The Bombay High Court has invalidated reassessment proceedings, dismissing claims of income escapement from leasehold rights transfer. Justices K.R. Shriram and Neela Gokhale noted that if the amount was previously considered in a subsequent assessment year (AY) with an issued order, there's no escapement issue in the prior AY, given no tax rate change.
The petitioner, a charitable trust under the Bombay Public Trust Act since 1950, engaged in educational activities since 1926. In 2014, it obtained Thane Municipal Corporation (TMC) approved plans to construct a new school building, entering a build, lease, and transfer agreement in 2015 with Global Edu-Infra Development Private Limited. The deal granted leasehold rights for 45 years on specific premises while retaining ownership of the land and superstructures.
By the fiscal year 2017–18, the petitioner completed construction at a cost of around Rs. 43 crore, gaining TMC's occupancy certificate. The petitioner recorded this amount as income in its 2017-18 accounts, also treating it as the cost of new school buildings. The 2018-19 income tax return reflected this, classified under Section 11 as an application of income.
However, the return underwent scrutiny, leading to a show cause notice questioning the deduction's validity due to apparent lack of documentation. The petitioner responded, and an assessment order in August 2021 under Section 143(3), with Section 144B, accepted the filed income.
Before this, for the 2016–17 AY, a notice under Section 143 proposed assessing income as escaped, citing the petitioner's alleged sale of a property worth Rs. 40 crores not declared as capital gains. The petitioner argued that the Rs. 43 crore income for 2018–19 was already accepted after detailed scrutiny.
The High Court's decision hinged on the consistent treatment of the Rs. 43 crore income in subsequent AYs, precluding escapement claims. This underscores the importance of documenting and transparently reporting transactions, as proper documentation proved crucial in contesting reassessment efforts.
In essence, the petitioner's compliance with tax procedures and its detailed responses played a pivotal role in the court's decision. The court recognized the acceptance of the income by tax authorities in a subsequent AY, emphasizing the principle that if an income is duly examined and accepted, reassessing the same for a prior AY without a tax rate change is unwarranted.
This case illustrates the legal intricacies surrounding income tax assessments, emphasizing the significance of maintaining thorough records and diligently responding to inquiries. It highlights the need for tax authorities to adhere to consistency and fairness in their assessments, particularly when dealing with previously accepted income amounts in subsequent years. As legal landscapes evolve, staying informed about such cases is crucial for professionals and entities navigating tax-related matters.
TAGS: Bombay High Court Reassessment proceedings Escapement of income Leasehold rights Justice K.R. Shriram
