KAPSTONE CONSTRUCTIONS PRIVATE LIMITED. vs. ASSISTANT COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE 2(4) AND 2 ORS.

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WP/3234/2019HC Bombay27 June 2023Bench: HON'BLE SHRI JUSTICE DHIRAJ SINGH THAKUR HON'BLE JUSTICE KAMAL KHATA3 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the impugned notice dated March 27, 2019, and the order dated October 5, 2019, were invalid. The Court found no material to indicate any failure on the part of the assessee to disclose material facts. Upon examining the original assessment order passed under Section 143(3), the Court noted that the AO had considered all documents and accepted the business loss of ₹12,14,41,599/- and allowed unabsorbed depreciation of ₹2,15,94,618/- to be carried forward. Therefore, the Court found no justification for reopening the assessment after the expiry of four years. The ratio decidendi is that for reopening assessments beyond four years, a specific failure to disclose material facts must be demonstrated, and a mere re-appreciation of existing facts or a different view on deductibility of interest expenses, without evidence of non-disclosure, is insufficient. The Court quashed and set aside the impugned notice and order and prohibited further action.

What were the facts?

The petitioner, Kapstone Constructions Private Limited, filed a writ petition challenging a notice dated March 27, 2019, issued under Section 148 of the Income Tax Act, 1961, for Assessment Year 2012-13, and the subsequent order dated October 5, 2019, rejecting their objections. The original assessment order under Section 143(3) was passed on March 26, 2015. The notice under Section 148 was issued after the expiry of four years, triggering the proviso to Section 147. The Assessing Officer (AO) based the reasons for issuing the notice on a perusal of case records, specifically noting that interest paid on borrowed funds for projects should have been disallowed and added to the Work in Progress (WIP). The High Court examined the reasons recorded by the AO and the original assessment order.

What were the issues?

1. Whether the notice dated March 27, 2019, issued under Section 148 of the Income Tax Act, 1961, for AY 2012-13, is valid, considering it was issued after the expiry of four years from the end of the relevant assessment year, and if the proviso to Section 147 of the Act applies. Assessee's contention: The assessee argued that the notice was issued after the expiry of four years and that the respondents had to demonstrate a failure to truly and fully disclose material facts, as held in Ananta Landmark (P) Ltd. v DCIT CC 5(3) Mumbai. Revenue's contention: The revenue contended that the interest expense on borrowed funds for projects should have been disallowed and added to the Work in Progress (WIP), implying a failure to disclose material facts or an incorrect claim by the assessee. The reasons recorded by the AO were premised on a 'perusal of the case records'.

Which sections of the Income-tax Act were involved?

Section 148,Section 147,Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 3234 of 2019 Kapstone Constructions ] Private Limited, having its ] office at 702 Natraj, M.V. Road ] Junction, Western Express Highway, ] Mumbai – 400 069 ] …Petitioner Versus 1. Assistant Commissioner of Income ] Tax – Central Circle 2(4), Pratishtha ] Bhavan, Old CGO Annex, M K. Road, ] Mumbai – 400 020 ] 2. Principal Commissioner of Income- ] Tax (Central) 1, Mumbai – 400 020 ] 3. Union of India, ] Through the Secretary, Ministry of ] Finance, Government of India, ] North Block, New Delhi – 100 001 ] …Respondents … Mr. Harsh M. Kapadia for the petitioner. Mr. Suresh Kumar for the respondents. …

CORAM : DHIRAJ SINGH THAKUR AND KAMAL KHATA, JJ.

PRONOUNCED ON : 27TH JUNE 2023 1/3 (f)Kapstone Constructions.doc Sumedh SUMEDH NAMDEO SONAWANE Digitally signed by SUMEDH NAMDEO SONAWANE Date: 2023.06.27 18:10:26 +0530 CNR No : HCBM020281402019 Uploaded on - 28/06/2023 Downloaded on - 27/10/2026 17:55:25

J U D G M E N T [PER: KAMAL KHATA, J.] 1. This Petition under Article 226 of the Constitution impugns notice dated 27th March 2019 issued under section (u/s) 148 of the Income Tax Act, 1961 (Act) for Assessment Year (AY) 2012- 13 and the order dated 5th October 2019 rejecting the objections. 2. The record indicates that the Assessment Order u/s 143(3) was passed on 26th March 2015 after the case was selected for scrutiny. Evidently, the notice u/s 148 of the Act is issued after expiry of four years and the proviso to section 147 of the Act applies. Respondents have to show there was failure to truly and fully disclose material facts as held by this Court in Ananta Landmark (P) Ltd. v DCIT CC 5(3) Mumbai.1 3. We have examined the reasons recorded annexed to the Petition that are evidently premised on ‘perusal of the case records’. The Assessment Officer (AO) records that the assessee had paid interest on borrowed funds for projects which are project funds and consequently the interest expense ought to have been disallowed and added to the Work in Progress (WIP) of the 1 [2021] 131 taxmann.com 52 2/3 (f)Kapstone Constructions.doc Sumedh Uploaded on - 28/06/2023 Downloaded on - 27/10/2026 17:55:25

assessee. We find nothing to indicate failure to disclose any material fact. Upon examining the order u/s 143(3) we find that the AO has considered all documents and accepted the Business Loss at 12,14,41,599/- and allowed Unabsorbed Depreciation at ₹ 2,15,94,618/- to be carried forward to the subsequent years as ₹ per the Act. 4. We, therefore pass the following order- i. The impugned notice dated 27th March 2019 and the order dated 5th October 2019, issued by Respondent No.1 for AY 2012-13 are quashed and set aside and all further action in respect thereof is prohibited; ii. Rule made absolute in above terms. No costs. (KAMAL KHATA, J.)

(DHIRAJ SINGH THAKUR, J.) 3/3 (f)Kapstone Constructions.doc Sumedh Uploaded on - 28/06/2023 Downloaded on - 27/10/2026 17:55:25 Powered by TCPDF (www.tcpdf.org)

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