1. These petitions were previously heard together by a Division Bench of this Court comprising of Hon’ble Ms.Justice H. N. Devani and Hon’ble Ms. Justice Bela Trivedi. On 13.4.2011, the learned Judges recorded their separate conclusions. The Hon’ble Ms. Justice H. N. Devani was of the opinion that the petitions are required to be allowed. The Hon’ble Ms. Justice Bela Trivedi, however, opined that both the petitions should be dismissed. In view of the difference of opinion, the Bench placed the matter before the Hon’ble the Chief Justice, in turn these petitions are placed before me for hearing and opinion of the third member.
2. Both the learned Judges in their differing opinions, have recorded the facts quite elaborately. However, I would like to state very briefly relevant facts.
3. The petitioner is an individual and is common in both the petitions. The petitioner has challenged two separate notices issued by the Assessing Officer seeking to re-open the assessments of the petitioner for the assessment years 1995-96 and 1997-98 respectively. These notices, the petitioner has challenged in two separate petitions on various grounds.
4. Special Civil Application No.4551 of 2002 pertains to assessment year 1995-96. The petitioner had filed his return of income on 29.3.1996 declaring total loss of Rs.7,45,759/-. In the return, which the assessee had filed, he had claimed interest expenditure of Rs.39,01,689/- from income from other sources under Section 57(iii) of the Income-Tax Act,1961.In the return at Item No.IV, income from the other sources, the assessee wrote “ as per Note-6”.
5. At Note-6, the assessee described his income from other sources as under:
“6). Income from other sources:= At Item No.V to the Schedule, the assessee described interests paid on various loans to different creditors. The total interest paid comes to Rs.3,90,1689/-. At the bottom of such Item No.V, the assessee had stated, “this claim against dividend income from Mastek Limited.” Such claim was not disturbed by the Assessing Officer in his
the assessment was taken in scrutiny. The Assessing Officer framed assessment on 31.3.1998 assessing a total loss of Rs.3,53,622/-. During the assessment, the Assessing Officer had raised certain queries. The petitioner replied to such queries under communication dated 15.2.1998. In the said letter, he had stated that he had founded a company, viz., Mastek Ltd. and is currently the Director of the said company. In the letter, he assessee provided the details of new investments during the year. He stated that the assessee had invested in shares of some of the companies. In the statement at Schedule-A, the assessee gave details of such investments.
6. The Assessing Officer thereupon proceeded to frame the assessment as noted above by the order dated 31.3.1998. In the assessment order itself, he referred to the letter dated 15.2.1998 of the assessee.
7. It was this assessment which the Assessing Officer desired to re-open, for which he issued notice dated 11.3.2002. He also had separately recorded his reasons for re-opening. He was of the opinion that against the claim of interest expenditure under Section 57(iii) of the Act, the assessee did not submit any information how such expenditure was laid down or expended wholly and exclusively for the purposes of earning dividend. The assessee only submitted that the borrowing was made for either repaying earlier loans or for making investments in shares of Mastek Ltd. The assessee did not submit the details including his controlling interest or total holding in Mastek Ltd, of which he is a Director. The Assessing Officer was of the opinion that the increase of the assessee's holding of shares of Mastek Ltd. was not for the purpose of earning dividend, but for acquiring the controlling stake of the company. To determine the real purpose for making investment in the shares, relevant facts such as percentage of holding of the assessee and his group, increase in holding, purpose of such increase etc. were necessary since deduction under Section 57(iii) is allowable only when the expenditure is incurred wholly and exclusively for the purpose of earning the income.
8. The Assessing Officer placed reliance on the decision of this Court “SMT. VIRMATI RAMKRISHNAN V. COMMISSIONER OF INCOME TAX”, reported in 131 ITR 659, in which parameters for claiming deduction under Section 57(iii) of the Act have been discussed. The Assessing Officer was of the opinion that the assessee did not submit relevant details to decide the real purpose of making the investment in the shares of Mastek Ltd. which emerged from the income-tax records of Mastek Ltd., which reflected the share holding pattern of the assessee. He was of the opinion that from the details of the income-tax return of the Mastek Ltd. in which the assessee was a Director, it can be deduced that the shares were purchased with clear purpose of acquiring controlling interest of the company and not of the sole or even the dominant purpose of earning dividend income. The Assessing Officer was of the opinion that said income had escaped assessment and that such escapement was due to the reason of the assessee failing to disclose truly and fully all material facts necessary for such assessment.
9. In Special Civil Application No.4549 of 2002, the petitioner has challenged a notice dated 11.3.2002 issued by the Assessing Officer seeking to re-open assessment previously framed after scrutiny for the assessment year 1996-97. For the said assessment year, the assessee had filed his return of income on 29.11.1996 declaring total income NIL. The case of the petitioner was taken in scrutiny. During the assessment, the Assessing Officer raised certain queries. The assessee replied to such questions of the Assessing Officer under his communication dated 14.12.1998 in which he stated that, “the assessee has been assessed under Section 143(3) for AY 1992-93, 1993-94, 1994-95 and 1995-96. Initially, loan was taken for acquiring shares of Mastek Ltd. and, thereafter, loans were taken to re-pay earlier loans taken.” Along with the letter, he also produced interest conformation of various parties.
10. On 21.12.1998, the assessee wrote yet another letter to the Assessing Officer along with which he produced the proof of payment of interest to various parties. He further stated that, “I request you to refer to Para. of my letter dated submitted for AY 1995-96, explain regarding purpose of loan etc. was given.”
11. In the return itself filed by the assessee, he had claimed income from other sources of Rs.51,81,906/- towards dividend income from Indian companies as per the list. He had from such income claimed deduction of Rs.51,33,658/- towards interest paid to various creditors from whom monies were borrowed for making investment for earning such income. In the list of dividend income, the assessee had showed net dividend receipt of Rs.11,65,228/- from Mastek Ltd. showed TDS of Rs.2,91,298/- and thereby disclosed a gross dividend income of Rs.14,65,525/-.
12. The assessment order on such return was passed after scrutiny on 23.12.1998. The Assessing Officer recorded that, “looking to the practice followed for the assessment year 1995-96, the total income is determined at NIL.”
13. For re-opening such assessment, the Assessing Officer issued impugned notice dated 11.3.2002. The Assessing Officer recorded reasons that he believed that income chargeable to the tax escaped assessment and that such escapement was for the reason of the assessee failing to disclose truly and fully all material facts necessary for such assessment. Such reasons are same as those recorded for the earlier assessment year 1995-96 and it is, therefore, not necessary to record them separately.
14. Hon’ble Ms. Justice H.N. Devani formed an opinion that it was apparent that the petitioner had disclosed all primary facts necessary for his assessment for the assessment years under consideration. The learned Judge thereafter also proceeded to examine whether income chargeable to tax had escaped assessment. She came to the conclusion that on facts it was apparent that the amount obtained by loans had been invested by the petitioner for purchasing the shares. No part of the amount was used for any other purpose. Such amount therefore had been used wholly and exclusively for the purpose of purchase of the shares which yield income taxable under the head ‘income from other sources’. She therefore held as under :
“In the aforesaid premises, even if any motive were to be attributed to the petitioner, the same would not be relevant for the purpose of section 57(iii) of the Act, inasmuch as, the entire amount had been used for the purpose of buying shares which had yielded dividend income. In the circumstances, the very basis for reopening the assessment is misconceived.”
15. In short, she held in favour of the petitioner on both counts, viz., that there was no failure on part of the assessee to disclose truly and fully all material facts and therefore, assessment previously framed after scrutiny could not be re-opened beyond the period of 4 years from the end of relevant assessment year. She also held that the claim of deduction under Section 57(iii) of the Act was valid and that therefore the very basis for re-opening the assessment that income chargeable to tax had escaped assessment was absent.
16. Hon’ble Ms. Justice Bela Trivedi, however, was unable to adopt the view of her colleague. She, under a separate dissenting order, came to the conclusion that petitioner should have availed of alternative remedy. She referred to the decision in the case of “GKN DRIVESHAFTS (INDIA) LTD. V. INCOME TAX OFFICER”, reported in 259 ITR 19. She also observed that the petitions involved number of disputed questions of facts as regards non-disclosure of material facts and escapement of income chargeable to tax. On these grounds, she believed that the petitions were not required to be entertained. Nevertheless, she also proceeded to examine the petitions on merits.
17. She held that the notices for re-opening of the assessment were valid. She concluded that the Assessing Officer had sufficient reason to believe that income chargeable to tax had escaped assessment and that such escapement was on account of the assessee failing to disclose full facts. In the concluding portion of her opinion, therefore, she permitted the Assessing Officer to proceed further with the assessment, but clarified that such proceedings shall be carried on without being influenced by the observations made in the order.
18. On the basis of pleadings on record, learned Sr. Counsel, Mr. Soparkar, vehemently contended that notices for reopening the assessment by the Assessing Officer were invalid. Original returns were taken in scrutiny. The Assessing Officer raised queries with respect to this very aspect of investment made in Mastek
satisfied with the replies, Assessing Officer did not make any additions under this head, though, certain other additions were made. Learned Counsel submitted that such assessment cannot be reopened on mere change of opinion. In any case, in absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, assessment cannot be reopened beyond a period of four years.
19. In support of his contentions in additions to various decisions cited before the Bench, the Counsel relied on following decisions:
(1) “V.D.M.RM.M.RM. MUTHIA CHETTIAR VS. COMMISSIONER OF INCOME TAX, MADRAS”, reported in 74 ITR 183, wherein the income tax return of the assessee was sought to be reopened by the Department on the ground that the income of the minor taxable in the hands of the father had escaped assessment. In that case, the Apex Court did not permit reopening beyond a period of four years, on the ground that there was an obligation on the part of the Income Tax Officer to compute the income individually, including the income of the minor son and thereby no obligation was imposed on the tax-payer to disclose the income liable to be included under such head.
(2) Reliance was also placed on a decision of the Apex Court in the case of “INCOME TAX OFFICER, CALCUTTA & ORS. VS.
“V.D.M.RM.M.RM. MUTHIA CHETTIAR”(Supra), came up for consideration before the Apex Court. The Apex Court did not find it necessary to refer the issue to the larger Bench.
(3) The learned Counsel also relied on a decision in the case of “ORMERODS (INDIA) PVT. LTD. VS. COMMISSIONER OF INCOME TAX, BOMBAY CITY,”, 36 ITR 329, wherein the claim of the assessee for deduction of interest paid on the borrowed funds for investment for the purpose of earning income came to be disallowed by the Tribunal. The Bombay High Court was of the opinion that “ The motive for the purchase of shares and the purpose for purchase of the shares should not be allowed to be mixed-up”.
The Counsel pointed out that said decision of the Bombay High Court was approved by the Apex Court in the case of “COMMISSIONER OF INCOME TAX, W.B.-III, VS. RAJENDRA PRASAD MOODY, COMMISSIONER OF INCOME TAX, W.B.-III, VS. RAGHUNANDAN PRASAD MOODY”, 115 ITR 519.
20. On the other hand, learned Sr. Counsel, Mr. Manish Bhatt, submitted that the Assessing Officer had recorded detailed reasons for reopening the assessment. The assessee had not disclosed full facts about his investments and the purchase of shares in Mastek Limited. The assessee's holding before and after purchase of shares, the controlling interest in the company and other relevant factors were not placed before the Assessing Officer at the time of framing original assessment. It was only during the assessment of the Mastek Ltd. that the Assessing Officer, by chance, came upon such material. The assessee, therefore, must be held to have failed to disclose fully and truly all material facts, necessary for assessment. Learned Counsel relied on the decision of this Court in “SMT. VIRMATI RAMKRISHNAN V. COMMISSIONER OF INCOME TAX”(Supra).
The Counsel pointed out that the decision in the case of “SMT. VIRMATI RAMKRISHNAN V. COMMISSIONER OF INCOME TAX”(Supra) was considered and followed in subsequent decision of this Court in case of “SARABHAI SONS (P) LTD. VS. COMMISSIONER OF INCOME TAX”, reported in 201 ITR 464.
21. The counsel relied on the following decisions:
(1) In “COMMISSIONER OF INCOME TAX, KERALA VS. SMT. P.K. KOCHAMMU AMMU PEROKE”, reported in 125 ITR 624, wherein the decision of the Apex Court in the case of “V.D.M.RM.M.RM. MUTHIA CHETTIAR”(Supra), came up for consideration. The Apex Court was examining the validity of the penalty under Section 271(1)(c) of the Income Tax Act, imposed on the assessee. The Bench did not agree with the ratio of the decision in the case of the “V.D.M.RM.M.RM. MUTHIA CHETTIAR”, but, in view of the changed rule position eliminating any scope for arguing that the assessee, therein, was bound to disclose certain income in the returns filed by him, the Court refrained from referring the case to the larger Bench. In “COMMISSIONER OF INCOME TAX, KERALA VS. SMT. P.K. KOCHAMMU AMMU PEROKE”(Supra), the Apex Court observed as under:
“(4) It is true that the form of the return prescribed by Rule 12 of the Income Tax Rules, 1962 which was in force during the relevant assessment year did not contain any separate column for showing the income of the spouse and minor child liable to be included in the total income of the assessee, but it did contain a Note stating that if the income of any other person is includible in the total income of theassessee under the provisions, inter alia, of s. 64, such income should also be shown in the return under the appropriate head. This Note clearly required the assessee to show in the return under the appropriate head of income, namely, "profits and gains of business or profession" the amounts representing the shares of the husband and minor daughter of the assessee in the profits of the two partnership firms. The assessee however failed to disclose these amounts in the return submitted by her and there was plainly and manifestly a breach of the obligation imposed by s. 139 sub-s. (1) requiring the assessee to furnish a return of her income in the prescribed form. To accept the contention that despite the Note the assessee was still not liable to show in the return the amounts representing the sharesof her husband and minor daughterin the two partnership firms would render the Note meaningless and futile and turn it into a dead-letter and that would be contrary to all recognised canons of construction. The assessee was guilty of concealment of this item of income which plainly attracted the applicability of s. 271 sub-s. (1) clause (c).”
(2) Reliance was also placed on the decision in the case of “COMMISSIONER OF INCOME TAX VS. ABDUL RAHIM KHAN M.
PATAHAN”, 243 ITR 209. In the said case the Court held that income of the step- child would have to be clubbed with the income of the assessee, since Section-64(1) (iii) of the Act would be attracted. The Court was of the opinion that the assessee was obliged to disclose the alleged income in the income tax return, when he married his brother's widow, as, on the ground of such marriage, the minors became his step-children. Since, he did not do so, the Court was of the opinion that the Assessing Officer was justified in reopening the assessment.
(3) In the case of “HONDA SIEL POWER PRODUCTS LIMITED VS. DEPUTY COMMISSIONER OF INCOME TAX AND ANR.”, reported in 340 ITR 53, wherein the expression, “failure to fully and truly disclosure of all material particulars”, occurring in Section-147 of the Act came up for consideration before the Bench.
(4) To support the reopening beyond four years, reliance was also placed on a decision of the Apex Court in the case of “SHRI. KRISHNA PVT. LTD. VS. INCOME TAX OFFICER AND ORS.”, reported in 221 ITR 538 and in “INCOME TAX OFFICER VS. SELECTED DALURBAND COAL CO. PVT. LTD.”, reported in 217 ITR 597.
22. Having, thus, heard learned Counsel for the parties and having perused the material on record as well as the opinion of the two learned Members of the Bench, who, previously heard the Special Civil Applications, I am of the opinion that the question of availability of alternative remedy need not detain us for long. Present is the case, wherein the assessee had approached this Court challenging the very validity of the notices for reopening of the assessments, which were previously framed after scrutiny. The case of the assessee was that reopening notices were without jurisdiction. On admitted facts, the assessee contended before this Court that the Assessing Officer could not have reopened the assessment beyond a period of four years from the end of relevant assessment years.
23. Such petitions were admitted and were pending before this Court for a number of years. I am of the opinion that such petitions cannot be dismissed merely on the ground of availability of alternative remedy. Firstly, the petitioner relied on facts and material already on record, which were undisputed or indisputable. His contention that there was true and full disclosure of material facts on his part, needs to be examined in these petitions. Whether, the assessee satisfied such requirements, and therefore, can validly contend that the reopening of assessments beyond a period of four years was invalid, is to be judged on the basis of material on record. If the assessee had discharged his primary duty, obviously, the Assessing Officer would, thereafter, have no jurisdiction to reopen the assessment beyond a period of four years.
Assessing Officer to reopen the assessment. Only upon jurisdictional facts being established that the Assessing Officer can proceed to reopen the assessment. It is well-settled through a series of decisions of this Court as well as of the Apex Court that where there is lack of inherent jurisdiction in the Authority, an alternative remedy, even if available, would not be a bar to entertain a writ-petition. In the case of “GARDEN FINANCE VS. ASSISTANT COMMISSIONER OF INCOME TAX”, reported in 268 ITR 48, it was held as under:
“ 11. On perusal of the aforesaid decisions, it appears to me that prior to the GKN case, the Courts would entertain the petition challenging a notice under Section 148 and permit the assessee to satisfy the Court that there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment. Upon reaching such satisfaction the Court would quash the notice for re-assessment. The question is why did the Court not require the assessee to appear before the Assessing Officer.
Earlier when the Court required the assessee to before the Assessing Officer, the Assessing Officer would not pass any separate order dealing with the preliminary objections and much less any speaking order, and the Assessing Officer would deal with all the objections at the time of re-assessment. Hence if the assessee was not permitted to challenge the re-assessment notice under Section 148 at the initial stage, the assessee would thereafter have to challenge the re-assessment itself entailing the cumbersome liability of paying taxes during pendency of the appeal before the Commissioner (Appeals), second appeal before the Income-tax Appellate Tribunal and then reference/tax appeal before the High Court. It was in this context that the Constitution Bench had observed in Calcutta Discount's case ((2003) 41 ITR 191) that where an action of an executive authority, acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences and, therefore, the existence of such alternative remedies as appeals and reference to the High court was not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action and that is why in a fit case it would become the duty of the Courts to give such relief and the Courts would be failing to perform their duty if reliefs were refused without adequate reasons.
12. What the Supreme Court has now done in the GKN case ((2003) 259 ITR 19) is not to whittle down the principle laid down by the Constitution Bench of the Apex Court in Calcutta Discount Co.'s case ((1961) 41 ITR 191)but to require the assessee first to lodge preliminary objections before the Assessing Officer who is bound to decide the preliminary objections to issuance of the re- assessment notice by passing a SPEAKING ORDER and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the re- assessment proceedings which would have entailed the liability to pay tax and interest on re-assessment and also to go through the gamut of appeal, second appeal before Income-tax Appellate Tribunal and then reference/tax appeal to the High Court. Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the Assessing Officer for objecting to the re-assessment notice under Section 148 has been considerably softened by the Apex Court in the GKN case in the year 2003. In my view, therefore, the GKN case does not run counter to the Calcutta Discount Co. case but it merely provides for challenge to the re-assessment notice in two stages,that is -
(i) raising preliminary objections before the Assessing Officer and in case of failure before the Assessing Officer,
(ii) challenging the speaking order of the assessing Officer under Section 148 of the Act.”
25. The decision in the case of the “GKN DRIVESHAFTS (INDIA) LTD.”,(Supra), was rendered after the notices for reopening assessments were issued by the Assessing Officer and challenged by the assessee. Therefore, the question of following the procedure laid down therein, would not arise in the present case.
This brings me to central question, whether the notice for reopening the assessments were invalid. The Scope of Section-147 of the Act and the power of the Assessing Officer for reopening the assessments, previously, framed after scrutiny has come up for consideration before the Apex Court and various High Courts, on a number of occasions. The principles are well laid down and do not need much elaboration. From the days of “CALCUTTA DISCOUNTS CO. LTD. VS. ITO”, reported in 41 ITR 191, it is well settled that it is the duty of the assessee to make full and true disclosure of all primary facts. His duty, however, does not extend beyond this. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide as to what inference of facts can be reasonably drawn and what legal conclusions are to be ultimately drawn. It is not for the assessee to tell the assessing authority as to what inference on facts or law should be drawn from the primary facts. It is also held by the Apex Court in the case of “ESS ESS KAY ENGINEERING CO. PVT. LTD. VS. COMMISSIONER OF INCOME TAX”, reported in 247 ITR 818 that merely because certain facts were disclosed in the original assessment14, it does not preclude the Assessing Officer from reopening the assessment of the assessee under Section-147 of the Act on noticing additional findings of facts arrived at from fresh material obtained in the course of assessment in the next assessment year.
26. Some of the principles emerging from the various decision of this Court as well as of the Apex Court were culled out by the Division Bench of this Court in the case of “DISHMAN PHARMACEUTICALS AND CHEMICALS LIMITED VS. DEPUTY COMMISSIONER OF INCOME TAX (OSD)”, reported in (2011)2 GLH 699, which reads as under, “8. From the above judicial pronouncements, following principles can be culled out :-
[i] To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Income-tax Act, beyond four years from the end of assessment year, following two conditions must be satisfied [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that [b] same occasioned, on account of either failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year. (ii) Both the above conditions are condition- precedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen assessment beyond four years of the end of assessment year. (iii) Such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, re- opening notice must fail. (iv) There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor, absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs. (v) Such reasons must emerge from the reasons recorded by the Assessing Officer and cannot be supplied through an affidavit filed before the Court. However, Gujarat High Court in the case of Aayojan Developers v. Income Tax Officer [Supra] has accepted the view that to elaborate such reasons already recorded, reference would be permissible to the affidavit filed by the Department before the Court. (vi) What would amount to true and full disclosure of all material facts must depend on each case and no strait-jacket formula of universal application can be provided. It can however safely be stated that the duty of the assessee is to disclose primary facts and it is not his duty to lead the Assessing Officer to any particular inference of fact or of law on the basis of such primary disclosures. In other words, once the assessee discharges his duty of stating all the primary facts, what inferences and conclusions should be drawn is the duty of the Assessing Officer.
(vi) At the time of ascertaining whether the notice was validly issued, what could be the probable conclusion of fresh assessment if re-opening is permitted, is not the inquiry of the Court. In other words, the merits of the proposed action, through opening of the assessment, cannot be gone into by the court beyond prima facie stage.”
27. It is not necessary to burden this judgment with various other authorities on the point, since, as already recorded, the parameters for reopening the assessment within and beyond a period of four years from the end of relevant assessment year, have been well laid down by a series of decisions by the various Courts.
28. We may, now, advert to the facts of the present case.
In the present case, the assessee filed his return for the assessment year 1995-96. In the return, he had disclosed that he had paid interest on various loans totaling to Rs.39,01,689/-. This was adjusted against dividend income from Mastek Limited. He, further, disclosed that he had received dividend of Rs.16,75,157/-, against which he claimed deduction towards interest paid on various loans. Thus, the fact that the assessee had paid interest on the loans and such interest he claimed as deduction under the dividend income from the Mastek Limited was very much within the knowledge of the Assessing Officer in the original
dated 15.02.1998, the assessee made further disclosures in which in the first paragraph itself he stated that he had worked for two years with NOCIL after which he co-funded Mastek Limited. He was currently the Director of Mastek Limited. He gave details of various investments made by him in shares. He supplied the details at Schedule-A to the letter. After taking into account such material, the Assessing Officer, passed his order of assessment. In the assessment order, he referred to the assessee's letter dated 15.02.1998 and the contents of such letters also. Some of the claims of the assessee were disallowed and the original loss of Rs.7.45,759/- was reduced to Rs.3,53,622/-. Significantly, however, no additions were made with respect to the claim of deduction on the interest paid for funds used for purchase of shares of Mastek Limited.
29. In the next assessment year I.e. assessment year 1996-97, once again, return of the assessee was taken in scrutiny. The Assessing Officer raised several quries. The assessee thereupon wrote to the Assessing Officer on 14.12.1998 providing interest confirmation letters from various parties. He, further, stated that he was assessed under Section-143 of the Act for the assessment year 1992-93, 1993-94, 1994-95 and 1995-96. He stated that, initially, lonas were taken for acquiring shares of Mastek Limited, and thereafter, loans were taken to repay earlier loans. Once again, during such assessment, the assessee addressed a letter to the Assessing Officer, providing the proof of payment of interst to various parties. He, further, requested the Assessing Officer to refer to earlier letter for the assessment year 1995-96, explaining the purpose for which the loan was taken. Even in the original returns that the assessee filed, he had claimd divident income of Rs.15,81,906/-, which included gross dividend of Rs.14,l5,525/- and net dividend of Rs.11,65,227/- after deduction of TDS of Rs.2,91,298/- from Mastek Limited. Against such dividend income, he claimed deduction of interest of Rs.51,33,658/- paid to various entities.
30. It was after such a scrutiny and taking into account, the returns filed by the assessee and further material produced during scrutiny that the assessing officer framed the assessment observing that looking to the practice followed for the assessment year 1995-96, the total income is determined. He made no additions under any of the heads including, deduction of interest paid for earning dividend income.
31. Section-57(iii) of the Income Tax Act provides as under:
“S. 57 : Income chargeable under the head “income from other sources” shall be computed after making the following deductions;
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.”
32. The issue which is being raised by the Assessing Officer through reopening of the assessment is that the assessee was not entitled to any deductions for the interest paid for borrowings, which he utilized for purchase of shares in Mastek Limited. The case of the Assessing Officer in brief is that such investments were not made for the purpose of earning dividend, but, for the purpose of acquiring controlling shares in Mastek Limited and recorded the reasons for the same. He, therefore, opined that the assessee was not entitled to deduction under Section-57(iii) of the Act since such expenditure cannot be held to have been incurred exclusively for the purpose of earning such income.
33. Whether the Assessing Officer is justified in holding such, prima facie, belief is not an issue, on which I need to make any conclusive statement. The question is whether did the assessee fail in his duty to disclose fully and truly all primary facts. This question is important since the Assessing Officer sought reopening of the assessment beyond a period of four years from the end of relevant assessment year.
34. To my mind, considering the facts emerging from the record, it cannot be stated that the assessee failed in his duty. His duty was to make the disclosure about the investments as well as the interest paid for borrowings for making such investments. On the basis of such material, if the Assessing Officer was of the opinion that any further inquiry was necessary to examine the nature of such investments and to ascertain whether the investment was made for the sole purpose of earning dividend income or was predominantly or exclusively for the purpose of acquiring controlling shares of the Mastek Limited, it was open to the Assessing Officer to make further inquires. To my mind, nothing is pointed out to suggest that the assessee owed such a duty to disclose further facts in this regard.
35. Whether the certain expenditure is made wholly and exclusively for the purpose of earning dividend income is to be judged in the light of provisions of Section-57(iii) of the Act. It may be that by virtue of the decision of the Division Bench in the case of Virmati(Supra), it was arguable whether the assessee had made such investments for the sole and exclusive purpose of earning income or whether with the dominant or sole purpose of acquiring controlling shares of the Company. However, this is not in the same as to suggest that beyond disclosing the investments made, the borrowings for making such investment, the interest paid and the dividend earned, the assessee owed no further duty to make disclosures with respect to various aspects that the Assessing Officer wanted to examine after reopening the assessment.
36. As already noted, in both the assessments, the assessee had disclosed primary facts in the returns filed. Further, the Assessing Officer had raised certain queries about borrowings and the interest paid thereon and the dividend earned. The assessee, on both the occasions, supplied necessary material through letters and documents produced on record. Thus, during the scrutiny assessment proceedings, the Assessing Officer was actually aware about the claim of the assessee under Section-57(iii) of the Act. If, on the basis of such disclosures, the Assessing Officer was curious to verify the percentage shift in the holding of the assessee, in the company in question, it was well-within his powers to ask for such material during the assessment. However, primary onus to provide such details even if not disclosed cannot be shifted on the assessee.
37. Under the circumstances, if the assessment was sought to be reopened within a period of four years from the end of the relevant assessment year, the situation may have been different. It was perhaps open for the Revenue to contend that, since, there was no opinion formed by the Assessing Officer on the original assessment, on such an issue, reopening of assessment cannot be stated to be based on mere change of opinion. However, the present case is related to reopening of assessment beyond a period of four years. Reopening notice must, therefore, be quashed.
38. I am, however, unable to concur with the view of the Hon'ble Justice Devani when she holds that even on merits, no additions could have been made. She examined the nature of interest paid by the assessee, the nature of investment made in purchase of shares of Mastek Limited and came to the conclusion that the interest paid on borrowed funds, which were utilized for the purpose of shares for earning dividend would fall within the parameters of Section-53(iii) of the Act.
39. With profound respect, I am unable to adopt such a line. Such an issue, in my opinion, was wholly within the purview of the Assessing Officer. The material necessary to examine the nature of investment made by the assessee in purchasing shares of Mastak Limited had to be brought on record. Its effect on the claim towards expenditure in the form of interest paid on the borrowed funds had to be judged on the basis of various facts and circumstances. Such facts have not yet been brought on record. What would be the ultimate outcome of such a consideration, particularly, bearing in mind the decision of this Court in the case of “VIRMATI”(Supra) cannot be pre-judged. Such issue in my humble opinion ought to have been left open for the Assessing Authorities to be judged on the basis of facts, which may be brought on record, if ultimately, the assessment was permitted to be reopened. This was, therefore, in my opinion was not a case, where it could be held that even on merits Revenue was not justified in suggesting that any taxable income had escaped assessment.
40. Such conclusion would not be fatal to the petitioners, when I hold that there was no failure on the part of the assessee to disclose fully and truly all material facts, necessary for assessment. The notices for reopening the assessments beyond a period of four years, from the end of relevant assessment years, must fail on that ground alone.
41. In the result, both the petitions are ALLOWED. The impugned notices are QUASHED. Rule, in each petition, is made absolute.
(AKIL KURESHI, J.)
Umesh/