TaxTMI 
TaxTMI 
2012 (9) TMI 58
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....003, 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-....
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.... 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 drawn is upon the Assessing Officer ; (iii) counsel submitted that even otherwise there was no escapement of income. The entire basis for re-open- ing 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 Indo-Ade....
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....53 (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 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 * This case appears to be to [1961] 41 ITR 221 (SC). an assessee to make a return of his i....
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.... 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 ....
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....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 m....
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....e 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 v. CIT [1991] 189 ITR 285 (SC), the apex court noted with approval, the following observations of the Division Bench of the Madras High Court (page 298)....
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....e 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 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 t....
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....h 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 v. ITO [2011] 335 ITR 234 (Guj) has accepted the view that to elaborate such reasons already recorded, reference would be permissible to t....
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....on 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 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 share- holder, to the extent to which the company in either case possesses accumulated profits." 11. From the said provision, it can be seen that ....
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....icer, 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 ....