Gujarat H.C : Where during original assessment proceedings, assessee did not disclose that it was holding more than ten per cent of shareholding of company ‘SBL’ which had advanced certain amount to it, Assessing Officer was justified in reopening assessment beyond period of four years to tax said amount as deemed dividend under section 2(22)(e)

High Court Of Gujarat

Dishman Pharmaceuticals & Chemicals Ltd. vs. DCIT (OSD) (No. 1)

Assessment Year : 2003-2004

Section : 149

Akil Kureshi And Ms. Sonia Gokani, JJ.

Special Civil Application No. 15304 Of 2010

March 1, 2011

JUDGMENT

Akil Kureshi, J. – The petitioner is a public limited company registered under the Companies Act, 1956. In the present petition, the petitioner challenges a notice dated March 24, 2010, issued by the respondent-Deputy Commissioner of Income-tax (OSD), Ahmedabad Range-1, Ahmedabad, stating that he has reason to believe 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 petitioner also demanded that it may be supplied reasons for such reopening of the assessment.

2.3 The respondent supplied reasons recorded for reopening the assessment. Such reasons read as follows :

“During the assessment proceedings of the assessment year 2006-07, it is seen that the amounts given by SBL to the assessee are in the nature of loan transactions on which section 2(22)(e) was clearly applicable. Since there was a opening balance of Rs. 2,91,10,000 in the books of SDBPL in the case of the assessee the assessment year 2006-07. The assessee was asked to produce accounts of earlier years.

On a perusal of the accounts of the assessee it is seen that the assessee holds 22.3 per cent. shareholdings of M/s. Schutz Dishman Biotech Ltd. (SDBL). Thus, the assessee has substantial interest in SDBL. Apart from business transactions, it is seen that (as per information available on records), SDBL has also given loans to the assessee.

A perusal of accounts for the assessment year 2003-04 shows that the assessee-company has taken loans of Rs. 2,03,50,000 from SDBPL. Further, perusal of the balance-sheet of SDBPL for the assessment year 2003-04 reveals that there was reserve and surplus of Rs. 4,59,63,532. Accordingly, I have reason to believe that income in the form of deemed dividend as per section 2(22)(e) of the Income-tax Act of Rs.2,03,50,000 is escaped from assessment.

Therefore, the undersigned has reasons to believe that the income chargeable to tax for the year under consideration has escaped assessment as per the provisions of section 147 of the Income-tax Act. Therefore, a notice under section 148 of the Income-tax Act is being issued for reassessment under section 147 of the Income-tax Act.”

2.4 Upon being supplied the reasons, the petitioner under its communication dated October 14, 2010, raised various objections to reopening of assessment. However, by order dated November 9, 2010, the respondent disposed of such objections and continued with the notice for reopening of assessment. The petitioner, therefore, filed the present petition challenging the reopening notice.

3. In the background of the above facts and on the undisputed premise that the notice of reopening was issued beyond four years of the end of the assessment year, learned counsel for both the sides made detailed submissions for final disposal of the petition.

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 an\y 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 drawn is upon the Assessing Officer ; (iii) counsel submitted that even otherwise there was no escapement of income. The entire basis for re-opening of the assessment, therefore, is not valid ; (iv) lastly, counsel contended that the reasons recorded for reopening the assessment are not satisfactory. Reasons recorded do not suggest that on account of any non-disclosure on the part of the petitioner, any income had escaped assessment.

5. Counsel relied upon the following judgments : in the cases of Indi-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624/25 Taxman 356 (SC), A.L.A. Firm v. CIT [1991] 189 ITR 285/55 Taxman 497 (SC), Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 (SC), ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC), Sri Krishna (P.) Ltd. v. ITO [1996] 221 ITR 538/87 Taxman 315 (SC), Ess Ess Kay Engg. Co. (P.) Ltd. v. CIT [2001] 247 ITR 818/[2002] 124 Taxman 491 (SC) and of this court in the matter of I. P. Patel & Co. v. Dy. CIT (Spl. Civil Application No. 16261 of 2010, decided on January, 31 and February 1, 2011)-since reported in [2012] 346 ITR 207 (Guj)).

6. Learned senior advocate, Mr. Manish R. Bhatt, appearing for the Department, however, opposed the petition contending that all facts necessary to ascertain whether the case of the petitioner would fall within the purview of section 2(22)(e) of the Act for treating the advance as deemed dividend were not available on record in the original return filed by the assessee. He further contended that it was only during the assessment proceedings for the assessment year 2006-07, it came to the notice of the Assessing Officer that certain advances were required to be treated as deemed dividend under section 2(22)(e) of the Act. Upon a perusal of the accounts of the assessee, it was seen that in the year 2003-04 also, the petitioner had taken a loan of Rs.2,03,50,000. The Assessing Officer, therefore, rightly formed an opinion that the income of deemed dividend for the subject assessment year had escaped assessment.

6.1 Counsel further submitted that whether there was true and full disclosure of material facts must depend on the facts of each case. He relied on the following decisions in support of his contentions.

(i) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) ;

(ii) Bhimraj Pannalal v. CIT [1961] 41 ITR 221 (SC);

(iii) Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) ;

(iv) CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) ;

(v) Prashant S. Joshi and Dattaram Shridhar Bhosale v. ITO [2010] 324 ITR 154/189 Taxman 1 (Bom) ;

(vi) CIT v. Bhanji Lavji [1971] 79 ITR 582 (SC) ;

(vii) Aayojan Developers v. ITO [2011] 335 ITR 234/10 taxmann.com 226 (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. (supra), 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 jurisdiction 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 the relevant year two conditions have, therefore, to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been underassessed. The second is that he must have also reason to believe that such ‘underassessment’ has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years, but within the period of eight years, from the end of the year in question”. It was further observed that the provisions of the Act postulates a duty on every assessee to disclose fully and truly, all material facts necessary for his assessment. However, what facts are material and necessary for assessment will differ from case to case. It was further observed that the duty of disclosing all primary facts relevant to the decision of the question before the assessing authority lies on the assessee. It was held that the assessee will not be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority, if he had pursued investigation on the basis of what has been disclosed, however, once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. With respect to burden of establishing that the Assessing Officer had no jurisdiction to issue such notice, it was observed that (page 202) : ” Clearly, it is the duty of the assessee who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been such non-disclosure”.

7.2 In the case of Parashuram Pottery Works Co. Ltd. (supra), 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 chargeable 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, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inference as regards certain other facts ; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable”.

7.3 In the case of Krishna Metal Industries (supra), the Division Bench of this court referring to and relying on the decision of the apex court in the case of Calcutta Discount Co. Ltd (supra), observed that it is a settled position of law that from the primary facts, whether on disclosure by the assessee or discovered by the officer on the facts disclosed, the Assessing Officer had to draw inferences as regards certain other facts, and ultimately from the primary facts and the further facts inferred therefrom, the authority had to draw appropriate legal inferences to ascertain on a correct interpretation of the taxing enactment, the proper tax to be levied.

7.4 In the case of Kelvinator of India Ltd. (supra), the apex court discussed the interpretation of the term, “reason to believe” and observed that the power to re-open is not the same as power to review and reiterated ; that, change of opinion would not amount to reason to reopen an assessment already closed. It was a case where reopening of assessment was sought to be made within four years.

7.5 In the case of Prashant S. Joshi and Dattaram Shridhar Bhosale (supra), the Division Bench of the Bombay High Court in the context of the requirement of the Assessing Officer to hold reason to believe that the income chargeable to tax has escaped assessment, before assuming jurisdiction to reopen the assessment already closed, held that the validity of reassessment has to be determined on the basis of the reasons recorded. Referring to the observations of the previous judgment of the court in the case of Hindustan Lever Ltd. v. R. B. Wadkar, Assistant CIT (No. 1) reported in [2004] 268 ITR 332/137 Taxman 479 (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 (supra) 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 belief that such escapement is by reason of failure on the part of the assessee, filing an affidavit and stating the same before the court for the first time would amount to bringing on record material which did not form the basis of formation of such belief. The belief that income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts has to be recorded in the reasons, though the same may be elaborated by filing an affidavit. But in the absence of formation of any such belief being recorded in the reasons, it is not open for the Assessing Officer to express formation of such belief for the first time by way of an affidavit-in-reply filed in the court. This court is in agreement with the view taken by the Calcutta High Court in the case of East Coast Commercial Co. Ltd. v. ITO [1981] 128 ITR 326 that the Assessing Officer in his affidavit filed in the court can explain or elaborate or clarify the reasons recorded by him, but cannot thereby introduce new grounds or new reasons or new materials which were not to be found in the recorded reasons either expressly or by implication”.

7.7 In the case of Bhanji Lavji (supra), the apex court observed that it was not for the assessee to disclose or instruct the Income-tax Officer that there were “profits embedded in the receipts” of the money at Bombay. The Assessing Officer might have raised a wrong legal inference from the facts disclosed but on that account, he was not competent to commence proceedings for reopening the assessment.

7.8 In the case of Kuberdas Hargovandas Modi v. K. N. Lalchandani, ITO [1972] 83 ITR 783 (Guj), the Division Bench of this court observed that the “material facts” which are required to be disclosed by an assessee at the time of his assessment are, therefore, primary facts material and necessary for the purpose of his assessment. The duty of the assessee is to disclose only primary facts and it is for the assessing authority to decide what inferences of facts can be reasonably drawn from the primary facts and what legal inferences must ultimately be drawn from such facts.

7.9 In the case of Indi-Aden Salt Mfg. & Trading Co. (P.) Ltd. (supra), the facts were that the assessee had obtained depreciation of 6 per cent. on the assets which were masonry works. The Assessing 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 the matter was turned down. The court observed that (page 628) : “That, however, does not exonerate the assessee to make full disclosure truly. Reference was made to Explanation 2 to section 147 of the Act which makes the position abundantly clear”.

7.10 In the case of A.L.A. Firm (supra), the apex court noted with approval, the following observations of the Division Bench of the Madras High Court (page 298) :

“Even making allowances for this limitation placed on the observations in Kalyanji Mavji [1976] 102 ITR 287 (SC), the position as summarized by the High Court in the following words represents, in our view, the correct position in law.

The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act.”

7.11 In the case of Phool Chand Bajrang Lal (supra), the apex court observed as under (page 478) :

“We are not persuaded to accept the argument of Mr. Sharma that the question regarding the truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plan phraseology of sections 147(a) and 148 of the Act and is against the settled law laid down by this court. We have to look to the purpose and intent of the provisions. One of the purposes of section 147 appears to us to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity come to notice, to turn around and say ‘you accepted my lie, now your hands are tied and you can do nothing’. It would be a travesty of justice to allow the assessee that latitude.”

7.12 In the case of Selected Dalurband Coal Co. (P.) Ltd. (supra), 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 reasonable 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 (P.) Ltd. (supra), the apex court held and observed as under (page 551) :

“As regards the second condition, the appellant did not produce books of account kept by them at their head office in London nor the original contracts of sale which were entered into at London within the buyers. The appellant did not produce before the Income-tax Officer any of the accounts which related to the foreign buyers. No reason where given for the supply of manganese ore at a rate lower than the market rate it is for the assessee to disclose all the primary facts before the Income-tax Officer to enable him to account for the true income of the assessee the proven charge of underinvoicing per se satisfies the second contention. The appellant’s assessable income has to be determined on the basis of the price received by it for the goods exported. If the true price has not been disclosed and there was underinvoicing, the logical conclusion, prima facie, is that there has been failure on the part of the appellant to disclose fully and truly all material facts before the Income-tax Officer, we are therefore, satisfied that both the conditions required to attract the provisions of section 147(a) have been complied with in this case.”

7.14 In the case of Ess Ess Kay Engg. Co. (P.) Ltd. (supra), the apex court observed that merely because the case of the assessee was accepted as correct in the original assessment for the assessment year, it does not preclude the Income-tax Officer from reopening that assessment under section 147(a) of the Act, on the basis of his findings of fact arrived at on the basis of fresh materials obtained in the course of assessment for the next assessment year.

7.15 In the Division Bench judgment dated January 31, 2011, February 2, 2011 in case of I. P Patel & Co. (supra), the Bench after referring to several judgments on the point was pleased to uphold the reopening of the assessment by the Revenue.

8. From the above judicial pronouncements, the following principles can be culled out :

(i) To confer jurisdiction to the Assessing Officer to reopen the assessment under section 147 of the Income-tax Act beyond four years from the end of the assessment year, the following two conditions must be satisfied (a) that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment ; and (b) that the same was occasioned, on account of either failure on 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 grounds for the Assessing Officer to hold such beliefs ; (v) such reasons must emerge from the reasons recorded by the Assessing Officer and cannot be supplied through an affidavit filed before the court. However, the Gujarat High Court in the case of Aayojan Developers (supra) has accepted the view that to elaborate such reasons already recorded, reference would be permissible to the affidavit filed by the Department before the court ; (vi) what would amount to true and full disclosure of all material facts must depend on each case and no strait jacket formula of universal application can be provided. It can, however, safely be stated that the duty of the assessee is to disclose primary facts and it is not his duty to lead the Assessing Officer to any particular inference of fact or of law on the basis of such primary disclosures. In other words, once the assessee discharges his duty of stating all the primary facts, what inferences and conclusions should be drawn is the duty of the Assessing Officer ; (vii) at the time of ascertaining whether the notice was validly issued, what could be the probable conclusion of fresh assessment if reopening is permitted, is not the inquiry of the court. In other words, the merits of the proposed action, through opening of the assessment, cannot be gone into by the court beyond a prima facie stage.

9. With the above principles in mind, we proceed to examine the facts on record.

9.1 From the reasons recorded by the authorities for reopening of the assessment, which was duly communicated to the assessee, it can be gathered that the case of the Revenue is that for the assessment year in question, i.e., 2003-04, the company called Schutz Dishman Biotech Ltd. (“SDBL” for short), had given an amount of Rs. 2,03,50,000 to the assessee by way of loan. The Assessing Officer, while framing the assessment for the assessment year 2006-07, learnt that the said SDBL had given a loan of Rs. 2,91,10,000 to the assessee in the year 2006-07, and, thereupon, the assessee was called upon to produce accounts for the earlier years. Upon perusal of the accounts of the previous year, it was revealed that the assessee was holding 22.3 per cent. shareholdings of M/s. Schutz Dishman Biotech Ltd. On this basis, the Assessing Officer formed an opinion that he had reason to believe that such amount of Rs. 2,03,50,000 ought 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 shareholder, 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 which such shareholder is a member or a partner and in which he has substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits.”

11. From the said provision, it can be seen that if the payment by a company to an assessee fulfils the conditions laid down in clause (e) of section 2(22) of the Act, the same has to be treated as deemed dividend of the assessee for that year, in which such payment is made. Thus, if the petitioner was holding shares of not less than 10 per cent. of the voting power in SDBL, such payment of Rs. 2,03,50,000 for the relevant year 2003-04 would be treated as “deemed dividend”. The fact necessary to ascertain whether such payment could be and should be treated as “deemed dividend” under section 2(22)(e) was whether the assessee was holding shares of not less than 10 per cent. of the voting power in SDBL.

12. From the return submitted by the assessee and the documents produced along with such returns, nowhere can it be ascertained what was the shareholding in terms of the voting power of the assessee-company in SDBL. Though it has been pointed out by the learned counsel for the assessee that in the statement of accounts accompanying the return, the petitioner-assessee did disclose that it holds 3,34,980 equity shares of SDBL of Rs. 10 each, but nowhere it has been stated that such holding would amount to not less than 10 per cent. in terms of the voting power of SDBL. It is the case of the Revenue that such holding would exceed 10 per cent.

13. The fact remains that from the return filed and the documents annexed with the return, nowhere it can be ascertained what was the holding of the assessee-company (in terms of voting power) in SDBL. If, upon further inquiry by the Assessing Officer, such details could be gathered and the nature of payment received by the petitioner from SDBL could be ascertained, to find out whether the same should be treated as “deemed dividend” under section 2(22)(e) or not, the same, in our opinion, would not satisfy the requirement of fully and truly disclosing all material facts necessary for assessment ; particularly viewed from the expression given in Explanation 1 to section 147 of the Act, which 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 material facts necessary for assessment of the income, in the present case, was not discharged ; particularly viewed from the Explanation to section 147-reference to which has already been made earlier.

15. We have taken note of reasons recorded by the Assessing Officer for re-opening of the assessment. The Assessing Officer may not have stated in so many words that “income escaped assessment on account of the assessee not truly and fully disclosing all material facts”. Suffice it to say, the reasons recorded clearly envisages escapement of income on account of non-disclosure by the assessee of its holding in SDBL for the relevant assessment year. Such discrepancy came to light only while framing the assessment of the subsequent year, i.e., 2006-07, while during the course of inquiry, the assessee was asked to submit such details, through which, it was found that the assessee holds 22.3 per cent. of the shares of SDBL.

16. In reply affidavit, the respondents have further elaborated this aspect of the matter stating :

“. . . On a perusal and verification of accounts of the assessment year 2003-04, it was found that the petitioner has taken a loan of Rs. 2,03,50,000 from SDBPL. The perusal of the balance-sheet of SDBPL for the assessment year 2003-04 revealed that there was reserve and surplus of Rs. 4,59,63,532. On the basis of there facts, the Assessing Officer had reason to believe that the income in the form of dividend as per section 2(22)(e) of the Act of Rs. 2,03,50,000 has escaped assessment as the petitioner failed to file a return of income in respect to the notice issued under section 148 within a period of 30 days.

Further, the petitioner has also failed to disclose fully and truly all material facts necessary for his assessment for this assessment year. It is humbly submitted that, for making assessment on the issue of deemed dividend under section 2(22)(e) the following information are required :

(1) Detail of any payment by a private company to its shareholder ;

(2) Percentage of share held by the shareholder ;

(3) Availability of accumulated profits with the company giving loan.

The petitioner has failed to disclose these details with regard to SDBPL during original assessment proceedings. The abovestated facts came to the knowledge of the respondent (Assessing Officer) during the assessment proceeding for the assessment year 2006-07. Therefore, 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 (supra), holding that for elaborating the reasons recorded, affidavit of the officer can be referred to, for the purpose 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 no opinion on the question of additional tax liability of the petitioner and such issue will be adjudged by the Assessing Officer unmindful of any observations made in this judgment.

[Citation : 346 ITR 228]

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