Tax Reassessment Beyond 4 Years Invalid Without Failure To Disclose Material Facts: Bombay High Court

On 16 June, the Bombay High Court held that the Income Tax Department cannot reopen an assessment after four years when the taxpayer has already disclosed all material facts fully and truly and allowed a writ petition filed by Chennai Container Terminal Private Limited.

A Division Bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla set aside the notice issued under Section 148 of the Income Tax Act, the order rejecting objections, and the consequential show cause notice and draft assessment order. The judges observed:

“The Respondents have erred in equating the Petitioner as the 'enterprise' and, consequently, holding that it is owned by P&O Ports (Chennai) Ltd., Mauritius, which is not a company registered in India.”

The dispute arose from the taxpayer's claim for deduction under Section 80-IA of the Income Tax Act in respect of its container terminal operations at Bharathi Dock, Chennai Port.

The Revenue sought reopening of the assessment on the ground that the taxpayer was not eligible for the deduction, alleging that its parent company was incorporated in Mauritius and that the taxpayer operated an existing infrastructure facility rather than developing a new one.

Rejecting the Revenue's first ground, the Court held that the Department misdirected itself by treating the taxpayer as the “enterprise” under Section 80-IA(4). It clarified that the relevant enterprise was the Chennai Port Bharathi Dock undertaking, which an Indian company registered in India owned.

The Bench also noted that the taxpayer invested substantially in developing port infrastructure, including installation of seven quay gantry cranes and twenty-two rubber tyred gantry cranes, involving expenditure of approximately Rs. 352.10 crore. It therefore rejected the Revenue's contention that the taxpayer did not develop a new infrastructure facility.

On limitation, the Court held that the Department issued the reassessment notice beyond four years from the end of the relevant assessment year, and reopening beyond that period is permissible only when the taxpayer fails to disclose fully and truly all material facts necessary for assessment.

On facts, the judges found that the taxpayer disclosed all relevant particulars regarding ownership structure, business activities, licence agreement, and the Section 80-IA claim in its annual reports, tax audit reports, Form 3CEB, and income tax returns. They observed:

“Respondents have not stated as to what material facts were not disclosed by the Petitioner. This, by itself, shows that the Petitioner had not failed to disclose any material fact.”

Accordingly, the High Court quashed the reassessment proceedings and allowed the writ petition, holding that the statutory conditions for reopening beyond four years were not satisfied.

Appearance for the Petitioner: Mr.Nitesh Joshi, Advocates 

Appearance for the Respondents: Ms.Samiksha Kanani, Advocate