Reopening untenable in absence of tangible material concluding that income has escaped assessment

Maharashtra State Power Generation Company Limited Vs ACIT (Bombay High Court)

Bombay High Court held that reopening of assessment, in the exercise of powers under section 147 read with section 148 of the Act, without tangible material to conclude that income had escaped assessment is untenable in law.

Facts- The petitioner is a company engaged in the business of electricity generation for the state of Maharashtra. Petitioner filed its original return of income for A.Y. 2013-14 on 20th November 2013 and the revised return on 20th March 2014. The petitioner’s case was selected for scrutiny. During the course of proceedings various details that were sought were produced, including the Statement of Accounts with annexures and schedules.

In note no. 20 annexed to the accounts, details of “other expenses” in the sum of ₹ 290,92,13,655/- was debited as ‘contribution towards assets not owned by company / CSR expenditure’ and therefore been considered as ‘Revenue expenditure’ and charged to ‘profit and loss’. It also contained Net Prior Period (gain) / loss of ₹ 163,08,92,252/- claimed as ‘normal business expenditure’ in computation of total income. On 30th December 2016 the Respondent No.1 passed an assessment order u/s 143 (3) of the Act for A.Y. 2013-14 wherein disallowance was made in respect of the claim of Prior Period Expenditure. Thereafter the audit department objected to the allowability of the expenditure of ₹ 290,92,13,655/- and computed ₹ 87,27,64,095/- as potential loss of revenue as tax.

Respondent No.1 issued a notice u/s. 148 of the Act to reopen the assessment. At the request of the petitioner, almost after 8 months, reasons for reopening was supplied on 11th December 2021. Petitioner objected to the proposed action by pointing out that all material facts were fully and truly disclosed in the original assessment and it was based on a change of opinion. Further, the reopening beyond four years was not based on any tangible material nor there was any escapement of income.

Please become a Premium member. If you are already a Premium member, login here to access the full content.