2015 (5) TMI 1085 - HC - Income Tax

Validity of reopening of assessment - failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment with respect to the deemed divident under Section 2(22)(e) - proceedings initiated beyond the period of four years - Held that - Applying the decision of the Division Bench of this Court in the case of Niko Resources Ltd. (2014 (9) TMI 892 - GUJARAT HIGH COURT ) as well as Gujarat Lease Financing Limited (2013 (10) TMI 101 - GUJARAT HIGH COURT), to the facts of the case on hand and as observed hereinabove, there does not appear to be failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment with respect to the deemed divident under Section 2(22)(e) of the Act, the initiation of the impugned reassessment proceedings which are initiated beyond the period of four years, are not permissible and the same cannot sustain and on that ground alone, the impugned reassessment proceedings deserve to be quashed and set aside. 6.0. In view of the above and for the reasons stated, on the aforesaid ground alone and not on merits with respect to deemed dividend under Section 2(22)(e) of the Act and as it is found that condition precedent for assumption of jurisdiction under Section 147 of the Act are not satisfied, the impugned notice under Section 148 of the Act and consequently reassessment proceedings for AY 2007-08 are hereby quashed and set aside. - Decided in favour of assessee

Issues Involved:
1. Legality of reopening assessment under Section 148 of the Income Tax Act, 1961 after four years.
2. Alleged failure of the assessee to disclose fully and truly all material facts necessary for the assessment.
3. Validity of reassessment proceedings based on the application of Section 2(22)(e) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of Reopening Assessment under Section 148 of the Income Tax Act, 1961 after Four Years:

The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, dated 31.3.2014, for reopening the assessment for AY 2007-08. The petitioner argued that the reassessment proceedings were initiated beyond the period of four years from the relevant assessment year. As per the first proviso to Section 147, reassessment can only be initiated after four years if the income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The court noted that unless it is observed and found that the income has escaped assessment due to such failure, the Assessing Officer (AO) is not authorized to make reassessment.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts Necessary for the Assessment:

The petitioner contended that all material facts were disclosed during the original assessment proceedings, and there was no omission or failure on their part. The court examined the reasons recorded for reopening the assessment, which highlighted that the assessee had not declared dividend income received under Section 2(22)(e) of the Act. However, the court found that all relevant information was available and examined by the AO during the original assessment. Therefore, it concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

3. Validity of Reassessment Proceedings Based on the Application of Section 2(22)(e) of the Income Tax Act, 1961:

The court analyzed the reasons for reopening the assessment, which were based on the application of Section 2(22)(e) regarding deemed dividend. The AO believed that the loan given by M/s. Jivraj Tea Limited to M/s. Vesta Exim Pvt Ltd should be taxed as deemed dividend in the hands of the assessee. However, the court observed that the reasons for reopening were merely a change of opinion by the AO without any new material, which is not permissible. The court referred to the Division Bench's decision in the case of Niko Resources Ltd., emphasizing that reassessment beyond four years is only permissible if there is a failure to disclose material facts by the assessee.

Conclusion:

The court concluded that the reassessment proceedings initiated beyond four years were not permissible as the condition precedent for assumption of jurisdiction under Section 147 was not satisfied. The court held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, the impugned notice under Section 148 and the consequent reassessment proceedings for AY 2007-08 were quashed and set aside. Rule was made absolute to the aforesaid extent.

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