2016 (1) TMI 949 - HC - Income Tax

Reopening of assessment - Assessing Officer formed a belief that provisions of section 2(22)(e) of the Act would apply - Held that - The assessee during the year under consideration was a director of the company and had purchased 88,300 shares by investing ₹ 1.76 crores out of which ₹ 1 crore was paid back to the petitioner by the company as advance. It was in this context, the Assessing Officer formed a belief that section 2(22)(e) of the Act would apply. His assertion that the petitioner was holding in excess of 10% of the value of shareholding has nowhere been denied by the petitioner. In the objections raised, the petitioner merely called upon the Assessing Officer to reveal the source from which he had gathered such information. If the case of the petitioner was that he in fact, did not hold more than 10% of shares of the company, it was easy for him to asset and demonstrate the same. - Decided against assessee

Summary

Issues:
1. Reopening of assessment based on section 148 notice under the Income Tax Act, 1961.
2. Validity of reasons for reopening assessment without tangible materials.
3. Interpretation of the term "reason to believe" in the context of income escaping assessment.
4. Application of section 2(22)(e) of the Act in determining deemed dividend.

Analysis:
1. The petitioner filed a return of income for assessment year 2008-2009, accepted under section 143(1) without scrutiny. The Assessing Officer issued a notice under section 148 seeking to reopen the assessment, citing that the petitioner, a director in a company, received an advance deemed as a dividend under section 2(22)(e) of the Act. The petitioner objected to the reopening, alleging it lacked tangible materials and was a fishing inquiry.

2. The petitioner argued that reopening without tangible materials for income escaping assessment was impermissible. Citing precedents, the petitioner contended that reopening post non-scrutiny assessment required a belief of income escapement. The department defended the reopening, emphasizing the Assessing Officer's bona fide belief without the need for a final conclusion.

3. The High Court referred to the Supreme Court's decision on "reason to believe" in tax assessments. The court highlighted that the Assessing Officer's belief need not be conclusively proven at the initiation stage, emphasizing the subjective satisfaction required for reopening assessments accepted without scrutiny.

4. The court examined the applicability of section 2(22)(e) of the Act, deeming the advance received by the petitioner as a dividend. The Assessing Officer's belief was based on the petitioner's shareholding exceeding 10% in the company and the transfer of funds back to the petitioner as an advance. The court noted the petitioner's failure to deny the shareholding percentage, leading to the dismissal of the petition.

The court dismissed the petition, emphasizing the sufficiency of reasons for reopening and kept the contentions open regarding income escapement. The judgment underscored the Assessing Officer's discretion to reopen assessments accepted without scrutiny based on a reasonable belief of income escapement, even without conclusive evidence at the initiation stage.