2023 (9) TMI 1611 - HC - Income Tax

Reopening of assessment u/s 147 - deemed dividend u/s 2(22)(e) - notice beyond a period of four years - HELD THAT - It cannot be said that there was any failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment with regard to deemed dividend u/s 2(22)(e) of the Act and hence initiation of the reassessment proceedings beyond a period of four years are not permissible and the same cannot be sustained on that ground alone. Accordingly, the impugned notices issued u/s 148 of the Act for initiation of reassessment proceedings deserve to be quashed and set aside. For the aforesaid reasons, not on merits on the ground with respect to deemed dividend under Section 2(22)(e) of the Act but when it is found that the conditions precedent for assessment of jurisdiction under Section 147 of the Act are not satisfied, the impugned notices under section 148 of the Act and consequentially the reassessment proceedings and the assessment orders passed for the assessment year 2013-14 are hereby quashed and set aside. Assessee appeal allowed.

Issues Involved:

1. Validity of reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Allegation of non-deduction of TDS on deemed dividend under Section 2(22)(e) of the Act.
3. Applicability of the concept of "change of opinion" in reassessment proceedings.
4. Jurisdiction of the Assessing Officer to reopen assessments beyond four years.

Detailed Analysis:

1. Validity of reopening of assessment under Section 148 of the Income Tax Act, 1961:

The primary issue in this case revolves around the legality of the notices issued under Section 148 of the Income Tax Act for the assessment year 2013-14. The petitioner challenged these notices, arguing that they were issued beyond the permissible period of four years from the end of the relevant assessment year without any failure on the part of the assessee to disclose fully and truly all material facts. The court examined whether the Assessing Officer had valid reasons to believe that income had escaped assessment, which is a prerequisite for reopening assessments under Section 147 of the Act.

2. Allegation of non-deduction of TDS on deemed dividend under Section 2(22)(e) of the Act:

The petitioner was accused of failing to deduct TDS on a loan given to Cygnet Enterprise Private Limited (CEPL), which the Assessing Officer considered as a deemed dividend under Section 2(22)(e) of the Act. The petitioner contended that CEPL was not a shareholder of the petitioner company, and hence, the loan could not be treated as a deemed dividend. The court considered whether the transactions between the petitioner and CEPL fell under the ambit of deemed dividend, especially given the substantial shareholding of Mr. Niraj Hutheesing in both companies.

3. Applicability of the concept of "change of opinion" in reassessment proceedings:

A significant argument presented by the petitioner was that the reopening of the assessment was based on a mere change of opinion by the Assessing Officer, which is not permissible under the law. The petitioner asserted that all relevant facts and details regarding the loans and shareholdings were disclosed during the original assessment proceedings. The court evaluated whether the reassessment was initiated on new tangible material or merely on a reconsideration of previously available information.

4. Jurisdiction of the Assessing Officer to reopen assessments beyond four years:

The court scrutinized whether the conditions for reopening an assessment beyond four years were met, specifically whether there was any failure on the part of the assessee to disclose material facts. The court highlighted that for an assessment to be reopened after four years, there must be a failure to disclose fully and truly all necessary facts, which was not the case here. The court referred to precedents that emphasized the necessity of new tangible material for reopening assessments and the impermissibility of reassessment based on a change of opinion.

Conclusion:

The court concluded that the reassessment proceedings were not justified as they were based on a change of opinion rather than new tangible material. It held that the conditions precedent for invoking jurisdiction under Section 147 of the Act were not satisfied, as there was no failure on the part of the petitioner to disclose material facts. Consequently, the court quashed the notices issued under Section 148 and the subsequent reassessment proceedings and orders for the assessment year 2013-14. The petitions were allowed, and the rule was made absolute with no order as to costs.

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