My section 35AD deduction was examined and allowed in scrutiny. Four years later the department wants to reopen and treat part of it as revenue expenditure so the loss runs under section 72 for eight years instead of indefinitely under section 73A. Can it?
Not on these facts. The Bombay High Court quashed the s.148 notice, the two orders disposing of objections and all consequential proceedings, holding that where the original assessment was completed under s.143(3) and the reopening is beyond four years, the first proviso to s.147 requires a failure to disclose fully and truly all material facts, and a bald assertion of such failure without identifying which fact was not disclosed will not do. The Court expressly did not decide whether the expenditure was capital or revenue.
Decided by the High Court (B.P. Colabawalla J and Firdosh P. Pooniwalla J) on 2026-04-24, reported as Writ Petition No. 3613 of 2022 (Bombay High Court); Assessment Year 2014-15. It bears on section 35AD, section 35AD(8)(f), section 73A, section 72, section 147, section 148, section 143(3) of the Income Tax Act 1961, in Reassessment & Reopening, Deductions & Disallowances and How Tax Law Is Read matters.
The commercial stake in the case is the difference between the two carry-forward regimes, and that is worth having stated in a judgment. A loss of a specified business under s.35AD is carried forward under s.73A without any time limit; an ordinary business loss under s.72 dies after eight assessment years. The Revenue's reasons for reopening said so in terms — that by classifying revenue expenditure under s.35AD the assessee was 'entitled to carry forward such loss for unlimited period of time without any restriction', whereas s.72 would restrict it to eight years — and treated the difference itself as the escapement of income. That is the reasoning a practitioner will meet, and it is worth noting that the reopening rested on a revenue audit party objection: the judgment records at para 5 that the petitioner was so informed, and at para 8 that the reopening is based on the audit objections raised by the revenue audit party. But note what the Court did and did not do. It quashed on the s.147 first proviso: no new tangible material, the s.35AD claim having been specifically queried and allowed in the original assessment, and no identification of any fact left undisclosed. It said nothing on whether pre-operative expenses pending capitalisation of Rs 293.39 crore were capital expenditure eligible under s.35AD or revenue expenditure. That question is open, and an assessee facing the same objection within four years, or in an assessment rather than a reassessment, gets no help from this judgment on the merits.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner constructed a hotel of above two-star category and handed it over to JW Marriott, incurring capital expenditure of Rs 639,73,36,790 which it claimed as a deduction under s.35AD in its return for Assessment Year 2014-15, declaring a total loss of Rs 40,70,31,665 under the normal provisions. The case was selected for scrutiny; the Assessing Officer raised queries specifically on the s.35AD claim, the petitioner replied by submissions dated 19 September 2016 and 27 December 2016, and the assessment order dated 29 December 2016 under s.143(3) recorded the claim, allowed a deduction to be carried forward of Rs 6,39,48,45,213 after reducing Rs 24,91,577 disallowed in an earlier year, and accepted the returned income. On 30 March 2021, more than four years after the end of the assessment year, a notice under s.148 was issued. The recorded reasons said that pre-operative expenses pending capitalisation of Rs 293,39,48,980 were of revenue and not capital nature, that the claim under s.35AD should be restricted accordingly, that the expenditure should have been booked in the profit and loss account and the loss claimed under s.72 with its eight-year limit, and that by classifying it under s.35AD the assessee obtained an unlimited carry forward under s.73A, so income of Rs 293,39,48,980 had escaped assessment. Objections were rejected by order dated 9 February 2022 and again by order dated 18 February 2022, the latter disclosing for the first time that the reopening was based on a revenue audit party objection — a fact the Revenue's counsel fairly admitted before the Court.
Rule was made absolute; the notice under s.148 dated 30 March 2021, the orders disposing of objections dated 9 February 2022 and 18 February 2022 and all consequential proceedings were quashed and set aside, with no order as to costs (paras 15 and 16). In the absence of any failure on the part of the assessee to disclose necessary facts, the reassessment proceeding is bad in law and void in terms of the first proviso to s.147 (para 14). Where reasons do record a failure to disclose but do not state what the failure was, that is a mere bald assertion and the notice is bad on that ground alone (paras 10 and 11).
The Court noted at the outset that the reopening was initiated on facts already on the Assessing Officer's record, with no new fact or tangible material; that the original assessment had been completed under s.143(3) on 29 December 2016 and the s.35AD claim considered in it; and that the reassessment was initiated beyond four years, so that the first proviso to s.147 permitted it only on a failure to disclose fully and truly all material facts, which admittedly could not be said here since the very reasons recorded showed that all the facts were available with the officer (para 9). It applied its own earlier decisions: Bombay Stock Exchange Ltd. v. DDIT, WP 2468 of 2011, in which the Hindustan Lever Ltd. v. R.B. Wadkar principle was applied — reasons must be read as recorded, cannot be supplemented by affidavit or oral submission, and must disclose which fact or material was not disclosed so as to establish the vital link between reasons and evidence (para 10); Bharat Petroleum Corporation Ltd. v. ACIT (2025) 478 ITR 358 (Bombay), authored by the same Bench, to the same effect, the Special Leave Petition against which was rejected in ACIT v. Bharat Petroleum Corporation Ltd., SLP (C) Diary No. 8091 of 2026 (paras 11 and 12); and Transchem Ltd. v. ACIT, WP 1387 of 2010, decided 3 February 2022, for the propositions that reopening on the same material to take another view is impermissible and that an error discovered on reconsideration of the same material gives no power to reopen (para 13). The reasons here did record a failure but did not say what it was, and that bald assertion was fatal (para 11).
In view of the above, it is quite evident that, in the absence of any failure on the part of the Assessee to disclose necessary facts, the impugned reassessment proceeding is bad in law and void in terms of the first proviso to Section 147.
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Handle my notice → Ask a CA on WhatsAppNot on these facts. The Bombay High Court quashed the s.148 notice, the two orders disposing of objections and all consequential proceedings, holding that where the original assessment was completed under s.143(3) and the reopening is beyond four years, the first proviso to s.147 requires a failure to disclose fully and truly all material facts, and a bald assertion of such failure without identifying which fact was not disclosed will not do. The Court expressly did not decide whether the expenditure was capital or revenue. This was decided by the High Court (B.P. Colabawalla J and Firdosh P. Pooniwalla J) and bears on section 35AD, section 35AD(8)(f), section 73A, section 72, section 147, section 148, section 143(3) of the Income Tax Act 1961. It is reported as Writ Petition No. 3613 of 2022 (Bombay High Court); Assessment Year 2014-15. The commercial stake in the case is the difference between the two carry-forward regimes, and that is worth having stated in a judgment. A loss of a specified business under s.35AD is carried forward under s.73A without any time limit; an ordinary business loss under s.72 dies after eight assessment years. The Revenue's reasons for reopening said so in terms — that by classifying revenue expenditure under s.35AD the assessee was 'entitled to carry forward such loss for unlimited period of time without any restriction', whereas s.72 would restrict it to eight years — and treated the difference itself as the escapement of income. That is the reasoning a practitioner will meet, and it is worth noting that the reopening rested on a revenue audit party objection: the judgment records at para 5 that the petitioner was so informed, and at para 8 that the reopening is based on the audit objections raised by the revenue audit party. But note what the Court did and did not do. It quashed on the s.147 first proviso: no new tangible material, the s.35AD claim having been specifically queried and allowed in the original assessment, and no identification of any fact left undisclosed. It said nothing on whether pre-operative expenses pending capitalisation of Rs 293.39 crore were capital expenditure eligible under s.35AD or revenue expenditure. That question is open, and an assessee facing the same objection within four years, or in an assessment rather than a reassessment, gets no help from this judgment on the merits. If it applies to you, the first step is this: Check the two gateway facts first: was the original assessment completed under s.143(3), and is the s.148 notice beyond four years from the end of the relevant assessment year? If both, the first proviso to s.147 applies and the burden on the Revenue is a specific failure to disclose.
The petitioner constructed a hotel of above two-star category and handed it over to JW Marriott, incurring capital expenditure of Rs 639,73,36,790 which it claimed as a deduction under s.35AD in its return for Assessment Year 2014-15, declaring a total loss of Rs 40,70,31,665 under the normal provisions. The case was selected for scrutiny; the Assessing Officer raised queries specifically on the s.35AD claim, the petitioner replied by submissions dated 19 September 2016 and 27 December 2016, and the assessment order dated 29 December 2016 under s.143(3) recorded the claim, allowed a deduction to be carried forward of Rs 6,39,48,45,213 after reducing Rs 24,91,577 disallowed in an earlier year, and accepted the returned income. On 30 March 2021, more than four years after the end of the assessment year, a notice under s.148 was issued. The recorded reasons said that pre-operative expenses pending capitalisation of Rs 293,39,48,980 were of revenue and not capital nature, that the claim under s.35AD should be restricted accordingly, that the expenditure should have been booked in the profit and loss account and the loss claimed under s.72 with its eight-year limit, and that by classifying it under s.35AD the assessee obtained an unlimited carry forward under s.73A, so income of Rs 293,39,48,980 had escaped assessment. Objections were rejected by order dated 9 February 2022 and again by order dated 18 February 2022, the latter disclosing for the first time that the reopening was based on a revenue audit party objection — a fact the Revenue's counsel fairly admitted before the Court. The matter was decided on 2026-04-24 by the High Court (B.P. Colabawalla J and Firdosh P. Pooniwalla J). On those facts the High Court held as follows. Rule was made absolute; the notice under s.148 dated 30 March 2021, the orders disposing of objections dated 9 February 2022 and 18 February 2022 and all consequential proceedings were quashed and set aside, with no order as to costs (paras 15 and 16). In the absence of any failure on the part of the assessee to disclose necessary facts, the reassessment proceeding is bad in law and void in terms of the first proviso to s.147 (para 14). Where reasons do record a failure to disclose but do not state what the failure was, that is a mere bald assertion and the notice is bad on that ground alone (paras 10 and 11).
The Court noted at the outset that the reopening was initiated on facts already on the Assessing Officer's record, with no new fact or tangible material; that the original assessment had been completed under s.143(3) on 29 December 2016 and the s.35AD claim considered in it; and that the reassessment was initiated beyond four years, so that the first proviso to s.147 permitted it only on a failure to disclose fully and truly all material facts, which admittedly could not be said here since the very reasons recorded showed that all the facts were available with the officer (para 9). It applied its own earlier decisions: Bombay Stock Exchange Ltd. v. DDIT, WP 2468 of 2011, in which the Hindustan Lever Ltd. v. R.B. Wadkar principle was applied — reasons must be read as recorded, cannot be supplemented by affidavit or oral submission, and must disclose which fact or material was not disclosed so as to establish the vital link between reasons and evidence (para 10); Bharat Petroleum Corporation Ltd. v. ACIT (2025) 478 ITR 358 (Bombay), authored by the same Bench, to the same effect, the Special Leave Petition against which was rejected in ACIT v. Bharat Petroleum Corporation Ltd., SLP (C) Diary No. 8091 of 2026 (paras 11 and 12); and Transchem Ltd. v. ACIT, WP 1387 of 2010, decided 3 February 2022, for the propositions that reopening on the same material to take another view is impermissible and that an error discovered on reconsideration of the same material gives no power to reopen (para 13). The reasons here did record a failure but did not say what it was, and that bald assertion was fatal (para 11). In the words reproduced by the source cited on this page: "In view of the above, it is quite evident that, in the absence of any failure on the part of the Assessee to disclose necessary facts, the impugned reassessment proceeding is bad in law and void in terms of the first proviso to Section 147." The decision followed or applied Bombay Stock Exchange Ltd. v. DDIT, WP 2468 of 2011 (Bombay) — followed; Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332 (Bombay) — applied through Bombay Stock Exchange Ltd.; Bharat Petroleum Corporation Ltd. v. ACIT (2025) 478 ITR 358 (Bombay) — followed; SLP rejected in ACIT v. Bharat Petroleum Corporation Ltd., SLP (C) Diary No. 8091 of 2026; Transchem Ltd. v. ACIT, WP 1387 of 2010, decided 3 February 2022 (Bombay) — followed.
It was decided by the High Court on 2026-04-24 and is reported as Writ Petition No. 3613 of 2022 (Bombay High Court); Assessment Year 2014-15. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 35AD, section 35AD(8)(f), section 73A, section 72, section 147, section 148, section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Rule was made absolute; the notice under s.148 dated 30 March 2021, the orders disposing of objections dated 9 February 2022 and 18 February 2022 and all consequential proceedings were quashed and set aside, with no order as to costs (paras 15 and 16). In the absence of any failure on the part of the assessee to disclose necessary facts, the reassessment proceeding is bad in law and void in terms of the first proviso to s.147 (para 14). Where reasons do record a failure to disclose but do not state what the failure was, that is a mere bald assertion and the notice is bad on that ground alone (paras 10 and 11). It arises in Reassessment & Reopening, Deductions & Disallowances and How Tax Law Is Read matters, on section 35AD, section 35AD(8)(f), section 73A, section 72, section 147, section 148, section 143(3) of the Income Tax Act 1961, and was decided by B.P. Colabawalla J and Firdosh P. Pooniwalla J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Produce the original assessment record showing the s.35AD claim was queried and allowed — here the notices raising queries, the assessee's submissions of 19 September 2016 and 27 December 2016, and the assessment order of 29 December 2016 which recorded and allowed the deduction. Read the recorded reasons for what they identify as undisclosed. A general recital that the assessee failed to disclose fully and truly, without saying which fact or material, is the defect the Court fastened on; reasons cannot be supplemented by affidavit or oral submission. Ask, in the objections, whether the reopening rests on an audit objection, and record the answer. Here the second order disposing objections revealed the revenue audit party for the first time, and the Revenue's counsel fairly admitted it before the Court. Where the department's real complaint is that a loss will run indefinitely under s.73A rather than for eight years under s.72, say in terms that a reclassification of the head under which a loss is carried forward is not, by itself, income escaping assessment — that was the assessee's first proposition and the Court did not have to reach it. Do not read this judgment as settling that pre-operative expenditure capitalised in the books qualifies under s.35AD; the Court expressly decided the case on the reassessment point alone.
Validity check could not be completed. Validity check could not be completed. The judgment is dated 24 April 2026 and no later treatment was searched for or found. The characterisation question — whether pre-operative expenses pending capitalisation qualify as capital expenditure under s.35AD, and the effect of s.35AD(8)(f) — remains undecided and this entry asserts nothing about it. The decision is a writ decision on the first proviso to s.147 and is authority only on that. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is a writ decision on reassessment; its value for set-off and carry forward is that it records, and does not disturb, the difference between the indefinite carry forward of a specified-business loss under s.73A and the eight-year limit under s.72. The Court expressly refrained from deciding the characterisation question, and this entry does not attribute any such holding to it. The long extracts at paragraphs 10, 11 and 13 are quotations from Bombay Stock Exchange Ltd. v. DDIT, Bharat Petroleum Corporation Ltd. v. ACIT and Transchem Ltd. v. ACIT respectively, and the extract inside paragraph 10 is itself a quotation from Hindustan Lever Ltd. v. R.B. Wadkar — none of those are this Court's own words, and the key quote used here is from paragraph 14, which is. Paragraph 14 was confirmed word for word on a separate docfragment pass. The judgment runs to seventeen numbered paragraphs; paragraph 15 is the operative quashing, 16 makes the rule absolute and 17 is the digital signature direction. The reasons for reopening as reproduced at paragraph 3 contain the assessment year figures and several evident typographical slips ('assassee', 'assasse'); they are the Assessing Officer's words, reproduced, not the Court's. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Rule was made absolute; the notice under s.148 dated 30 March 2021, the orders disposing of objections dated 9 February 2022 and 18 February 2022 and all consequential proceedings were quashed and set aside, with no order as to costs (paras 15 and 16). In the absence of any failure on the part of the assessee to disclose necessary facts, the reassessment proceeding is bad in law and void in terms of the first proviso to s.147 (para 14). Where reasons do record a failure to disclose but do not state what the failure was, that is a mere bald assertion and the notice is bad on that ground alone (paras 10 and 11).
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