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TMI Blog2012 (9) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... eve that the income chargeable to tax for the assessment year 2003-04 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961, and, therefore, he proposes to assess/reassess the income for the said year, for which, he required the petitioner to file return of income for the said assessment year within thirty days from the date of service of the notice. 2. The facts leading to the petition can be noted in brief : 2.1 For the assessment year 2003-04, the petitioner filed its original return of income on November 30, 2003, declaring a total income of Rs.4,46,46,548. The return of the assessee was taken in scrutiny assessment. Final order under section 143(3) of the Act was passed on March 16, 2006, computing the total income of the assessee at Rs. 18,29,70,315. 2.2 Subsequently, however, the Assessing Officer issued the impugned notice dated March 24, 2010, under section 148 of the Act seeking to reopen the assessment for the year 2003-04. The petitioner replied to the notice, vide its communication dated August 5, 2010, and requested the Department to treat the original return as one in response to the notice issued by the respondent. The peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 4. Learned advocate, Mr. Tushar Hemani, appearing for the petitioner, after referring to several judgments on the question of reopening of the assessment-to which reference shall be made at a later stage, contended that (i) the petitioner had made all statutory disclosures before the Assessing Officer in the return filed for the assessment year 2003-04. All documents, evidence, figures and data as required under the law were produced along with such return. The petitioner, thereafter, had no further duty or responsibility to produce any additional material ; unless called upon by the Assessing Officer to do so. Since, admittedly, the Assessing Officer even while scrutinizing the assessment, did not ask the petitioner to produce any further evidence, the petitioner cannot be stated to have not disclosed fully and truly, all material facts ; (ii) counsel submitted that when all necessary facts were placed on record by the petitioner, it was thereafter for the Assessing Officer to decide what inference can be drawn from such basic facts. He further submitted that the duty of the assessee is to disclose only primary facts. Based on such primary facts, what inference should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77] 106 ITR 1 (SC) ; (iv) CIT v. Kelvinator of India Ltd. and Eicher Ltd. [2010] 320 ITR 561 (SC) ; (v) Prashant S. Joshi and Dattaram Shridhar Bhosale v. ITO [2010] 324 ITR 154 (Bom) ; (vi) CIT v. Bhanji Lavji [1971] 79 ITR 582 (SC) ; (vii) Aayojan Developers v. ITO (Special Civil Application No. 15992 of 2010 ; decided on February 2, 2011)-since reported in [2011] 335 ITR 234 (Guj) ; and (viii) Krishna Metal Industries v. H. M. Algotar [1997] 225 ITR 853 (Guj). 7. Before adverting to the facts of the case, a few principles of general application and those which would have a bearing on this petition, with respect to the question of reopening of the assessment, as emerging from the decisions cited before us, can be noticed. 7.1 In the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), the apex court had an occasion to examine the pari materia provisions of the Indian Income-tax Act, 1922, for reopening of assessment beyond four years. The apex court observed (page 199) : "To confer juris- diction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), the apex court referring to the provisions of section 147 of the Act, as also examining corresponding provisions in the Indian Income- tax Act, 1922, opined that for reopening of assessment beyond the period of four years, following the two conditions must be simultaneously satisfied : (i) the Income-tax Officer must have reason to believe that income charge- able to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return under section 139 for the assessment year to the Income-tax Officer, or to disclose fully and truly material facts necessary for his assessment for that year. The apex court further observed that (pages 7 and 8) : "The words 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year' postulate a duty on the assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant CIT (No. 1) reported in [2004] 268 ITR 332 (Bom), the Bench, recorded with approval, the observations of the previous judgment to the effect that the reasons are required to be read as recorded by the Assessing Officer and no substitution or deletion is permissible. 7.6 The Division Bench of this court in the judgment in the case of Aayojan Developers v. ITO [2011] 335 ITR 234 (Guj) opined that if the reasons recorded by the Assessing Officer for reopening the assessment already done, fail to fulfil the twin requirements, viz., the belief that the income has escaped assessment and the belief that such escapement was for reason of failure on the part of the assessee, supporting such reopening through an affidavit filed before the court for the first time would amount to bringing on record the material which do not form the basis for formation of such belief. However, if such reasons are recorded, through an affidavit, the same can be elaborated. The observations of the Bench in this regard can be noted (page 254) : "Thus, unless the substratum is laid in the reasons, clearly demonstrating the twin belief, that is, the belief that income has escaped assessment and the bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer, however, was of the opinion that the assets really consisted of earth work wholly or substantially, and, therefore, the assessee was not entitled to any depreciation. In this context, the apex court examined the question and held that the assessee had not disclosed the nature of the masonry work, nor the nature of assets were fully and truly disclosed. The apex court observed that (page 627) : "It is the admitted position that the assessee had not disclosed either by a valuation report or by a statement before the Income-tax Officer as to what portion consisted of earth work and what portion or proportion consisted of masonry work. For the purpose of calculating depreciation, that indubitably was a material fact. If excess depreciation has been allowed on that basis, i.e., that the entirety of the work consisted of masonry work, income might have been underassessed. The Income-tax Officer can reasonably be said to have material to form that belief. That position is also well-settled by the scheme of the section and concluded by the authorities of this court". The assessee's contention that the Income-tax Officer could have found out the position by further probing into t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the assessee that latitude." 7.12 In the case of ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC), the apex court, in context of reopening of the assessment proceedings, observed that (page 600) : "Whether the facts stated in the letter are true or not is not the concern at this stage. It may well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reason- able person could have formed the requisite belief. Since we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have now to go on we do not and we ought not to express any opinion on the merits". 7.13 In the case of Sri Krishna Pvt. Ltd. v. ITO [1996] 221 ITR 538 (SC), the apex court held and observed as under (page 551) : "As regards the second condition, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year ; (ii) both the above conditions are conditions precedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen the assessment beyond four years of the end of the assessment year ; (iii) such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, reopening notice must fail ; (iv) there is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to have been treated as "deemed dividend" as per the provision of section 2(22)(e) of the Income-tax Act. He, therefore, held an opinion that the said income chargeable to tax for the assessment year under consideration had escaped assessment. 10. Section 2(22) enumerates various incomes which are to be treated as deemed dividend, including certain payments made by a company to any person holding share of not less than 10 per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest. In the precise terms, clause (e) of the said section 2(22) of the Income-tax Act reads as under : "2.(22)(e)) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a share- holder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than 10 per cent. of the voting power, or to any concern in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich provides, inter alia, that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within meaning of section 147 of the Act. 14. The contention of the counsel for the petitioner that since the Assessing Officer, while scrutinizing the assessment, did not ask the petitioner to produce any other evidence, and that, therefore, reopening of the assessment is not permissible beyond the period of four years, in view of the above conclusions, must be rejected. 14.1 The contention that all necessary facts were placed on record by the petitioner begs the question regarding the holding of the petitioner company in SDBL. This crucial fact, which could either bring the payment within the mischief of clause (22) of section 2 of the Act, by treating the same as deemed dividend, or could keep such payment, out of the said provision, was never disclosed by the assessee in the return submitted. By simply stating that the petitioner company holds certain shares in SDBL, in our view, the duty to truly and fully disclose all materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2006-07. There- fore, the details of the accounts for earlier years were called for. Earlier to that, there was no details/evidence produced by the petitioner on the issue of deemed dividend. The details stated in paragraph 3.2 of the petition are not relevant for making the assessment on the issue of deemed dividend." 17. Though, we have noted the decision of this court in the case of Aayojan Developers v. ITO [2011] 335 ITR 234 (Guj), holding that for elaborating the reasons recorded, affidavit of the officer can be referred to, for the pur- pose of the present petition, we find that even reliance on the affidavit is not necessary. We have reproduced portion of the affidavit only for the purpose of noticing with further clarity the stand of the Department. We are of the opinion that the reasons recorded and communicated to the assessee, in the present case, sufficiently and clearly lays down the foundation for reopening of the assessment on the ground of the assessee not having truly and fully disclosed all the material facts. 18. In the result, the petition fails. Notice is discharged. Interim relief ; if any, stands vacated. It is clarified that we have expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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