2018 (10) TMI 1610 - HC - Income Tax

Reopening of assessment - deemed dividend addition u/s 2(22)(e) - Held that - In absence of any scrutiny on this issue in the original assessment, the Asesssing Officer cannot be estopped from examining this question provided, of course, that he had reason to believe that income chargeable to tax had escaped assessment. In this context, he had cited reasons why, prima facie, applicability of Section 2(22)(e) of the Act arises. It would be for the assessee to contest the additions during the course of assessment proceedings. As is well settled, at the stage of Notice for reassessment, the Assessing Officer only has to demonstrate formation of a reasonable belief on the basis of the material on record that income chargeable to tax had escaped assessment. He does not have to establish beyond dispute that invariably, the addition would be made. The scrutiny of the Court, at that stage also, is limited. The petitioner s contention that even if he may be holding more than 10% of the shares of the Company, he did not have less than 10% voting rights, can be examined in the assessment proceedings, for which, we are not inclined to quash the Notice itself. - Decided against assessee.

Summary

Issues:
1. Challenge to Notice of reopening for Assessment Year 2013-14.
2. Interpretation of Section 2(22)(e) of the Income Tax Act.
3. Validity of reasons recorded for reopening assessment.
4. Requirement of full disclosure by the taxpayer.
5. Application of change of opinion principle in original assessment.
6. Judicial scrutiny of Assessing Officer's reasonable belief for income escapement.

Analysis:
Issue 1: The petitioner challenged a Notice of reopening for the Assessment Year 2013-14, issued by the Assessing Officer. The Notice was issued within the statutory period of four years from the end of the relevant Assessment Year.

Issue 2: The Assessing Officer sought to make additions based on Section 2(22)(e) of the Income Tax Act, which deals with dividend inclusions. The petitioner contested this by arguing that he did not hold voting rights of more than 10%, despite having a shareholding percentage exceeding 10%.

Issue 3: The reasons recorded by the Assessing Officer for reopening the assessment included information received regarding the petitioner's shareholding and loan transactions, indicating potential income escapement under Section 2(22)(e) provisions.

Issue 4: The petitioner contended that full disclosures were made during the original assessment and objected to the Notice of reopening. However, the Assessing Officer rejected these objections, leading to the petition challenging the reopening.

Issue 5: The Court clarified that the principle of change of opinion would not apply as the issue of Section 2(22)(e) was not scrutinized during the original assessment. The Assessing Officer was deemed justified in reassessing based on a reasonable belief of income escapement.

Issue 6: The Court emphasized that the Assessing Officer's role at the reassessment stage was to establish a reasonable belief of income escapement, not to conclusively prove additions. The petitioner's argument regarding voting rights could be addressed during assessment proceedings, warranting the dismissal of the petition.

In conclusion, the Court dismissed the petition, allowing the Assessing Officer to proceed with reassessment based on the reasonable belief of income escapement under Section 2(22)(e) provisions, leaving the detailed examination of proposed additions for the assessment stage.