2023 (10) TMI 406 - HC - Income Tax

Reopening of assessment u/s 147 - Deemed dividend u/s 2(22)(e) - HELD THAT - The notice of reasons to believe itself reveals information and material which was available with the AO. Despite relevant information being available with the AO, if the AO chooses not to deal with the same, it cannot be presumed that it is Petitioner, who has not made a complete and full disclosure. As perused in detail the letter dated 7th April 2008 of the Chartered Accountants of the Petitioner providing exhaustive details accompanied by all relevant documents to the AO. It is clear from all the documents on record including the notice recording reasons for reopening of assessment itself that there is no failure to disclose on the part of Petitioner. It is evident that the original assessment order was passed based on all the necessary information already available at the time of original assessment. The order rejecting the objections of Petitioner in fact supports the contention of Petitioner in respect of him furnishing all documents and relevant information, but simply discards the same by stating that even if there is no fresh material, but the information placed on record is such that it is difficult to be detected. The rejection order further cites a number of precedents of various Courts which are wholly inapplicable to the facts of the present case, being on a justification as to how the facts in the present case do not suggest a change of opinion The reasons for rejection of the objections raised by petitioner are without any substance and hence untenable. We are firmly of the view that there is no failure on the part of Petitioner in making full and true disclosure to the AO during the original assessment leading to a possibility of application of the provisions of Section 2(22)(e) of the Act resulting in a substantial tax effect. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this case are the validity of the notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2006-07, the disclosure of material facts by the assessee during the original assessment, and the applicability of provisions of Section 2(22)(e) regarding deemed dividends.

Validity of Notice under Section 148:
The petitioner challenged the notice issued under Section 148 of the Income Tax Act for AY 2006-07, contending that it was beyond the four-year period from the relevant assessment year and lacked jurisdiction. The petitioner argued that full and true disclosure was made during the original assessment, and no income had escaped assessment. The petitioner also highlighted that the loans were not availed during the relevant year. The court noted that the notice was issued after the four-year period and the proviso to Section 147 applies only if there was a failure to disclose material facts. The court found that the AO had the necessary details regarding the petitioner's shareholding in the companies, and the notice was justified due to the AO's failure to verify the applicability of Section 2(22)(e).

Disclosure of Material Facts:
The court emphasized the duty of the assessee to disclose all primary facts relevant to the assessment. It was noted that the petitioner had provided exhaustive details and relevant documents to the AO during the original assessment. The court highlighted that the AO had all the necessary information available at the time of the original assessment, and the rejection of objections by the AO lacked substance. The court concluded that there was no failure on the part of the petitioner in making a full and true disclosure, leading to the quashing of the impugned notice dated 21st March 2013.

Applicability of Section 2(22)(e) - Deemed Dividends:
The AO contended that the applicability of Section 2(22)(e) was not verified due to incomplete information regarding the shareholding pattern of the companies. The AO argued that the deeming provision of Section 2(22)(e) could result in a substantial tax effect. The court, however, found that the petitioner had submitted a list of parties from whom loans were availed along with shareholding details. The court held that the failure to verify the applicability of Section 2(22)(e) was the sole reason for reopening the assessment, and the petitioner had disclosed all primary facts necessary for assessment.

Separate Judgment:
The judgment was delivered by K.R. Shriram and Neela Gokhale, JJ. The court quashed and set aside the impugned notice dated 21st March 2013, ruling in favor of the petitioner. The court held that there was no failure on the part of the petitioner in making full and true disclosure, and the notice was issued without proper application of mind.