9911796707
TMI Blog2020 (3) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isposed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferring 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 Ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 Ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at during the year under consideration the assessee is shareholder and is holding beneficial interest by holding equity shares in the various companies as follows: Sr. No. Name of Group Company Shareholding percentage 1 J. P. Infrastructure Pvt. Ltd. 27.49% Sr. No. Name of Group Company Shareholding percentage 2 Gujarat Mall Management Co. Pvt. Ltd. 50.00% 3 Aryan Arcade Pvt. Ltd. 29.00% A perusal of the assessment records for A.Y. 2008- 09 shows that no such Disclosure has been made by the assessee with regard to above mentioned related party transactions. As per the provisions of section 2(22)(e) of the Income Tax Act, 1961 the unsecured loans extended by M/s. J. P. Infrastructure Pvt. Ltd. to its related concerns should be treated as deemed dividend in the hands of the shareholder and taxed accordingly. In view of the above, I am of the opinion that Rs. 14,68,76,145/- of income has escaped assessment for A.Y. 2008-09 and this is a fit case for reassessment by invoking the provisions of section 147 of the Income Tax Act, 1961." 7.1 Against the reasons recorded, the petitioner, inter alia, raised the following objections: (1) Four years from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that the Assessing Officer has verified the aspect of deemed dividend also. 7.2 Thereafter, the petitioner raised further objections dated 273.07.2015, against reopening of assessment and the order rejecting objections inter alia stating that similar notices have been issued on similar questions and similar issues and hence, there cannot be any assessment and taxability on the same account. By an order dated 23.09.2015, the said objections have already been disposed of. 7.3 On behalf of the petitioner, it has been contended that no loan or advances has been given by M/s. J. P. Infrastructure Pvt. Ltd. to the two concerns and that, what is given is by way of inter-corporate deposits in the normal course of business which would have attracted the provisions of section 2(22)(e) of the Act. However, at this stage, while considering the validity of notice under section 148 of the Act, this court would not go into the nature of advance, more so, when there is nothing on record to indicate as to whether the payment is made by way of loan or advance or inter-corporate deposit. 7.4 The main contention raised on behalf of the petitioner is that he had disclosed all primary facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-cum-shareholder-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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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. 7.7 Thus, the Supreme Court in the above decision has recorded that there were findings of fact to establish that the payment made by the loan giver company in which the assessee had substantial interest to the two concerns in which the assessee had substantial interest had been travelled to the assessee. The court found that the two concerns to whom loans were given were used as a conduit and that the payment made by the loan giver company through the two concerns were for the benefit of the assessee. 7.8 Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns, viz. Gujarat Mall Management Co. Pvt. Ltd. and Aryan Arcade Pvt. Ltd. and that the petitioner held 27.49% shares in M/s JP Infrastructure Limited; 50% shares in Gujarat Mall Management Co. Pvt. Ltd.; and 29% shares in Aryan Arcade Pvt. Ltd., which according to him had to be treated as deemed dividend in the hands of the shareholder and taxed accordingly. As is apparent on a plain reading of the reasons recorded, while the Assessing Officer has information that M/s JP Infrastructure Limited has advanced unsecured loans as referred to therein to its sister concerns, viz. Gujarat Mall Management Co. Pvt. Ltd. and Aryan Arcade Pvt. Ltd., there is no information to the effect that such payment was made for the benefit of the petitioner. Except for the fact that the loan giver company in which the petitioner had shareholding in excess of 10 per cent of the voting power, had given loans and advances as referred to therein to two concerns in which the petitioner had substantial interest, the reasons are totally silent as regards any benefit having been obtained by the petitioner from the said loan transactions. It is not the case of the respondent that even if no amount has travelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores. In the facts of this case, the petitioner being an individual does not fall in the first category; and since his gross total income is only Rs. 1.48 crores, he also does not fall under the second category of enterprises. Therefore, also there does not appear to be any specific requirement for the petitioner to disclose such transaction. In the aforesaid premises, this court is of the view that on the reasons recorded by the Assessing Officer, he could not have formed the belief that income chargeable to tax has escaped assessment. 7.13 If the contention of the learned counsel for the respondent that the fact as to whether the petitioner has benefitted from the transaction or not is a matter to be decided at the stage of evaluation of the material during the course of re-assessment were to be accepted, it would amount to allowing the Assessing Officer to make a fishing inquiry to ascertain as to whether or not any income has escaped assessment. For the purpose of invoking section 147 of the Act, the Assessing Officer has to form a belief that income chargeable to tax has escaped assessment and not that income chargeable to tax may have escaped assessment. 7.14 Another aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons recorded, it is clear that the reopening of assessment is without due application of mind on the part of the Assessing Officer. 7.16 It has also been contended on behalf of the petitioner that the format for the income tax return does not provide for disclosure of such details; whereas on behalf of the respondent strong reliance has been placed on the decision of this court in Dishman Pharmaceuticals and Chemicals Limited v. Deputy Commissioner of Income Tax (supra) for the purpose of demonstrating that a similar contention raised therein has been repelled by this court. It may, therefore, be necessary to refer to the facts of the case in Dishman Pharmaceuticals and Chemicals Limited (supra). In that case the Assessing Officer had recorded that during the assessment proceedings of assessment year 2006-07, it was seen that the amounts given by SDBL to the assessee were in the nature of loan transactions on which section 2(22)(e) was clearly applicable. Since there was opening balance of Rs. 2,91,10,000/- in the books of SDPL in the case of the assessee for assessment year 2006-07, the assessee was asked to produce accounts of earlier years. On a perusal of the accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% of the voting power to the two concerns in which the petitioner had substantial interest was for the benefit of the petitioner. The petitioner had also disclosed the extent of his shareholding in the loan giver as well as loan receiver companies. The reopening of assessment is founded on the premise that the petitioner 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, as discussed earlier, when the amount received by the two concerns from the loan giver company was neither received by the petitioner nor was it for the benefit of the petitioner, such amount cannot be considered as deemed dividend in the hands of the petitioner, and consequently no income accrued to the petitioner from such transactions. In the absence of any finding having been recorded by the Assessing Officer that any income had accrued in favour of the petitioner, it is not possible to say that there was any obligation cast upon him to disclose such transactions. Under the circumstances, in the absence of any failure on the part of the petitio ..... 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