Jayesh T Kotak Vs DCIT (Gujarat High Court)
Conclusion: In the absence of failure on the part of assesse to disclose fully and truly all material facts necessary for his assessment, the reopening of assessment beyond a period of four years from the end of relevant assessment year was without authority of law.
Held: AO reopened assessment by issuing notice under section 148 after a gap of more than four years. Assessee contended that he had filed all primary documents which were statutorily required to be filed along with the return of income and had also filed all documents that were called for during the course of scrutiny assessment. Assessee pointed out that AO, while carrying out scrutiny assessment, had examined the issue of deemed dividend under section 2(22)(e). Adverting to the reasons recorded, it was submitted that the reasons did not state that any loan or advance had been received by assesse or any benefit had been received; there was no allegation that income of dividend had been earned by assesse; and hence, in the absence of those overriding considerations, the notice under section 148 must fail. It was held that it was not the case of AO that assessee had received any loan from the loan giver company or that the loans advanced by the loan giver company in which assesse had shareholding of not less than 10% of the voting power to the two concerns in which assesse had substantial interest was for the benefit of assesse. Assessee had also disclosed the extent of his shareholding in the loan giver as well as loan receiver companies. The reopening of assessment was founded on the premise that assesse did not disclose the transactions between the loan giver company in which he had shareholding not less than 10 per cent of the voting power and the loan receiver concerns in which he had substantial interest. However, when the amount received by the two concerns from the loan giver company was neither received by assesse nor was it for the benefit of the assesse, such amount could not be considered as deemed dividend in the hands of assessee, and consequently no income accrued to assessee from such transactions. In the absence of any finding having been recorded by AO that any income had accrued in favour of assessee, it was not possible to say that there was any obligation cast upon him to disclose such transactions. In the absence of any failure on the part of assesse to disclose fully and truly all material
facts necessary for his assessment, the reopening of assessment beyond a period of four years from the relevant assessment was without authority of law.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. Rule. Mrs. Mauna Bhatt, learned Senior Standing Counsel waives service of notice of Rule on behalf of the respondent.
2. By this petition under article 226 of the Constitution of India, the petitioner has challenged the notice dated 27.03.2015 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) seeking to reopen the assessment of the petitioner for assessment year 2008-2009 as well as the orders at Annexure ‘T’ and ‘V’ to the petition whereby the respondent has rejected the objections raised by the petitioner to the reopening of assessment.
3. The facts as averred in the petition are that the petitioner is an individual and is assessed as such. For assessment year 2008-2009, the petitioner filed his return of income showing total income at Rs.1,48,89,810/- as per the statement of income annexed along with the return of income. The petitioner had also filed audit report in Form No.3CB and 3CD before the Assessing Officer. Thereafter, the petitioner received a noticed dated 16.09.2010 issued under section 142(1) of the Act, calling upon the petitioner to furnish certain details. The petitioner furnished such details through his Chartered Accountant by a reply dated 14.10.2010. A further notice dated 19.10.2010 came to be issued under section 142(1) of the Act calling for further information from the petitioner. A notice dated 19.10.2010 issued under section 143(2) of the Act was received by the petitioner, whereby the petitioner was called upon to attend the respondent’s office. It is the case of the petitioner that he supplied details which were called for by the respondent by his letters dated 18.11.2010 and 26.11.2010. In response to the said notices, the petitioner filed his reply dated 02.12.2010 annexing in all 7 exhibits with the said reply. By a letter dated 27.12.2012, the petitioner furnished some further details which were called for by the respondents during the assessment proceedings under section 143(3) of the Act. After calling for extensive details by various notices and the petitioner replying to those notices, the respondent passed an assessment order dated 28.12.2010 under section 143(3) of the Act, wherein, six additions came to be made. The petitioner challenged the assessment order before the Commissioner of Income Tax (Appeals), who passed an order dated 26.09.2011.
3.1 Now, after a gap of more than four years, the petitioner has received a notice dated 27.03.2015 under section 148 of the Act, whereby, the respondent wants to reopen the assessment for the assessment year 2008-2009.
3.2 In response to the notice under section 148 of the Act, the petitioner gave his reply dated 16.04.2015 making certain legal submissions and requested the respondent to provide the reasons recorded for reopening the assessment. By a further letter dated 04.05.2015, the petitioner, once again, requested for a copy of the reasons recorded and also requested the respondent to take the original return filed by him under section 139 of the Act as the return filed in response to the notice under section 148 of the Act. By a letter dated 18.05.2015, the respondent furnished the reasons recorded. The respondent called upon the petitioner to file a copy of the return instead of relying on the previously filed return and so the petitioner filed the same return once again electronically and mentioned the said fact in a letter submitted to the Department on 04.06.2015. Thereafter, by a letter dated 13.07.2015, the petitioner submitted his objections. The petitioner filed further objections vide letter dated 27.07.2015 making certain points on merits as well as reiterating the fact that the petitioner had disclosed fully and truly all material facts for the purpose of assessment under section 143(3) of the Act. It is the case of the petitioner that he had filed all primary documents which were statutorily required to be filed along with the return of income and had also filed all documents that were called for during the course of scrutiny assessment. The petitioner pointed out that the Assessing Officer, while carrying out scrutiny assessment, had examined the issue of deemed dividend under section 2(22)(e) of the Act.
3.3 By an order dated 11.09.2015, the respondent disposed of the objections raised by the petitioner vide letter dated 13.07.2015. Furthermore, by a letter dated 11.09.2015, the respondent called upon the petitioner to explain as to why loans extended by M/s. J. P. Infrastructure Pvt. Ltd. (now known as J. P. Iscon Limited) to its sister concern amounting to Rs.12.61 crores should not be treated as deemed dividend under section 2(22)(e) of the Act as the petitioner was holding 27.49% of the shares in M/s. M/s. J. P. Iscon Ltd and called upon the petitioner to reply the query within the time specified thereunder. The petitioner responded by a letter dated 23.09.2015, bringing to the notice of the respondent that he had missed out in dealing with his objections dated 27.07.2015, wherein, this very issue was dealt with and reply to the query in the letter dated 11.09.2015 was already addressed in the petitioner’s objections dated 27.07.2015. Thereafter, the respondent, by a letter dated 23.09.2015, disposed of the petitioner’s objections dated 27.07.2015. Being aggrieved, the petitioner has filed the present petition.
3A. In response to the averments made in the petition, the respondent has filed an affidavit-in-reply; the petitioner has filed a rejoinder thereto and the respondent has filed a surrejoinder to the rejoinder filed by the petitioner.
4. Mr. J. P. Shah, Senior Advocate, learned counsel for the petitioner invited the attention of the court to the assessment order made under section 143(3) of the Act for the assessment year under consideration, to submit that specific questions on section 2(22)(e) of the Act have been asked and the issue has been gone into and has been specifically addressed. It was submitted that the issue having already been gone into at the time of scrutiny assessment, it is not permissible for the Assessing Officer to reopen the assessment in respect of the same issue. The attention of the court was invited to Accounting Standard (AS) 18, which relates to Related Party Disclosures to point out that the council has decided to make AS 18 mandatory only to the enterprises mentioned therein and not to all enterprises. It was pointed out that two categories of enterprises are mentioned therein out of which (i) which relates to enterprises whose equity or debt securities are listed on a recognised stock exchange etc. is not applicable to the petitioner who is an individual, whereas (ii) relates to all other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs.50 crores. It was pointed out that the gross total income of the petitioner is only Rs.1.48 crores and hence, he does not fall under the second category of enterprises also. It was submitted that therefore, there was no specific requirement for the petitioner to disclose such transaction.
4.1 Reference was made to the decision of the Supreme Court in Commissioner of Income Tax v. Mukundray K. Shah, (2007) 290 ITR 433 SC, wherein, the Court has held thus:
11. xxxxxxxThe companies having accumulated profits and the companies in which substantial voting power lies in the hands of a person other than the public (controlled companies) are required to distribute accumulated profits as dividends to the shareholders. In such companies, the controlling group can do what it likes with the management of the company, its affairs and its profits. It is for this group to decide whether the profits should be distributed as dividends or not. The declaration of dividend is entirely within the discretion of this group. Therefore, the legislature realised that though funds were available with the company in the form of profits, the controlling group refused to distribute accumulated profits as dividends to the shareholders but adopted the device of advancing the said profits by way of loan to one of its shareholders so as to avoid payment of tax on accumulated profits. This was the main reason for enacting Section 2(22)(e) of the Act.
12. xxxxxxx It is not in dispute that the assessee had more than 10% of voting power in MKSEPL during the block period. It is not in dispute that the assessee had substantial interest of about 16% in MKF. It is not in dispute that the three companies were the controlled companies. There is one more point which needs to be mentioned. The timing of so-called repayments by the company to MKF and MKI and the immediate withdrawal of the funds by the assessee-cum-Director-cumshareholder-cum-partner and the timing of investment in purchase of bonds were around the same time. Moreover, in MKSEPL the assessee is not only a shareholder having more than 10% of total voting power, he is also a Director of that company. The said company is also a partner in MKF and MKI which explains why the amount of Rs 5.99 crores was routed by splitting the said amount into two parts of Rs 2.79 crores and Rs 3.20 crores. In the present case, the most important aspect, which has not been considered by the High Court, was that withdrawal of money by the assessee from his capital account, in the books of MKI, during Financial Year 1999-2000 led to a debit balance of Rs 8.18 crores as on 31-3-2000. To this extent, the finding given by the AO and by the Tribunal remains unchallenged. Lastly, on the maintainability of the block assessment, we are of the view that the Department was right in assessing the said amount as deemed dividend in the hands of the assessee under Section 2(22)(e) of the Act. The impugned assessment order was passed under Section 158-BC. That assessment originated on account of a search conducted under Section 132(1) of the Act. In that search the diary “ML-20” was identified. That identification was the starting point of connected enquiries resulting in the detection of undisclosed income of Rs 5.99 crores. In other words, undisclosed income, in the nature of deemed dividend, did not arise from any scrutiny proceedings, tax evasion petitions, surveys, information received from external agency, etc. The undisclosed income was detected by the AO wholly and exclusively as a result of a search and, therefore, the Department was right in invoking the provisions of Chapter XIV-B. There is one more aspect in this regard. From the facts, indicated above, the Department has established a sort of circular trading in this case. One of the important features of circular trading is to route the funds through conduits. In such cases the picture emerges only after seeing the cash-flow statements. In the present case, ML-20 made the AO to hold enquiries and in that enquiry the cash-flow statement emerged, therefore, the Department was right in invoking the provisions of Chapter XIV-B in the present case. The five payments had direct correlation with Rs 5.99 crores paid by MKSEPL to MKF and MKI and payments by the said two firms to the assessee who used the said money to buy 9% RBI Relief Bonds. Therefore, the said payment by the company through the two firms was for the benefit of the assessee. Therefore, the said funds were not repayment of loans, they were for purchase of 9% RBI Relief Bonds by the respondent.
16. The above two judgments indicate that the question as to whether payment made by the company is for the benefit of the assessee is a question of fact. In this case, the Tribunal has concluded that the payment routed through MKF and MKI was for the benefit of the assessee. This was a finding of fact. It was not perverse. Therefore, the High Court should not have interfered with the said finding. Further, the above two judgments lay down that the concept of deemed dividend under Section 2(22)(e) of the Act postulates two factors, namely, whether payment is a loan and whether on the date of payment there existed “accumulated profits”. These two factors have to be correlated. This correlation has been done by the Tribunal coupled with the fact that all withdrawals were debited in the capital account of the firm leading to the debit balance of Rs 8.18 crores. The High Court has erred in disturbing the findings of fact.
4.2 It was submitted that thus as laid down in the above decision for the purpose of invoking section 2(22)(e) of the Act, two factors are postulated. Firstly, whether the payment is a loan, in other words whether the petitioner has received some benefit; and secondly, whether on the date of payment there existed “accumulated profits” in the concern which advanced the loan. It was submitted that in the facts of the present case, there is no allegation that any benefit has accrued to the petitioner and as there is no benefit to the petitioner, there is no question to taxing him. It was submitted that if the controlling holder is not benefitted, section 2(22)(e) of the Act would not apply. It was further submitted that the Supreme Court, in the above decision, has held that receiving of a benefit is a sine qua non for application of section 2(22)(e) of the Act. Such amount may be received either directly or the money may be received through concerns in which the assessee had interest.
4.3 Attention was invited to the objections dated 13.07.2015 raised by the petitioner against the reopening of assessment, to submit that a specific contention had been raised that the petitioner has not received a single rupee as loans and advances, either from the loan giver company, that is, M/s. J. P. Infrastructure Pvt. Ltd. or loan taker companies, that is, Gujarat Mall Management Company Pvt. Ltd. or Aryan Arcade Pvt. Ltd., and hence, there was no question of any deemed dividend in the hands of the petitioner. However, the Assessing Officer has not given any reply to the contention that no benefit has travelled to the assessee. It was urged that the very basis that income has escaped assessment is fallacious inasmuch as when there is no income, there is no question of escapement.
4.4 The learned counsel submitted that in this case, the two essential ingredients for invoking section 2(22)(e) of the Act are missing: (i) that the lending company has accumulated profits; and (ii) that the loan has been advanced to concerns for the benefit of the assessee. It was submitted that section 2(22)(e) contains a deeming provision and hence, it must be strictly construed and that the court should adopt a practical approach.
4.5 Adverting to the reasons recorded, it was submitted that the reasons do not state that any loan or advance has been received by the petitioner or any benefit has been received; there is no allegation that income of dividend has been earned by the petitioner; and there is no allegation that M/s. J. P. Infrastructure Pvt. Ltd. has accumulated profits; and hence, in the absence of those overriding considerations, the notice under section 148 of the Act must fail.
4.6 Referring to the objections raised against the reopening of assessment, it was submitted that in the objections, the petitioner has stated that he has not received a single rupee from the two loanees, which has not been dealt with in the order disposing of the objections; it was also contended that the loan was given for the purpose of business, and hence, there is no question of dividend, however, these two objections have not been dealt with.
4.7 It was urged that the return is filed electronically and it is not possible to load any further details other than that which are provided in the form. It was submitted that the basic requirement for invoking section 2(22)(e) of the Act is that the petitioner should have received the benefit of the moneys parted with by the company in which he is a substantial shareholder. Whereas in the present case, the petitioner has not received any benefit and consequently, there is no income, there is nothing to disclose.
4.8 Reliance was placed by the decision of this court in the case of Viren Surendra Shah v. Assistant Commissioner of Income Tax, (2015) 63 Taxman.com 104 (Gujarat), wherein, the court referred to the decision of this court in Niko Resources Ltd. v. ADIT, [2014] 51 Taxmann.com 568, wherein it has been held that once all primary facts are before the Assessing Officer, no further assistance is required by way of disclosure. All inferences of the facts and legal inference need to be drawn by the Assessing Officer. It is not for anyone to guide the Assessing Officer in respect of inference “factual or legal” which is required to be drawn by him alone. Once the case of the assessee is covered by the first proviso to section 147 of the Act, the re-assessment proceedings beyond the period of four years from the end of the relevant assessment year would be without any jurisdiction and bad in law, if all material facts are furnished and there remained no omission or failure on the part of the assessee to disclose fully and truly all material facts. It was further held that the onus on the assessee is to reveal the primary facts and to draw the inferential facts would be responsibility of the Assessing Officer. Once having revealed from the record that the assessee disclosed full and complete facts and on scrutiny, at the time of original assessment all those details are examined, no change of opinion is permissible merely because there was some error earlier on the part of the Assessing Officer himself or because he choose not to opine on the issue and even when he changes his mind and interprets the material or law otherwise then what was done by him. Applying the above decision to the facts of the case before it, the court found that there was no failure on the part of the assessee to disclose truly and fully all material facts necessary to assessment with respect to the deemed dividend under section 2(22)(e) of the Act and hence, the initiation of the impugned re-assessment proceedings, which were beyond a period of four years was not permissible
4.9 Reliance was also placed upon the decision of this Court in CIT v. Alfa ICA, (India ) Ltd., (2013) 217 Taxman 129 (Gujarat), wherein, the court has held that where there is no failure on the part of the assessee to disclose fully and truly all material facts, merely because the claim was not previously processed during the scrutiny assessment or that such claim was legally not sustainable, would not vest the jurisdiction in the Assessing Officer to reopen the assessment beyond a period of four years from the end of relevant assessment year. It was contended that the impugned notice under section 148 of the Act having been issued after a period of more than four years from the end of relevant assessment year, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts, the assumption of jurisdiction on the part of the Assessing Officer lacks validity.
4.10 It was, accordingly, urged that on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment and hence, the Assessing Officer is not justified in invoking the provisions of section 147 of the Act and that in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment, the reopening of assessment beyond a period of four years from the end of the relevant assessment year is not permissible in law.
5. Mr. M. R. Bhatt, Senior Advocate, learned counsel for the respondent submitted that section 2(22)(e) of the Act contemplates loan or interest to a concern wherein, the shareholder has an interest. Referring to the reasons recorded, it was pointed out that it is an admitted position that assessee is an individual whose shareholding is more than 10 per cent of the voting power in the three companies. It was submitted that the second table referred in the reasons recorded has been disclosed in the return on income filed by the assessee, but the table showing the loans given by M/s. J. P. Infrastructure Pvt. Ltd. to Gujarat Mall Management Company Pvt. Ltd. and Aryan Arcade Pvt. Ltd. has not been disclosed.
5.1 It was submitted that clarification called for by the Assessing Officer during the course of scrutiny assessment in relation to deemed dividend under section 2(22)(e) of the Act was in respect of different parties, namely Palitana Sugar Mills Pvt. Ltd. and Shiva Agency Pvt. Ltd. Attention was invited to paragraph 7.1 of the assessment order made under section143(3) of the Act, to submit that this transaction was not gone into at the stage of assessment. It was submitted that while the petitioner had given details of the direct loans received by him, no details were given with regards to subject transactions. Therefore, in respect of the transactions in question which are also under section 2(22)(e) of the Act, the petitioner has remained silent.
5.2 It was submitted that the inquiry at the original stage was in respect of different parties, whereas, the reopening of assessment is on the basis of information received from DCIT, TDS circle, Ahmedabad to the effect that unsecured loans have been given by M/s. J. P. Infrastructure Pvt. Ltd. to Gujarat Mall Management Company Pvt. Ltd. and Aryan Arcade Pvt. Ltd. and the shareholding of the petitioner in all the three companies exceeds 10% of the shares.
5.3 Reference was made to the decision of this Court in the case of Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra). Attention was invited to paragraph 6 of the said decision to submit that the arguments of the revenue in this case are similar. It was pointed out that one of the arguments raised on behalf of the assessee in the said case was that the format of filing return did not require such information to be given, which contention has been repelled by the court.
5.4 As regards the contention of the learned advocate for the petitioner that the amount given by M/s. J. P. Infrastructure Pvt. Ltd. to Gujarat Malls Management Pvt. Ltd. and Aryan Arcade Pvt. Ltd. were inter-corporate deposits. It was submitted that in this case, the entire transaction was not disclosed. Consequently, in the absence of nature of transaction being disclosed, there was no question of considering whether or not the payments were in the nature of inter-corporate deposits.
5.5 Insofar as the decision of this Court in the case of Viren Sureshchandra Shah (supra) is concerned, it was submitted that in the case of a private limited company, the control is with a few persons and a director who holds more than 10% shares, would be aware of a transaction with a related company. It was contended that what is required to be considered is whether the case falls under section 2(22)(e) of the Act, which is in the affirmative; whether the assessee was required to disclose the transaction, which also would be in the affirmative. It was submitted that a fact which is a material fact is relevant for the purpose of assessment and is, therefore, required to be stated and not stating thereof amounts to non disclosure of relevant facts.
5.6 It was submitted that formation of opinion by the Assessing Officer is being examined at the threshold, which is in the context of section 2(22)(e) of the Act, which says that when ‘A’ company gives loan to ‘B’ company and ‘C’ company in whom the assessee has specific interest, such amount is deemed dividend in the case of the assessee and the next aspect as to whether the assessee had received the money or not, will have to be evaluated at the assessment stage. At the stage of formation of opinion all that the Assessing Officer has to do is to be satisfied that the basic requirements of section 2(22)(e) of the Act are fulfilled. If the assessee is in a position to point out that no benefit has been received, the assessment will fail. But, at this stage of the proceedings, reasons do not have to go beyond the section. No finding is necessary at this stage in the reasons. It was also contended that at the stage of formation of opinion, the Assessing Officer does not have to say that there are accumulated profits. It was submitted that while decision of the Supreme Court in Commissioner of Income Tax v. Mukundray K. Shah (supra) would be applicable, it would be evaluated at the next stage during the course of assessment.
5.7 Reliance was placed upon the decision of the Delhi High Court in Honda Seil Power Products Ltd. v. Deputy Commissioner of Income Tax, (2012) 340 ITR 53, wherein, the Court held thus:
“10. Thus, the petitioner has accepted and admitted that he had not given details with regard to proportionate expenses relatable to tax free or exempt income, which were claimed as a deduction under the cumulative head “expenditure”. It is pleaded and stated that the petitioner was not required to disclose the said fact as when they had filed the return, Section 14A was not in the statute book. Sequitor, there was no omission and failure on the part of the assessee-petitioner to make full and true disclosure. The term “failure” on the part of the assessee is not restricted only to the income-tax return and the columns of the income-tax return or the tax audit report. This is the first stage. The said expression “failure to fully and truly disclose material facts” also relate to the stage of the assessment proceedings, the second stage. There can be omission and failure on the part of the assessee to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details it is required and under an obligation to disclose. Burden is on the assessee to make full and true disclosure.”
“12. The law postulates a duty on every assessee to disclose fully and truly all material facts for its assessment. The disclosure must be full and true. Material facts are those facts which if taken into accounts they would have an adverse affect on assessee by the higher assessment of income than the one actually made. They should be proximate and not have any remote bearing on the assessment. Omission to disclose may be deliberate or inadvertent. This is not relevant, provided there is omission or failure on the part of assessee. The latter confers jurisdiction to reopen assessment”
“15. It is clear from the aforesaid paragraph the petitioner has accepted that “material particular” referred to in the first proviso not only refers to details in the Return but also explanations and details furnished during the course of assessment. The petitioner had not stated anything or given factual matrix to justify and state that the material facts had been fully and truly disclosed in the assessment proceedings and there was no omission or failure on the part of the petitioner. Explanation to section 147 stipulates that mere production of books of accounts or other evidence is not sufficient. (Refer paragraph 11 above wherein judgment in the Consolidated Photo and Finvest Ltd. (supra) has been quoted). Therefore merely because material lies imbedded in material or evidence, which the Assessing Officer could have uncovered but did not uncover is not a good ground to deny or strike down a notice for reassessment. Whether the Assessing Officer could have found the truth but he did not, does not preclude the Assessing Officer from exercising the power of reassessment to bring to tax the escaped income.
16. There was an omission and failure on the part of the petitioner to point out the expenses incurred relatable to tax free/exempt income which prima facie have been claimed as a deduction in the income and expenditure account. There was, therefore, omission and failure on the part of the petitioner to disclose fully and truly material facts.”
5.8 It was submitted that, therefore, the term ‘failure’ on the part of the assessee is not restricted only to the income tax return of the columns in the income tax return or the tax audit report. There could be an omission on the part of the assessee to disclose fully and truly all material facts during the course of assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details that it is required and under an obligation to disclose. It was submitted that the petitioner has failed to discharge the burden cast upon him of making a full and true disclosure, and hence, the Assessing Officer is wholly justified in reopening of assessment under section 147 of the Act. It was urged that the petition being devoid of merits, deserves to be dismissed.
6. In rejoinder, Mr. M. J. Shah, learned advocate for the petitioner submitted that in the case of Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra), the transaction was made by the company itself and the percentile of share was not given. It was submitted that the petitioner is required to state the percentage of shares which he has duly disclosed and that, insofar as the loans given by M/s. J. P. Infrastructure Pvt. Ltd. to Gujarat Malls Management Company Pvt. Ltd. andAryan Arcade Pvt. Ltd. are concerned, since no amount has been received by the petitioner from the amount given to the two concerns, the petitioner may not be aware of the transaction between the two companies. It was submitted that this case is not identical to the case of Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra). In the said case, primary facts were not disclosed; whereas, in this case, the percentage of shares has been disclosed and hence, primary facts have been disclosed. It was submitted that once the primary facts are disclosed, what question would arise is for the Assessing Officer to ask. In support of such submission, reliance was placed upon the decision of this Court in the case of Niko Resources Ltd. v. ACIT, (2015) 229 Taxman 86, wherein, the court has held that once all primary facts are before the assessing authority, no further assistance is required by way of disclosure. All inferences of facts and legal inference need to be drawn by the Assessing Officer. It is not for anyone to guide the Assessing Officer in respect of inference “factual or legal”, which requires to be drawn by him alone. It was submitted that in the case of Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra) the facts were gross and the basic requirements of section 2(22)(e) of the Act were not satisfied.
6.1 It was pointed out that in the case of Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra), the shareholding of the assessee was not disclosed; whereas, in this case, transactions in question are between the company ‘A’ and company ‘B’and company ‘A’and company ‘C’and the petitioner is ‘D’ who only has a substantial shares in the three companies. It was submitted that the onus upon the petitioner was to disclose his shareholding in the three companies and he has duly disclosed his percentile of shareholding in those parties. Since no part of the amount given by M/s. J. P. Infrastructure Pvt. Ltd. to Gujarat Malls Management Company Pvt. Ltd. and Aryan Arcade Pvt. Ltd. has travelled to the petitioner, there was no obligation upon the petitioner to disclose such fact. It was submitted that in Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra), the transaction was between the petitioner and the party; and hence, the court held that it was bound to disclose the percentile holding which was a primary fact. It was contended that, therefore, the ratio of the decision of this court in the case of Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra) will not apply in this case.
6.2 Reference was made to paragraphs 9.1, 11 and 12 of the decision of this court in Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy Commissioner of Income Tax (supra) to submit that in the facts of the said case it could not be ascertained as to what was the shareholding of the petitioner. Thus, a primary fact was missing, which is the distinction between that case and this case.
6.3 Referring to the decision of this Court in the case of Viren Sureshchandra Shah (supra), it was submitted that section 2(22)(e) of the Act envisages disclosure qua those parties. Primary facts which are required to be given have been provided by the petitioner, what questions are to be asked by the Assessing Officer is not for the assessee to tell. According to the learned counsel, the facts of the present case are identical to the facts to the case of Viren Sureshchandra Shah (supra).
6.4 It was submitted that in the objections, it was contended that section 2(22)(e) of the Act would not be applicable as there is divergence of views. Only if the loan is for the benefit of the shareholder, section 2(22)(e) of the Act would apply. It was submitted that these were inter-corporate deposits between two companies which are covered by judgment and order dated 18th July, 2012 passed by this court in the case of Commissioner of Income-tax v. Daisy Packers Pvt. Ltd. rendered in Tax Appeal No.212 of 2010. It was submitted that if the issue is covered by a decision of the Gujarat High Court, the impugned notice under section 148 of the Act would fail.
6.5 It as submitted that section 2(22)(e) of the Act creates a fiction by which certain receipts or part thereof are treated as dividend for the purpose of levy of income tax. Under the Company law, a company can pay dividend out of the profits for the current or the past year. The definition ensures that any distribution or payment referred to therein out of accumulated profits, howsoever made, is brought to tax. Section 2(22)(e) of the Act requires determination of two factors: (i) whether the payment is a loan etc.; and (ii) whether on the date when the payment is made, thereby, were accumulated profits. It was submitted that the loan advanced to such shareholder can be deemed to be a dividend only to the extent to which, it is shown that company possesses accumulated profits on the date of the of the loan etc. Whereas, in the reasons recorded for reopening the assessment, the Assessing Officer has not recorded any satisfaction that M/s J.P. Infrastructure Ltd. has any accumulated profits, in the absence of which a basic requirement for invoking section 2(22)(e) of the Act is not satisfied. Hence, on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment.
6.6 In conclusion, it was submitted that in the absence of failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment, the reopening of assessment beyond a period of four years from the end of relevant assessment year is without authority of law. Moreover, even on merits, on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment. It was accordingly urged that the petition deserves to be allowed quashing and
setting aside the impugned notice under section 148 of the Act.
7. In the backdrop of the facts and contentions noted hereinabove, reference may first be made to the reasons recorded for reopening the assessment, which read as under:
“Reasons recorded u/s. 148(2) of the I.T. Act
In this case the return of income for A.Y. 2008-09 declaring income of Rs.1,48,89,810/- was filed on 30.09.2008. Assessment u/s. 143(3) of the Act was finalized on determining total income at Rs.2,02,55,060/- after making addition on various counts.
As per the information received from DCIT, TDS Circle, Ahmedabad it is noted that unsecured loans have been extended by M/s. J. P. Infrastructure Ltd. (Now Known as J. P. Iscon Ltd.) to various sister concerns during F.Y. 2007-08.
