Commissioner of Income Tax vs S.R. Talwar

The Income Tax Appellate Tribunal, Delhi Bench, Delhi has referred the following two questions of law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this Court:

Whether, on the facts and circumstances of the case, the Hon''ble Tribunal was legally justified in holding that the reasons for reopening assessment u/s 147(a) are invalid, although no accounts or details of loans/withdrawals were filed with the return of income that was taken as the basis to attribute failure of the assessee to disclose fully and truly the material facts?

Whether, on the facts and circumstances of the case, the Hon''ble Tribunal was legally justified in holding that the reopening of assessment u/s 147(a) of the Act is bad in the eye of law because it is nothing but change of opinion?

The reference relates to the assessment years 1979-80, 1980-81 and 1982-83.

The respondent-assessee is the managing director of M/s. Talwar and Khullar (P.) Ltd., a company incorporated under the Companies Act, 1956. In the original assessment proceedings for the aforementioned three years the respondent-assessee had not disclosed the amount of loan/advances received by him from the said company. The Income Tax Officer while making the assessment under the Wealth-tax Act for the subsequent assessment years and also while making the assessment of M/s. Talwar and Khullar (P) Ltd. came to know that the company had huge accumulated balance which had not been disclosed by the said respondent in his return of income and the advances were liable to tax as deemed dividend under the provisions of Section 2(22)(e) of the Act. Accordingly, after recording reasons he initiated proceedings u/s 147(a) of the Act and in the reassessment order he brought to tax the advances received by the respondent from M/s. Talwar and Khullar (P.) Ltd. The order of reassessment was upheld by the Commissioner of Income Tax (Appeals). However, the Tribunal has set aside the reassessment order as upheld by the Commissioner of Income Tax (Appeals) in respect of the three assessment years on the ground that there was no failure or omission on the part of the respondent-assessee to disclose fully and truly all material facts necessary for the aforesaid assessment years and the reopening of assessment proceedings was done by the Assessing Officer on the basis of the material/information gathered by him while making the assessment for the subsequent years. According to the Tribunal, the case fell u/s 147(b) of the Act for which limitation had expired and, therefore, the reassessment order could not have been made at all.

We have heard Sri Shambhu Chopra, learned Counsel for the Revenue, and Sri R.S. Agrawal, learned Counsel for the respondent-assessee.

Sri Chopra, learned Counsel for the Revenue, submitted that it has come on record that the respondent had not filed the accounts to show the amount which was standing in his name in the company, namely, M/s. Talwar and Khullar (P.) Ltd., nor has he disclosed how much advances/loan had been taken by him from the said company. It is the case of failure or omission on the part of the respondent-assessee to disclose fully and truly all material facts necessary for making of the assessment as u/s 2(22)(e) of the Act such advances have to be treated as deemed income liable to tax. He thus submitted that since the respondent had failed to disclose the same, there was failure or omission on the part of the respondent-assessee.

Sri R.S. Agrawal, learned Counsel for the respondent, on the other hand, submitted that before the Assessing Officer the respondent had produced the books of account and, therefore, there no omission or failure on his part to disclose fully and truly all material facts necessary for the assessment. According to him, the case did not fall u/s 147(a) of the Act but it fell u/s 147(b) of the Act as the Assessing Officer had gathered information on the basis of the assessment of the subsequent years.

We have given our anxious consideration to the various submissions made by learned Counsel for the parties and we find that it is not the question of return of income filed by the respondent. The factum of taking advances/loan from M/s. Talwar and Khullar (P.) Ltd., in which the respondent was one of the directors had not been disclosed nor a copy of the ledger account of the respondent maintained by the said company was filed. In view of the absence of these details the Assessing Officer could not examine the taxability of advances/loan raised by the respondent. Thus, we are of the considered view that non-disclosure of the amount of loan/advances by the respondent did amount to mean that it has not fully and truly disclosed material facts necessary for reopening of the assessment proceedings. Thus, the action of the Assessing Officer in initiating proceedings u/s 147(a) of the Act cannot be faulted. The view of the Tribunal to the contrary, therefore, cannot be sustained as it is contrary to law.

So far as the question of amount of advances/loan being treated as deemed dividend u/s 2(22) (e) of the Act is concerned in view of the decision of the apex court in the case of Commissioner of Income Tax, Madras Vs. G. Narasimhan (Died), , such amount of advances/loan are necessarily to be treated as deemed dividend.

In view of the foregoing discussion we answer both the questions referred to us in the negative, i.e., in favour of the Revenue and against the assessee.

There shall, however, be no order as to costs.