TMI Blog2020 (3) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... for fishing inquiry, reopening of assessment is not permissible, that too, reopening beyond the period of four years from the end of the relevant assessment year when it is not even the case of the respondent that there is a failure on the part of the petitioner to disclose truly and fully all material facts. There is no tangible material for the respondent to come to the conclusion that there is escapment of income from assessment. Moreover, there is no live link for formation of such belief while recording the reasons for reopening the assessment. In such circumstances, when the entire material had been placed by the petitioner before the Assessing Officer, who accepted the view canvassed by the assessee then merely because he did not record such acceptance in assessment order would not be a ground to conclude that income has escaped the assessment, and therefore, the assessment is required to be reopened. Petition succeeds and is accordingly allowed. The impugned notice dated 29.03.2018 issued by the respondent under Section 148 is hereby quashed and set aside - Decided in favour of assessee. - R/SPECIAL CIVIL APPLICATION NO. 16127 of 2018 - - - Dated:- 16-3-2020 - HO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 (for short the Act ) after considering the replies filed by the petitioner pursuant to the various notices issued under Sections 142(1) and 143(2) of the Act. 4.2 It appears from the record that the respondent issued notice under Section 148 of the Act dated 29.03.2018. On request of the petitioner, reasons for reopening of the assessment were furnished on 24.05.2018 to the petitioner. The reasons recorded by the respondent reads as under: 2.Brief details of information collected/received by the AO:On perusal of the assessment records for the year under consideration, it is noticed that the assessee has debited a sum of ₹ 18,19,576/on account of Wharfage expenses which includes payment of ₹ 5,86,487/made to M/s Damani Shipping Pvt.Ltd. On further perusal details of Wharfage expenses it is seen that TDS was not deducted on the payment made to M/s Damani Shipping Pvt.Ltd whereas the assessee was liable to deduct TDS thereon. It is pertinent to mention here that Wharfage is a charge assessed by a shipping terminal or port when the goods are moved through the location and it is one of the costs of transport goods within the distribution system used by a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y dividend. It is also observed that the three directors of promoter family, also own over 99.3% of share holding of the assessee company have received Bonus. The details of the same is tabulated below: Sr. No. Name Percentage shareholding Bonus paid in Rs. 1 B.L.Agrawal 52.16% 7,70,000/ 2 Laxmidevi Agawal 32.21% 2,10,000/ 3 Nirmaladevi Agarwal 13.97% 2,10,000/ Total 99.34% 14,90,000/- As per the section 36(1)(ii) of the Act, any sum paid to the employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission is deductible. One of the condition is that the amount payable to employees as bonus or commission is deductible. One of the condition is that the amount payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per section 36(1)(ii) of the Act, Bonus or Commission paid to the employee for services rendered allowable subject to the condition that the payment is not made in lieu of dividend. It is well settled facts that if the bonus or commission is paid to the shareholders in lieu of profit or dividend then the impugned bonus/commission will not be allowed as deduction within the meaning of section 36(1)(ii) of the Act. In present case, the assessee company has paid bonus to the employee directors (as mentioned supra), who owned almost all of the shares of the assessee company and also are the decision making authorities of the assessee company. During the year under consideration, the assessee company has earned substantial profits however it has not declared dividend. Instead of declaring/distributing dividend, the substantial shareholder directors decided to pay bonus to the above mentioned persons in order to avoid tax payments by reducing its profit. In light of the facts mentioned above, it is ample clear that the payment of bonus is in lieu of dividend or profit and thus cannot be allowed as dedution. 4.Enquiries made by the AO as sequel to information collected/received: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove enumerated facts and issues have been found. While examination of the case records, it is noticed that the assessee was required to deduct TDS on the payment made to the tune of ₹ 8,48,189/. However, the assessee has not deducted TDS thereon and therefore it is ample clear that the assessee has violated the provision laid down in Chapter XVIIIB of the I T Act. In such circumstances, the expenditure claimed by the assessee to the extent of ₹ 8,48,189/is not allowable in view of section 40(a)(ia) of the Act. Further, with respect to the bonus paid by the assessee company to the employee directors, owing almost all the shares of the assessee company, it has been established that the bonus was paid is in lieu of dividend or profit with an intention to diminish the profit. The employee directors, to whom the impugned bonus was paid, are the decision making authority and the decision of the shareholder directors to pay the bonus instead of dividend was obviously with the intention to reduce profit for avoiding payment of taxes as the assessee company had derived tax advantage and therefore, cannot be allowed as deduction in view of Section 36(1)(ii) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.02.2014 with regard to the TDS not deducted on the amount of ₹ 5,86,487/paid for the wharfage expenses. The petitioner also tendered justification for remuneration paid to the directors in the said letter. Therefore, it was submitted that the petitioner has disclosed truly and fully all material facts during the course of assessment and the Assessing Officer, after considering the explanation tendered by the petitioner, passed assessment order under Section 143(3) of the Act. 6.4 Learned advocate for the petitioner further submitted that the reasons recorded are on perusal of the assessment record for the year under consideration, and therefore, there is change of opinion on the part of the respondent for reopening of the reassessment which is not permissible in view of the settled legal position. 6.5 It was submitted that the notice for reopening is issued beyond a period of 4 years on the basis of the verification of the material available during the scrutiny assessment and there is no allegation against the petitioner of failure to disclose truly and fully all material facts, and therefore, the impugned notice is required to be quashed and set aside. 6.6 Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts necessary for assessment. 8. Having heard the learned advocates for the respective parties and having gone through the material on record, it appears that the impugned notice under Section 148 of the Act for reopening of the assessment for the Assessment Year 2011-12 is admittedly issued beyond a period of four years from the end of relevant assessment year. Therefore, the only short question which arises for consideration is whether income chargeable to tax has escaped assessment for the failure on part of the assessee to disclose fully and truly all material facts, is emerging from the reasons recorded? 9. For each reason recorded by the respondent in Paragraph No.2, expression used on perusal of the assessment records for the year under consideration... or During the course of examination of case records for the year under consideration... in Paragraph No.2.1 to 2.3, While examination of the case records... in Paragraph No.5, and During the course of examination of the case records of the assessee company... in Paragraph No.6. Thus, the respondent has recorded reasons on verification of the material already on record during the original assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its letter dated 8th November, 1995. If the Assessing Officer, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessed or to contend that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the Assessing Officer at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee. 13. The Supreme Court in the case of Kelvinator of India Ltd (supra) has held as under: 4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same. 5. For the aforestated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs. 14. This Court in the case of Patel Alloy Steel (P) Ltd (supra)has held as under: 7. The impugned notice has been issued beyond the period of 4 years from the end of the relevant Assessment Year. Question of income chargeable to tax escaping assessment for the failure of the assessee to disclose truly and fully all material facts, would therefore, assume significance. 8. In all four reasons recorded by us herein above, the Assessing Officer starts with an expression that on verification of record. Thus, the Assessing Officer has based his reasons on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income tax authorities involved concurrent findings on pure questions of fact. Moreover, a Division Bench of this Court in Metplast Pvt. Ltd. v. DCIT, (2012) 341 ITR 563, after referring to the judgment of the Bombay High Court in Loyal Motors Services Company Ltd. v. CIT, (1946) 14 ITR 647 opined that the commission, if found to be paid for services rendered by the director as per the terms of the appointment, cannot be said to be distribution of dividend or profits in the guise of commission. It was noticed that while commission was paid as a form of remuneration for actual services rendered, dividend is a return of investment and is paid to all its shareholders equally. It was thus held that if the commission is paid for actual services rendered, section 36(1) (ii) will not apply. This decision was followed by this Court in CIT v. Career Launcher India Ltd. (2012) 250 CTR 240 (Del). These decisions apply to the present case. The substantial question of law in ITA No.669/2012 is answered in favour of the assessee. 16. This Court in the case of Shree Sayan Vighag Sahkari (supra)has held as under: 7. In the facts of the present case, the impugned notice under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law that for fishing inquiry, reopening of assessment is not permissible, that too, reopening beyond the period of four years from the end of the relevant assessment year when it is not even the case of the respondent that there is a failure on the part of the petitioner to disclose truly and fully all material facts. 19. In view of the aforesaid fact situation, there is no tangible material for the respondent to come to the conclusion that there is escapment of income from assessment. Moreover, there is no live link for formation of such belief while recording the reasons for reopening the assessment. In such circumstances, when the entire material had been placed by the petitioner before the Assessing Officer, who accepted the view canvassed by the assessee then merely because he did not record such acceptance in assessment order would not be a ground to conclude that income has escaped the assessment, and therefore, the assessment is required to be reopened. 20. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated 29.03.2018 issued by the respondent under Section 148 of the Income Tax Act1961 is hereby quashed and set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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