2012 (9) TMI 58 - HC - Income Tax

Reopening assessment beyond four years valid where non-disclosure of 22.3% shareholding led to deemed dividend (s.147, s.2(22)(e))

HC upheld reopening of assessment beyond four years, finding the AO's recorded reasons showed escapement of income due to non-disclosure of shareholding ... Validity of the notice issued for reopening the assessment - beyond four years - reason to believe - deemed dividend - alleged that income chargeable to tax for the assessment year 2003-04 has escaped assessment - non-disclosure by the assessee of its holding in SDBL for the relevant assessment year - Held that:- 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 - petitioner has failed to disclose these details with regard to SDBPL during original assessment proceedings - no details/evidence produced by the petitioner on the issue of deemed dividend – reassessment upheld Issues Involved:1. Validity of the notice issued under section 148 of the Income-tax Act, 1961, for reopening the assessment.2. Whether the petitioner fully and truly disclosed all material facts necessary for the assessment.3. Interpretation of section 2(22)(e) of the Income-tax Act regarding deemed dividend.4. Jurisdiction of the Assessing Officer to reopen the assessment beyond four years.Detailed Analysis:1. Validity of the Notice Issued Under Section 148:The petitioner, a public limited company, challenged the notice dated March 24, 2010, issued by the Deputy Commissioner of Income-tax (OSD), Ahmedabad Range-1, for reopening the assessment for the assessment year 2003-04 under section 148 of the Income-tax Act, 1961. The notice stated that the officer had reason to believe that income chargeable to tax had escaped assessment. The petitioner contended that all statutory disclosures were made in the original return filed on November 30, 2003, and that the Assessing Officer did not request any additional material during the original assessment.2. Disclosure of Material Facts:The petitioner argued that all necessary facts were placed on record, and it was the duty of the Assessing Officer to draw inferences from the primary facts disclosed. The petitioner maintained that there was no escapement of income and that the reasons recorded for reopening the assessment were unsatisfactory. The Department, however, contended that the necessary facts to ascertain the applicability of section 2(22)(e) were not available in the original return. It was only during the assessment proceedings for the year 2006-07 that it was discovered that certain advances should be treated as deemed dividend under section 2(22)(e).3. Interpretation of Section 2(22)(e):Section 2(22)(e) of the Income-tax Act specifies that certain payments by a company to a shareholder holding not less than 10% of the voting power or to any concern in which such shareholder has a substantial interest should be treated as deemed dividend. The Assessing Officer found that the petitioner held 22.3% shareholding in SDBL and had taken loans amounting to Rs. 2,03,50,000 in the year 2003-04. This led to the belief that such loans should be treated as deemed dividend, resulting in escapement of income.4. Jurisdiction to Reopen Assessment Beyond Four Years:The court examined whether the conditions for reopening the assessment beyond four years were satisfied. According to the judicial pronouncements, for reopening beyond four years, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment and that such escapement was due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the petitioner did not disclose the extent of its shareholding in SDBL in terms of voting power, a crucial fact for determining the applicability of section 2(22)(e). The court concluded that the petitioner failed to fully and truly disclose all material facts necessary for the assessment.Conclusion:The court held that the notice for reopening the assessment was valid as the Assessing Officer had reason to believe that income had escaped assessment due to the petitioner's failure to disclose fully and truly all material facts. The petition was dismissed, and the interim relief, if any, stood vacated. The court clarified that it expressed no opinion on the question of additional tax liability, which would be adjudicated by the Assessing Officer independently.