“Escaped Income Condition Not Satisfied” – Bombay High Court quashes computer opinion against Tata Son Ltd for 2003-04

In a judgment delivered earlier this month, the Bombay High Court quashed an opinion issued by the income tax authorities for the 2003-2004 financial year against Tata Sons Ltd – holding company of the Tata group companies .

A dividing bench Judges KR Shriram and NJ Jamadar observed that the opinion did not substantiate the reasons for showing that the income had escaped assessment due to the failure on the part of the claimant to fully and truly disclose all material facts necessary for the assessment, and that the reasons invoked by the evaluator only showed “change of opinion” on the same material.

The case

Tata Son had filed his tax returns for the relevant period on 8 November 2003 showing an income of Rs 10,53,46,561, which was selected for review by the Assessing Officer (AO). Several notices and questionnaires were served on Tata Sons on a variety of issues to which the company responded with supporting documentation. On 21st March 2006 an assessment order was passed under Section 143(3) determining a total income of Rs.858,87,52,290.

The company challenged this before Commissioner of Income Tax (Appeals)-XXXIII, Mumbai (“CIT-[A]’). On March 16, 2007, the CIT-[A] passed an order granting the company relief, based on which the AO passed a new order and determined the revised total income of the company at Rs 98,55,51,776.

Another notice was issued on July 23, 2008 under section 154 to rectify the last assessment order of April 2007.
On April 5, 2010, the company received a Notice under Section 148 of the Act issued by the Deputy Commissioner of Income Tax, Range 2(3), Mumbai (DCIT), dated March 31 2010, stating that the AO had reason to believe that the taxable income for the tax year 2003-04 had escaped assessment within the meaning of section 147 of the 1961 Act and, therefore, it was proposed to reopen the evaluation. The company requested the recorded reasons for the reopening of the assessment, which were provided, followed by the company’s objections to the reopening of the assessment.


Lead Counsel PJ Pardiwalla, representing the claimant company, argued that it was proposed to reopen the valuation beyond the six-year period from the end of the 2003-04 valuation year; that there was no tangible element which would justify the reopening of the evaluation; and there was no even less convincing allegation to show that the income had escaped assessment because of the suppression of material facts on the part of the petitioner. It was also argued that the reasons recorded by the AA, ex-facie, indicated that the whole exercise was influenced by a mere change of opinion on the same material and that all issues had already been considered as threadbare not once but twice.

The authorities’ lawyer Arvind Pinto justified the reopening by expressly denying that the notice had been issued after six years and that the grounds recorded by the AO justified the invocation of powers under section 147 of the Act of 1961.

Court order

The bench observed that the legal position on the issue of the exercise of the reassessment power under section 147 of the 1961 Act was crystallized.

“In the event that it is proposed to reopen the assessment beyond the four-year period, where the assessment has been carried out under section 143(3) of the Act, an additional condition must be satisfied , namely the recording of a satisfaction that the income has escaped assessment due to the failure of the assessee to fully and truthfully disclose all material facts necessary for the assessment. that jurisdictional requirements are met must be established from the grounds recorded by the assessing officer,” the panel observed. He added that the existence of grounds should be based on tangible evidence and that a simple assertion AO not supported by tangible elements was of no use.
“The reason is not far from being sought. The power is of reassessment and not of revision. It is therefore postulated that when the main facts necessary for the valuation are fully and truly disclosed and the evaluator has taken a conclusive opinion thereon, it is prohibited to reopen the evaluation based on the same material on the premise that said material supports a different opinion”, can be concluded, observing that a simple reading of the reasons indicates that the exercise was influenced by a simple change of opinion.

Case title: Tata Sons Limited v Deputy Commissioner of Revenue and others.

Citation: 2022 LiveLaw (Bom) 38

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