Dmt 1 wp2772-11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO. 2772 OF 2011 Rakesh Nath, Mumbai. .. Petitioner. versus Asstt. Commissioner of Income Tax Circle 11-(1), Mumbai & Ors. .. Respondents. ..... Mr. Beena Pillai for the Petitioner. Mr. Suresh Kumar for the Respondents. ...... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. 20 DECEMBER 2011. P.C. : Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up Dmt 2 wp2772-11 for hearing and final disposal. 2. The assessment of the Petitioner for Assessment Year 2004-05 is sought to be reopened by a notice dated 20 September 2011 issued under Section 148 of the Income Tax Act, 1961. 3. The Petitioner filed a return of income for AY 2004-05 on 29 October 2004 declaring a total income of Rs.43.60 lakhs. On 23 August 2006, a notice was issued to the Petitioner under Sections 142 (1) and 143 (2) requiring a disclosure of various details, inter alia in respect of the following : 1) “ Details of cost of production incurred during the year. 2) Copy of Capital A/c. As appearing in the books of account. 3) Details of outstanding liabilities. When these liabilities are discharged and how? Dmt 3 wp2772-11 4) Details of bank accounts. Furnish copy of bank statements. 5) Please explain why the loss on abandonment of film should not be disallowed as capital loss not eligible for adjustment against your professional income.” 4. In response to the request, the assessee submitted a letter dated 12 December 2006 disclosing that he had commenced production of a film in Financial Year 2001-02 in a proprietary concern. The assessee claimed a net loss of Rs. 19.84 crores of which details were as follows : Amount received for the Film 3595078 Cost of Production (As detailed herein below 5451788 Net Loss on project given up 1856710 Other expenses including Depreciation 127740 Net loss as per P & L Account 1984450 Dmt 4 wp2772-11 The assessee stated in the letter that the amount received in connection with the project of Rs. 35.95 lakhs had been shown as income during the year and the net amount of Rs.18.56 lakhs has been claimed as a loss on the giving up of the film project. In this regard reliance was placed on the judgment of the Madras High Court in B. Nagi Reddy v. CIT 1. The Assessing Officer passed an order of assessment on 21 December 2006 under Section 143 (3) in respect of the project in question. The Assessing Officer held as follows : 4. “ Dashaka Films: In this concern assessee has claimed loss of Rs.19,84,450/- on account of the abandonment of film Friends which assessee was producing. It is “ ” submitted that the project was abandoned due to financial difficulties. It is seen from the record that there was no production activity during the year. During the year assessee has only made certain 1 199 ITR 451 Dmt 5 wp2772-11 outstanding payments to the extent of Rs.5,55,224/-. The cost of production as on 31.3.2003 was Rs. 48,96,564/- Thus the total cost of production is 54,51,788/-. Against this assessee has received Rs. 35,95,078/- from Co-producer and Tips Industries. The total loss including the administrative expenses and depreciation is Rs. 19,84,450/-. After verification of the details filed the loss of Rs. 19,84,450/- is allowed. The reasons which have been disclosed to the assessee for reopening the assessment under a communication dated 20 September 2011 are thus : On perusal of persistent reports relating to “ assessment year 2004-2005, following discrepancy has been noted : The assessment in the case of Shri Rakesh Nath “ for the assessment year 2004-2005 was completed Dmt 6 wp2772-11 after scrutiny on 21.12.2006, determining total income at Rs.49,50,100/-. While completing scrutiny assessment in this case, expenditure incurred on abandoned film project aggregating to Rs. 5451788/- was allowed as claimed by the assessee. Since the expenditure incurred on the film prior to the release is treated as capital, accordingly, expenditure incurred on incomplete and abandoned films continuous to be capital nature. Since the above expenses were capital in nature, omission to do so has resulted in under assessment of income of Rs. 5451788/-.” 5. Learned Counsel submitted that the reopening has taken place beyond a period of four years of the end of the relevant assessment year. Hence, in order to sustain the reopening there ought to be a failure on the part of the Petitioner to fully and truly disclose the material facts necessary for the assessment for that assessment year. The Dmt 7 wp2772-11 record would indicate that during the course of the assessment proceedings, the Assessing Officer had raised a query specifically in relation to the abandoned project which was replied to on 12 December 2006. The order of assessment contains a discussion on the subject and after verification, a loss of Rs.19.84 lacs was allowed. Hence, it is urged that the assessment has been sought to be reopened merely on the basis of a change of opinion. 6. Learned Counsel appearing on behalf of the Revenue submitted that the reasons disclosed to the assessee are sufficient to sustain the reopening. 7. Having heard learned Counsel for the Petitioner and learned Counsel for the Revenue and upon perusing the record, it is evident that during the course of assessment proceedings for Assessment Year 2004-05, the Assessing Officer had addressed a communication on 23 August 2006 to the assessee. By that communication, a specific disclosure was sought from the assessee in regard to the abandoned project. The assessee was called upon to explain as to why loss on the abandoned Dmt 8 wp2772-11 film should not be disallowed as capital loss not eligible for adjustment against professional income. The assessee submitted an explanation on 12 December 2006 setting out the basis of the claim. The order of assessment dealt with the claim of the assessee specifically in relation to the issue in question. In this view of the matter, since the reopening of the assessment is sought to be sustained beyond a period of four years of the end of the relevant assessment year, there must be a failure on the part of the assessee to fully and truly disclose all material facts in order to impart validity to the reopening of assessment. The reasons which have been recorded by the Assessing Officer do not even purport to state that there was any such failure on the part of the assessee. But that apart, it is evident that all material facts were within the knowledge of the Assessing Officer when he passed an order of assessment under Section 143 (3). The assessee had disclosed all primary facts. The Assessing Officer has now purported to reopen the assessment on the ground that the expenditure which was incurred on Dmt 9 wp2772-11 the abandoned film would continue to be of a capital nature. This evidently is a mere change of opinion. The jurisdictional requirement for reopening the assessment beyond a period of four years has not been fulfilled in the present case. Accordingly, Rule is made absolute by quashing and setting aside the impugned notice dated 24 September 2011. There shall, however, be no order as to costs. (Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.)