2017 (8) TMI 292 - HC - Income Tax

Reopening of assessment - reliance on subsequent decision of Supreme Court - deemed dividend addition under Section 2(22)(e) - notice issued beyond a period of four years - Held that - Notice for reopening of the assessment having been issued beyond a period of four years from the end of relevant assessment year, the failure on part of the assessee to disclose truly and fully all material facts becomes relevant. As noted, in this context, the Revenue s stand is that the assessee did not disclose its share holding pattern only upon which it could have been ascertained whether Section 2(22)(e) of the Act had applicability or not. The onus is on the part of the assessee to disclose primary facts. What would be the effect of these primary facts is for the Assessing Officer to judge. The assessee having made disclosures about the borrowings from J.P. Infrastructure and also having filed necessary details thereof along with the audited return, did not thereafter have the onus of further disclosing its share holding pattern to enable the Assessing Officer to examine the applicability of Section 2(22)(e) of the Act. If the Assessing Officer desired to scrutinize this aspect of the matter it was always open for him to call upon the assessee to provide for such details as and when necessary. Revenue heavily relies on the judgement of the Supreme Court in case of Gopal and Sons (2017 (1) TMI 331 - SUPREME COURT) which was delivered long after the assessee filed its return; the original assessment was completed and the Assessing Officer issued the notice for reopening of assessment by recording reasons. Neither the Assessing Officer nor the assessee therefore had the benefit of the judgement of the Supreme Court to guide in the context of either making necessary disclosures, in assessing the assessee s income or to reopen the assessment. Our High Court in case of Austin Engineering Co. Ltd. (2008 (6) TMI 193 - GUJARAT HIGH COURT) had held that notice for reassessment beyond a period of four years based on subsequent decision of Supreme Court was not valid.In the result, only on this ground, the impugned notice is set aside. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice to reopen the assessment after four years.
2. Applicability of Section 2(22)(e) of the Income Tax Act regarding deemed dividend.
3. Non-disclosure of shareholding pattern by the assessee.
4. Reliance on judicial precedents and their applicability.

Detailed Analysis:

1. Validity of the notice to reopen the assessment after four years:
The petitioner challenged the notice dated 25.03.2015 issued by the Assessing Officer to reopen the assessment for the assessment year 2008-09. The original assessment was completed on 02.12.2010, and the notice for reopening was issued beyond four years from the end of the relevant assessment year. The court noted that for reopening beyond four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

2. Applicability of Section 2(22)(e) of the Income Tax Act regarding deemed dividend:
The Assessing Officer sought to tax the loan of ?2.17 crores received by the assessee from J.P. Infrastructure as a deemed dividend under Section 2(22)(e) of the Act. The petitioner contended that the loan or advance cannot be taxed in the hands of the petitioner company, which was not a shareholder of the lender company. The court referred to the Delhi High Court's decision in Commissioner of Income-Tax vs. Ankitech Pvt. Ltd. and other similar judgments, which held that a loan cannot be taxed as a deemed dividend in the hands of an entity that is not a shareholder of the lender company.

3. Non-disclosure of shareholding pattern by the assessee:
The Revenue argued that the assessee did not disclose its shareholding pattern, which was necessary to ascertain the applicability of Section 2(22)(e). The court observed that the assessee had disclosed the borrowings from J.P. Infrastructure and filed necessary details along with the audited return. The onus of further disclosing the shareholding pattern was not on the assessee unless specifically called upon by the Assessing Officer.

4. Reliance on judicial precedents and their applicability:
The petitioner relied on several judicial precedents, including the Delhi High Court's decision in Ankitech Pvt. Ltd. and decisions of the Gujarat High Court in Daisy Packers (P.) Ltd. and Mahavir Inductomelt P. Ltd. The court also considered the Supreme Court's decision in Gopal and Sons (HUF) vs. Commissioner of Income-Tax, which brought a new dimension to the controversy by suggesting that the provisions of Section 2(22)(e) could apply even if the assessee is not a shareholder but has substantial interest through a member.

Conclusion:
The court concluded that the notice for reopening the assessment was not valid due to the failure of the Revenue to establish non-disclosure of material facts by the assessee. The court set aside the impugned notice, emphasizing that the subsequent judicial decisions could not be a basis for reopening the assessment beyond the statutory period. The petition was disposed of accordingly.

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