Akil Kureshi, J
1. Petitioner has challenged a notice dated 25.03.2015 issued by the respondent Assessing Officer to reopen the petitioner's assessment for the assessment year 2008-09.
2. Brief facts are as under:
2.1 The petitioner is a company registered under the Companies Act. For the assessment year 2008-09, the petitioner had filed the return of income declaring total loss of Rs.68.28 lakhs (rounded off). The return carried the audited accounts of the company. Such audit report contained a declaration that the company had taken a loan from another company namely J.P. Infrastructure Pvt. Ltd. to the tune of Rs.215.16 lakhs during the financial year under consideration. The return of the petitioner was taken in scrutiny. The Assessing Officer passed an order of assessment under Section 143(3) of the Act. On 02.12.2010, loss of the company was reduced to Rs.53.20 lakhs. To reopen such assessment, the Assessing Officer issued impugned notice on 25.03.2015. In order to do so, he had recorded the following reasons: "In this case, the return of income for the A.Y. 2008-09 declaring income of Rs.(-)68,28,269/- was filed on 30.09.2008. Assessment u/s 143(3) of the Act was finalized on 02.12.2010, determining total income at Rs.(-)53,20,750/- after making additions on various counts.
On verification of the assessment records, it is seen that during the year under consideration, assessee company had received unsecured loan totaling to Rs.2,17,24,223/- from J P Infrastructure Pvt. Ltd. which include Rs.1,65,66,504/- from J P Infrastructure Pvt. Ltd. in addition to Rs.9,97,881/- received from J P Infrastructure Pvt. Ltd.(Rajkot
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Mall) and Rs.41,59,838/- from J P Infrastructure Pvt. Ltd. (Surat Mall).
On perusal of the return of income audited accounts of the company for the year under consideration, it is seen that no information regarding share holding pattern has been declared and disclosed by assessee company. However, it is seen that assessee company's issued and subscribed share capital stood at Rs. 1,00,000/- which as per the assessment record of A.Y. 2007-08 was held at 50% each by Jatin M Gupta and Jayesh Kotak. It is seen that these two individuals are also holding beneficial interest by way of equity share holding exceeding 10% in J P Infrastructure Pvt. Ltd. for the year under consideration. It is also seen that as per balance sheet of J P Infrastructure Pvt. Ltd. for A.Y. 2008-09 the distributable reserves stood at Rs.7,38,54,215/- in additon to general reserve pf Rs.3,91,64,000/-.
In view of the above, the provisions of section 2(22)(e) are applicable and the amount of Rs.2,17,24,223/- is liable to be taxed in the hands of assessee company u/s 2(22)(e) of the Act. In view of the above, I have reason to believe that income chargeable to tax has escaped assessment on account of allowance of excess deduction as well as income chargeable to tax escaping assessment and this is a fit case for reassessement by invoking the provisions of section 147 of the Income Tax Act, 1961."
2.2 The petitioner raised objections to the notice for reopening under a communication dated 10.07.2015. Such objections were, however, rejected by an order dated 26.08.2015 at which stage this petition came to be filed.
3. From the record, it can be seen that the notice for reopening of the assessment was issued beyond a period of four years from the end of relevant assessment year where the original assessment was framed after scrutiny. The reasons recorded by the Assessing Officer referred to one ground namely that of the deemed dividend under Section 2(22)(e) of the Act. According to the Assessing Officer, the assessee company had received loan of Rs. 2.17 crores from J.P. Infrastructure. The assessee company had subscribed share capital of Rs. 1 lakh which was held equally by Shri Jatin Gupta and Shri Jayesh Kotak. These two individuals were also holding beneficial interest by way of equity share holding exceeding 10% in J.P. Infrastructure Pvt. Ltd. During the relevant year, the distributable reserve of J.P. Infrastructure was Rs.7.38 crores and general reserve was Rs.3.91 crores. In view of such facts, the Assessing Officer desired to tax the said loan of Rs.2.17 crores received by the assessee from J.P. Infrastructure as a deemed dividend under section 2(22)(e) of the Act. On the score of non disclosure, according to the Assessing Officer, the information regarding the share holding pattern of the Assessing Officer was not disclosed. Thus, according to him, the primary facts necessary for assessment were not disclosed by the assessee.
4. Learned counsel for the petitioner submitted that there was no failure on part of the assessee to truly disclose all material facts. Reopening of assessment beyond a period of four years was, therefore, not permissible. Even otherwise, the reasons lacked validity. He submitted that with the aid of Section 2(22)(e) loan or advance cannot be taxed in the hands of the petitioner company which was not a share holder of the lender company. In this context, he referred to the decision of Delhi High Court in case ofCommissioner of Income-Tax vs. Ankitech Pvt. Ltd, 2012 340 ITR 14. He also drew our attention to the decisions of this court in case ofCommissioner of Income-Tax vs. Daisy Packers (P.) Ltd, 2014 220 Taxman 331,Commissioner of Income-Tax vs. Mahavir Inductomelt P. Ltd., 2017 394 ITR 50 and an unreported decision in the case of Pr. Commissioner of Income Tax Vadodara-1 vs. M/s. Amigo Brushes (P) Ltd rendered in Tax Appeal No. 213 of 2016. He further submitted that the decision of Supreme Court in case ofGopal and Sons (HUF) vs. Commissioner of Income-Tax, 2017 391 ITR 1 does not overrule the judgements of Delhi High Court and this court cited above. In any case, the Assessing Officer cannot place reliance on the decision of Supreme Court in Gopal and Sons since at the time of recording reasons, such judgement was not available to him. In this context, counsel relied on the decision of Supreme Court in case ofDeputy Commissioner of Income Tax and Others vs. Simplex Concrete Piles (India) Ltd, 2013 358 ITR 129 and Bombay High Court judgement in case ofIOT Infrastructure and Energy Services Ltd vs. Assistant Commissioner of Income Tax and Another, 2011 332 ITR 587 and this court judgement in case ofAustin Engineering Co. Ltd vs. Joint Commissioner of Income -Tax, 2009 312 ITR 70.
5. On the other hand, on behalf of the department, learned counsel Shri Bhatt opposed the petition contending that the Assessing Officer has recorded proper reasons for issuing notice for reopening. The assessee had not disclosed the share holding pattern in the company. It was later on noticed that two individuals, Shri Gupta and Shri Kotak held 50% shares each of the assessee company. They also had more than 10% share holding in J.P. Infrastructure Pvt. Ltd. J.P. Infrastructure had advanced a sum of Rs. 2.17 crores to the assessee during the year under consideration which had to be taxed as a deemed dividend in the hands of the assessee company by virtue of Section 2(22)(e) of the Act. In this context, he placed heavy reliance on the judgement of the Supreme Court in case of Gopal and Sons . He submitted that the first decision of this court cited by the petitioner in case of Daisy Packers (P.) Ltd. was not available when the assessee filed the return and which return was processed by the Assessing Officer.
6. As per Section 2(22)(e) of the Act any payment by a company by way of advance or loan to its share holders under certain circumstances is a deemed dividend. This definition of a deemed dividend was extended to include any such payment by a company in form of a loan or advance to any concern in which such share holder is a member or a partner and in which he has substantial interest. 'A person who has substantial interest in the company' is defined under Section 2(22)(e) of the Act to mean a person who is beneficial owner of shares, not being shares entitled to a fixed rate of dividend carrying not less than 20% of the voting power. Clause (b) of Explanation 3 below Section 2(22)(e) of the Act provides that a person shall be deemed to have substantial interest in a concern, other than a company, if he is at any time during the previous year beneficially entitled to not less than twenty per cent of the income of such concern.
7. It is on the basis of such statutory provisions that the Revenue contends that Shri Gupta and Shri Kotak are beneficial owners of shares of J.P. Infrastructure carrying more than the prescribed per cent of voting power. These two gentlemen also have substantial interest in the assessee company since they hold 50% shares each of the said company. The assessee company therefore when received a loan from J.P. Infrastructure, all requirements of Section 2(22) (e) of the Act stood satisfied.
8. In the case of Ankitech P. Ltd , the Delhi High Court had the occasion to interpret such provision. In such case, the assessee was a company which had received a loan from another company. There were persons who were having substantial interest in the assessee company as well as in the lender company. The assessee company was however not a share holder of the lender company. Under such circumstances, the court held that the loan cannot be taxed in the hands of the assessee company as the concept of deemed dividend cannot be extended to a non share holder. This view was followed by our high court in case of Daisy Packers , in case of Mahavir Inductomelt and also in case of M/s. Amigo Brushes . These decisions, therefore, adopt a consistent guideline that even with the aid of Section 2(22)(e) of the Act, loan or advance by a lender company cannot be taxed in the hands of an assessee who is not a share holder of such company, even though they may be individuals who may have substantial interest in both the companies.
9. The decision of the Supreme Court in case of Gopal and Sons however brings in a new dimension to the entire controversy. It was a case in which the assessee was a Hindu Undivided Family. Shares of a company were purchased from the finance of the HUF but in the name of Karta of the family. The question of applicability of Section 2(22)(e) of the Act arose. The Supreme Court upheld the view of the High Court that the Karta held substantial interest in the HUF and was entitled to not less than 20% of the income. It was observed as under:
"16. In the instant case, the payment in question is made to the assessee which is a HUF. Shares are held by Shri. Gopal Kumar Sanei, who is Karta of this HUF. The said Karta is, undoubtedly, the member of HUF. He also has substantial interest in the assessee/HUF, being its Karta. It was not disputed that he was entitled to not less than 20% of the income of HUF. In view of the aforesaid position, provisions of Section 2(22)(e) of the Act get attracted and it is not even necessary to determine as to whether HUF can, in law, be beneficial shareholder or registered shareholder in a Company."
10. The Supreme Court thereupon proceeded to consider whether the HUF can be stated to be a beneficial share holder and whether on that count also Section 2(22)(e) of the Act would apply. It was observed as under:
"17. It is also found as a fact, from the audited annual return of the Company filed with ROC that the money towards share holding in the Company was given by the assessee/HUF. Though, the share certificates were issued in the name of the Karta, Shri Gopal Kumar Sanei, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. In any case, it cannot be doubted that it is the beneficial shareholder. Even if we presume that it is not a registered shareholder, as per the provisions of Section 2(22) (e) of the Act, once the payment is received by the HUF and shareholder (Mr. Sanei, karta, in this case) is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. This is the effect of Explanation 3 to the said Section, as noticed above. Therefore, it is no gainsaying that since HUF itself is not the registered shareholder, the provisions of deemed dividend are not attracted. For this reason, judgment in C.P. Sarathy Mudaliar 1972 SCR 1076, relied upon by the learned counsel for the appellant, will have no application. That was a judgment rendered in the context of Section 2(6-A) (e) of the Income Tax Act, 1922 wherein there was no provision like Explanation 3."
11. This decision of the Supreme Court in case of Gopal and Sons undoubtedly brings in an entirely new dimension to the controversy. Reading of paragraph no. 16 suggests at first blush that the court did apply Section 2(22) (e) of the Act in a case where the assessee was not a share holder but the Karta of the assessee HUF having more than 20% right to receive income thereof had substantial interest in the lender company. Before the Supreme Court, decisions of this court and that of Delhi High Court in case of Ankitech P. Ltd. were not cited. Whether this decision of Supreme Court impliedly overrules all these judgements is a question we are not inclined to go into in the present petition and leave it open to be decided in an appropriate case.
12. This is so because on a limited question of non disclosure of material facts we are not inclined to hold in favour of the petitioner assessee. Notice for reopening of the assessment having been issued beyond a period of four years from the end of relevant assessment year, the failure on part of the assessee to disclose truly and fully all material facts becomes relevant. As noted, in this context, the Revenue's stand is that the assessee did not disclose its share holding pattern only upon which it could have been ascertained whether Section 2(22)(e) of the Act had applicability or not. We also recall that the Revenue heavily relies on the judgement of the Supreme Court in case of Gopal and Sons which was delivered long after the assessee filed its return; the original assessment was completed and the Assessing Officer issued the notice for reopening of assessment by recording reasons. Neither the Assessing Officer nor the assessee therefore had the benefit of the judgement of the Supreme Court to guide in the context of either making necessary disclosures, in assessing the assessee's income or to reopen the assessment. It is true that the judgements of the High Court in case of Ankitech P. Ltd. and later judgement of this Court in case of Daisy Packers and others were also rendered after the assessee filed the return. Nevertheless, the onus is on the part of the assessee to disclose primary facts. What would be the effect of these primary facts is for the Assessing Officer to judge. The assessee having made disclosures about the borrowings from J.P. Infrastructure and also having filed necessary details thereof along with the audited return, did not thereafter have the onus of further disclosing its share holding pattern to enable the Assessing Officer to examine the applicability of Section 2(22)(e) of the Act. If the Assessing Officer desired to scrutinize this aspect of the matter it was always open for him to call upon the assessee to provide for such details as and when necessary.
13. In this context we may refer to the decision of Supreme Court in case of Simplex Concrete Piles (India) Ltd in which it was observed as under: para 3
"3. We see no error in the observation made by the Division Bench of the High Court in the impugned judgment that once limitation period of four years provided under Section 147/ 149(1A) of the Income Tax Act, 1961 (for short, 'the Act') expires then the question of reopening by the Department does not arise. In any event, at the relevant time, when the assessment order got completed, the law as declared by the jurisdictional High Court, was that the civil construction work carried out by the Assessee would be entitled to the benefit of Section 80HH of the Act, which view was squarely reversed in the case ofCIT v. N.C. Budharaja & Co., 1993 114 CTR(SC) 420. The subsequent reversal of the legal position by the judgment of the Supreme Court does not authorise the Department to reopen the assessment, which stood closed on the basis of the law, as it stood at the relevant time."
14. Our High Court in case of Austin Engineering Co. Ltd. had held that notice for reassessment beyond a period of four years based on subsequent decision of Supreme Court was not valid.
15. In the result, only on this ground, the impugned notice is set aside. Petition is disposed of accordingly.