. According to the learned counsel for the respondents, in thepresent case, the Assessing Officer has reasonable belief that incomechargeable to tax has escaped assessment and on the basis of such beliefthe respondent authority is entitled to re-open the assessment. 10.It is not in dispute that by the notice under Section 148issued on 27 March 2019, the assessment pertaining to the year 2012-13was sought to be re-opened after the lapse of four years and assessmentunder Section 143(3) has been completed. First proviso to Section 147applies when the re-assessment proceedings are initiated after four yearsfrom the end of the relevant assessment year. The said proviso reads asunder:- “Provided that where an assessment under sub section(3) of Section 143 or this Section has been made for the relevant assessment year, no action shall be takenunder this section after the expiry of four years from theend of the relevant assessment year, unless any incomechargeable to tax has escaped assessment for suchassessment year by reason of the failure on the part ofthe assessee to make a return under section 139 or inresponse to a notice issued under sub-section (1) ofsection 142 or section 148 or to disclose fully and trulyall material facts necessary for his assessment, for thatassessment year:” “Provided that where an assessment under sub section(3) of Section 143 or this Section has been made for the relevant assessment year, no action shall be takenunder this section after the expiry of four years from theend of the relevant assessment year, unless any incomechargeable to tax has escaped assessment for suchassessment year by reason of the failure on the part ofthe assessee to make a return under section 139 or inresponse to a notice issued under sub-section (1) ofsection 142 or section 148 or to disclose fully and trulyall material facts necessary for his assessment, for thatassessment year:” 11.The question is whether there was a failure on the part ofthe assessee to disclose fully and truly all material facts necessary for theassessment of Assessment Year 2012-13. It is not the case that there isfailure on the part of the assessee to make a return under Section 139 ofthe Act. The case of the assessee was selected for scrutiny forAssessment Year 2012-13 and it is after complete examination of theoriginal computation of income, revised computation of income andaudit, the Assessing Officer has allowed the claim of the assesseetowards deductibility of interest expense of Rs.74,30,91,206/-. Thus, it isclear that the complete details were made available by the petitionercompany in the course of assessment proceedings under Section 143(3)of the Act for Assessment Year 2012-13. In this backdrop, it can safelybe concluded that the re-assessment proceedings for this year have beeninitiated despite the fact that the details in connection with the reasonsfor re-opening were already furnished for Assessment Year 2012-13. It isalso stated that no disallowance were made in the assessment orderregarding interest inventorization and the same was accepted by theAssessing Officer towards deductibility of interest expense ofRs.74,30,91,206/-. Thus, the reasons for re-opening the assessment ofthe relevant year were based on the details furnished in the assessmentproceedings of Assessment Year 2012-13. Merely, if some other decisionhas been taken by the Department for other years i.e., Assessment Year2013-14 and Assessment Year 2014-15, the respondent authorities do notretain the power to review the order of Assessment Year 2012-13 in thegarb of re-opening under Section 147 of the Act. Thus, on change of opinion and reviewing its own order is bad in law and withoutjurisdiction. In our view, re-opening of the assessment without any basisand merely change of opinion is not permissible while exercising powersunder Section 147 r/w Section 148 of the Act. In the present case, thereasons which have been recorded by the assessing officer for reopeningof the assessment do not disclose that the assessee had failed to disclosefully and truly all material facts necessary for the purpose of assessment.The duty is cast upon the assessee to make true and full disclosure of thefacts at the time of original assessment. The duty of the assessee in anycase does not extend beyond making a true and full disclosure ofprimary facts. It is for the Assessing officer to draw the correct inferencefrom the primary facts. If the assessing officer draws an inference whichappears subsequently to be erroneous, mere change of opinion withregard to that inference would not justify initiation of action forreopening assessment. 12.In this context, the legal position is well settled. Aprofitable reference can be made to the judgement of the Delhi HighCourt in the case of CIT vs. Kelvinator of India Limited, (2002) 256ITR 1 (Delhi) (FB) wherein, it was enunciated that a mere change ofopinion cannot form the basis of reopening a completed assessment. 12.In this context, the legal position is well settled. Aprofitable reference can be made to the judgement of the Delhi HighCourt in the case of CIT vs. Kelvinator of India Limited, (2002) 256ITR 1 (Delhi) (FB) wherein, it was enunciated that a mere change ofopinion cannot form the basis of reopening a completed assessment. 13.Similarly, a Division Bench of this Court in the case ofAnanta Landmark Private Limited Vs. Deputy Commissioner ofIncome Tax and others, W.P. No. 2814 of 2019, dated 14 September2021, on which reliance was placed on behalf of the petitioner,illuminates the path. In this case, after taking survey of the previouspronouncements it was enunciated that when the primary facts necessaryfor assessment are fully and truly disclosed, the assessing officer is notentitled on change of opinion to commence proceedings forreassessment. We may usefully refer to paragraph 16 of the aforesaidjudgement, which reads thus: “16.Whether it is a disclosure or not within the meaning of Section 147 of the Act would depend on thefacts and circumstances of each case and nature ofdocument and circumstances in which it is produced.The duty of the assessee is to fully and truly disclose allprimary facts necessary for the purpose of assessment. Itis not part of his duty to point out what legal inferenceshould be drawn from the facts disclosed. It is for theIncome Tax Officer to draw a proper reference. In thecase at hand, petitioner had filed its annual returnsalongwith computation of taxable income alongwithMAT (minimum alternate tax) calculation as perprovisions of Section 115JB, audited annual financialsincluding auditor’s report, balance sheet, profit and lossaccount and notes to accounts, annual tax statement inForm 26AS under Section 203AA of the Act in responseto the notices received under Section 142(1) and 143 (2)of the Act. Petitioner also explained how the borrowingcosts that are attributable to the acquisition orconstruction of assets have been provided for, what arethe short term borrowings and from whom have beenprovided for. Petitioner also gave details of interestexpenses claimed under Section 57 of the Act in responseto further notice dated 10 th October 2014 under Section142 (1) of the Act, attended personal hearings andexplained and gave further details as called for in thepersonal hearing vide its letter dated 17th December2014 and after considering all that, the assessment orderdated 20th February 2015 was passed accepting thereturn of income filed by the assessee. The Assessing Officer had in his possession allprimary facts, and it was for him to make necessaryenquiries and draw proper inference as to whether fromthe interest paid of Rs.75,79,35,292/- an amount ofRs.7,66,66,663/- has to be allowed as deduction underSection 57 of the Act or the entire interest expenses ofRs.75,79,35,292/- should have been capitalized to thework in progress against claiming Rs.7,66,66,663/- asdeduction under Section 57 of the Act. The AssessingOfficer had had all materials facts before him when hemade the original assessment. When the primary factsnecessary for assessment are fully and truly disclosed,the Assessing Officer is not entitled on change of opinionto commence proceedings for reassessment. Even if theAssessing Officer, who passed the assessment order, mayhave raised too many legal inferences from the factsdisclosed, on that account the Assessing Officer, who hasdecided to reopen assessment, is not competent toreopen assessment proceedings. Where on considerationof material on record, one view is conclusively taken bythe Assessing Officer, it would not be open to reopen the assessment based on the very same material with a viewto take another view. assessment based on the very same material with a viewto take another view. As noted earlier, petitioner has filed the annualreturns with the required documents as provided forunder Section 139 of the Act. As held by the CalcuttaHigh Court in Income Tax Officer V/s. CalcuttaChromotype (P.) Ltd., (1974) 97 ITR 55 (Calcutta) reliedupon by Mr. Pardiwalla, there was nothing more todisclose and a person cannot be said to have omitted orfailed to disclose something when, of such thing, he hadno knowledge. One cannot be expected to disclose athing or said to have failed to disclose it unless it is amatter which he knows or knows of. In this case, exceptfor a general statement in the reasons for reopening, theAssessing Officer has not disclosed what was thematerial fact that petitioner had failed to disclose.” 14.In the case of Bhavesh Developers vs Assessing officer andothers, (2010) 329 ITR 249 (Bom.) where the Division Bench of thisCourt held thus (page 254): “The reasons which have been disclosed to theassessee would show that the inference that the incomehas escaped assessment is based on the disclosuremade by the assessee itself. The reasons show that thefinding is based on the details filed by the assesseeand from the profits and loss account. Quite clearly,therefore, it was impossible for the Assessing Officerto even draw the inference that there was a failure onthe part of the assessee to disclose fully and truly allmaterial facts necessary for his assessment forAssessment Year 2002-03. Significantly, the reasonsthat have been disclosed to the assessee do not containa finding to the effect that there was a failure to fullyand truly disclose all necessary facts, necessary forthe purpose of assessment. In these circumstances, thecondition precedent to a valid exercise of the power toreopen the assessment, after a lapse of four years fromthe relevant Assessment Year, is absent in the presentcase. There is merit in the submission which has beenurged on behalf of the assessee that an exceptionalpower has been conferred upon the Revenue to reopenan assessment after a lapse of four years. Theconditions which are prescribed by the statute for theexercise of such a power must be strictly fulfilled andin their absence, the exercise of power would not besustainable in law. Though an attempt was made on behalf of the Revenue to urge that the assessee shouldbe relegated to the ordinary remedy of an appealagainst the order of the assessment, we are of the viewthat a petition under Article 226 of the Constitutionwould be maintainable for questioning reopening ofthe assessment in a case such as this where the pre-conditions for the exercise of the power have not beenfulfilled. ” 15.In the circumstances aforesaid, we set aside the impugnednotice dated 27 March 2019 issued under Section 148 of the Act as wellas the impugned order dated 13 November 2019 passed by the AssistantCommissioner of Income Tax - Respondent No. 1 rejecting thepetitioners objections to reopen the assessment for the Assessment Year2012-13. 16.The petition is allowed in the aforesaid terms. There shallbe no order as to costs. (R. N. LADDHA, J.) (K. R. SHRIRAM, J.) Minal Parab