The court ruled that reopening an assessment after four years without demonstrable non-disclosure of material facts contravenes statutory provisions, rendering such reassessment legally impermissible.

ORDER :

1. In respect of assessment year 2015-16, an assessment order was issued on 29.12.2017. Subsequently, the Income-tax Department initiated action for re- opening the assessment by issuing notice under Section 148 of the Income Tax Act (the I-T Act) on 29.03.2021. The petitioner replied on 24.06.2021 enclosing a copy of the earlier filed return of income and also requested for reasons for reopening the assessment. Notice under Section 143 (2) read with Section 147 was issued thereafter on 30.06.2024 calling for a response in respect of alleged set off in respect of carried forward loss, undervaluation of shares or alternatively repayment from and out of the securities premium account being treated as deemed dividend. The petitioner responded on 13.07.2021 to all the issues and submitted that there was no justification for reopening. Overruling such objections, order dated 01.12.2021 was issued and notice under Section 142 (1) was issued also issued on even date. Notices under and 142(1) are challenged in the present writ petition.

Contentions of Counsel

2. Learned counsel for the petitioner submits that a petition seeking sanction for reduction of share capital was filed during the relevant period in Company Petition No.321 of 2014 before this Court. He submits further that said petition was allowed by order dated 06.11.2014 and that the minutes were drawn up as a part of such order. Referring to the order, he points out that it clearly records that payment was being made to the six shareholders mentioned therein at the rate of Rs.76.98/- per equity share by utilising amounts available in the securities premium account as on 31.03.2014. He also points out that there was extensive exchange of correspondence between the petitioner and the Income-tax Department, as part of a scrutiny assessment, prior to the issuance of the assessment order dated 29.12.2017 in respect of such reduction of capital. He refers to the response from the petitioner on 24.11.2017, wherein, in response to notice dated 08.06.2017, the petitioner provided a copy of the ledger account for capital reduction during the financial year 2014-15 and stated categorically that an amount of Rs.72,71,530/- was paid off during the financial year and that a capital reduction letter had been obtained from the Ministry of Corporate Affairs.

3. He also referred to the letter dated 28.11.2017 from the petitioner to the Income-tax Department, particularly the response to Point No.5 relating to large outward remittances. He points out that it was stated by the petitioner that large outward remittances were on account of capital reduction during the year and that the petitioner enclosed copies of three remittance certificates in respect of repayment to the capital investors. He also referred to letter dated 27.12.2017 with regard to the applicability of Section 115QA of the I-T Act and to the particulars provided as an annexure to the letter. He points out that all material particulars pertaining to payments made to the shareholders, whose share capital was paid off by the company, are mentioned therein. He refers to the relevant share certificates which were also annexed thereto. In fact, learned counsel also points out that even in the original scrutiny assessment, as is evident from communication dated 02.08.2016, details regarding the shareholding percentage and dividend distribution tax paid during the year had been provided upon request.

4. Given the full and complete disclosure made by the petitioner prior to the issuance of the original assessment order, learned counsel submits that the Income-tax Department's decision to re-o