Reassessment Beyond Four Years: Bombay High Court Clarifies Disclosure Obligations under Section 147 

Introduction: 

In the matter of Macrotech Developers Limited v. Deputy Commissioner of Income Tax & Orsⁱ., the Bombay High Court examined the permissibility of reassessment under s. 147 of the Income Tax Act, 1961 (‘the Act’) beyond four years from the end of the relevant assessment year, in a case where the original assessment had been completed under s. 143(3). The principal issue was whether the revenue authorities could reopen an assessment on the basis of new information obtained post-assessment, even in the absence of a specific allegation that the Assessee failed to disclose fully and truly all material facts. This ruling reiterates that such reassessment is legally sustainable when a failure to disclose can be reasonably inferred from the recorded reasons, even if not explicitly stated. The decision also offers an important clarification on the interplay between disclosure obligations, reassessment triggers, and the evidentiary threshold for jurisdictional assumptions under s. 147. 

Brief Facts: 

The Petitioner, i.e., Macrotech Developers Limited (formerly Suryakrupa Construction Pvt. Ltd.), is engaged in real estate development. For Assessment Year (‘AY’) 2009-10, the Petitioner filed its return under s. 139 of the Act, which was subsequently selected for scrutiny. The assessment order under s. 143(3), passed on 23.11.2011, accepted the Petitioner’s return after examining an unsecured loan of Rs. 403.45 crores received by way of Compulsorily Convertible Debentures (‘CCDs’) from Flirasca Holding Pvt. Ltd., a Cyprus-based entity. 

During assessment proceedings, the Petitioner submitted Foreign Inward Remittance Certificates (‘FIRCs’), RBI approvals, and the CCD agreement, leading to acceptance of the transaction. 

On 30.03. 2016, more than four years after the original assessment, the Assessing Officer (‘AO’) issued a notice under s. 148, citing new intelligence that the funds were routed through multiple offshore entities in tax havens and had intimate links with the Petitioner and its directors. The AO recorded reasons that the unsecured loan was likely the Petitioner’s own unexplained money routed through circuitous layering. The Petitioner filed objections, which were rejected on 28.09.2016, prompting the present writ petition challenging the validity of the reassessment proceedings. 

Held: 

The High Court dismissed the writ petition filed by the petitioner and upheld the reassessment proceedings initiated by the Income Tax Department under s. 147 of the Act. It was held that although the recorded reasons for reopening did not explicitly state a “failure to disclose fully and truly all material facts” by the Assessee, such failure could still be reasonably inferred from the recorded reasons themselves. This inference, the Court noted, was permissible and consistent with prior judicial interpretation, particularly the decision in Crompton Greaves Ltd. v. ACITⁱⁱ, which established that the statutory language need not be mechanically reproduced, as long as the failure to disclose can be deduced from the facts recorded. 

Therefore, the Hon’ble High Court upheld reassessment, noting that the AO relied on credible new information from Foreign Tax & Tax Research (‘FT&TR’) channels revealing Rs. 403.45 crores was routed through offshore tax havens linked to the Assessee. This layered, undisclosed fund movement was unknown during original assessment.  

Further, the High Court distinguished the facts of the present case from those in NDTV v. DCITⁱⁱⁱ, which the Petitioner had relied upon. In NDTV (supra), reassessment was based on findings from a different assessment year and there was no fresh material relevant to the year under reassessment. In contrast, in Macrotech (supra), the new information related directly to the same assessment year and involved the very transaction that was under scrutiny. Therefore, the first proviso to s. 147 was not a bar in the present case. 

Concluding, it was held that there was a reasonable basis for the AO to believe that income chargeable to tax had escaped assessment due to the Petitioner’s failure to disclose fully and truly all material facts. Accordingly, the reassessment proceedings were held to be within jurisdiction and legally valid and dismissed the petition. 

Our Analysis: 

The Hon’ble High Court clarified that reassessment under s. 147 of the Act is permissible beyond the four-year period even if the recorded reasons do not expressly state the assessee’s failure to fully and truly disclose material facts, provided such failure can be reasonably inferred from the facts and supported by new information. It furthermore drew a clear distinction between procedural and substantive disclosure. Merely filing statutory documents like RBI approvals, FIRCs, and agreements satisfies procedural compliance but does not amount to a complete disclosure if the real nature of the transaction, such as the ultimate source of funds or links to offshore entities remains concealed. 

The judgment affirms that disclosures must show the true financial substance, not just legal formalities. In cases of offshore structures, incomplete disclosures cannot block reassessment if new evidence shows income escapement. The ruling upholds the tax department’s power to reopen cases where fresh material contradicts earlier disclosures. 

Authored by Ascend Legal Editorial Team. The opinions expressed are personal and do not constitute any legal advocacy.