IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16127 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/- and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Sd/- 1 Whether Reporters of Local Papers may be allowed to NO see judgment ? 2 To be referred to Reporter or not ? NO 3 Whether their Lordships wish to see fair copy of NO judgment ? 4 Whether this case involves substantial question of law NO as to interpretation of Constitution of India or any order made thereunder ? ASIAN TUBES PVT. LTD. Versus DY. COMMISSIONER OF INCOME TAX CIRCLE (1)(1) Appearance: MR SUDHIR M MEHTA(2058) for Petitioner(s) No. 1 MS SHAILEE S MEHTA(5873) for Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 16/03/2020 CAV JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Page 1 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT 1. Rule returnable forthwith. Mrs.Mauna Bhatt, learned Standing Counsel waives service of notice of rule for and on behalf of respondent no.1. 2. Having regard to controversy involved in present case which lies in very narrow compass, with consent of learned advocates for respective parties, matter is taken up for final hearing. 3. By this petition under Article 226 of Constitution of India, petitioner has prayed for following relief(s): 8(A) Your Lordships may be pleased to admit and allow this petition. (B) Your Lordships may be pleased to issue writ of certiorari or writ in nature of certiorari or any other appropriate writ, order or direction for quashing and setting aside impugned notice dated 29.03.2018 u/s. 148 of Income Tax Act, 1961 at Annexure and order dated 07.08.2018 disposing objections at Annexure H. (C) Your Lordships may be pleased to issue writ of certiorari or writ in nature of certiorari or any other appropriate writ, order or direction asking respondent not to proceed further in purusance of impugned notice dated 29.03.2018 u/s. 148 of Income Tax Act, 1961 at Annexure and order dated 07.08.2018 disposing objections at Annexure H. (D) Pending admission, hearing and final disposal of present petition, be pleased to stay implementation, operation and execution of impugned notice dated 29.03.2018 u/s 148 of Income Tax Act, Page 2 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT 1961 at Annexure and order dated 07.08.2018 disposing objections at Annexure H. (E) Your Lordships may be pleased to grant any other and further relief which may be deemed fit and proper in interest of justice. 4. petitioner is Private Limited Company incorporated under provisions of Companies Act, 1956. petitioner is engaged in business of manufacturing of M.S. & G.I.Tubes & Pipes. petitioner filed its return of income on 30.09.2011 declaring total income of Rs.18,60,90,480/ . 4.1 Assessing Officer passed assessment order under Section 143(3) of Income Tax Act 1961 (for short Act ) after considering replies filed by petitioner pursuant to various notices issued under Sections 142(1) and 143(2) of Act. 4.2 It appears from record that respondent issued notice under Section 148 of Act dated 29.03.2018. On request of petitioner, reasons for reopening of assessment were furnished on 24.05.2018 to petitioner. reasons recorded by respondent reads as under: 2.Brief details of information collected/received by AO: On perusal of assessment records for year under consideration, it is noticed that assessee has debited sum of Rs.18,19,576/ on account of Wharfage expenses which includes payment of Rs.5,86,487/ made to M/s Damani Shipping Pvt.Ltd. On further perusal details of Wharfage expenses it is seen that Page 3 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT TDS was not deducted on payment made to M/s Damani Shipping Pvt.Ltd whereas assessee was liable to deduct TDS thereon. It is pertinent to mention here that Wharfage is charge assessed by shipping terminal or port when goods are moved through location and it is one of costs of transport goods within distribution system used by business to bring its goods to market. wharfage charges are usually proportionate to time for which such space is occupied by unpicked goods. In view of this, it is evident that that Wharfage is actually rent charged for space occupied by unpicked goods beyond expiry of free time for such removal and hence, TDS provisions of Section 1941 of Act clearly applicable in such expenses. Since assessee has failed to comply with provisions of Chapter Xvii b of Act, expenses claimed to tune of Rs.5,86,487/ is not allowable in view of Section 40(a)(ia) of Act. 2.1 During course of examination of case records for year under consideration, it is further noticed that assessee has debited sum of Rs.1,64,109/ on account of import expenses to M/s. Damini Shipping Pvt.Ltd. This expenditure was in addition to agency charges debited by assessee on which assessee has deducted TDS. Therefore, it is evident that assessee was also required to deduct TDS on payment of Rs.1,64,109/ made to M/s Damani Shipping Pvt.Ltd Deduction of TDS on payment made to M/s Damani Shipping Pvt.Ltd on account of agency charges substantiates that TDS is required to be deducted also on payment of Import expenses. However, no TDS was deducted on same though assessee was required to deduct TDS thereon. Thus, it is evident that assessee has failed to comply provision of chapter XVII B of IT Act on payment of Page 4 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT Rs.1,64,109/ and therefore in view of Section 40(a)(ia) of Actm impugned expenditure is not allowable. 2.2 It is also seen that assessee company has debited sum of Rs.97,593/ payable to Gujarat Energy Transmission Commission for Operation and Maintenance of its Windmills (O&M charges for transmission lines). On this payment TDS was required to be deducted by assessee however, assessee has failed to deduct TDS thereon. Thus, it is evident that assessee has failed to comply provision of chapter XVII B of IT Act on payment of Rs.97,593/ and therefore in view of section 40(a)(ia) of Act, impugned expenditure is not allowable. 2.3 During course of examination of case records for year under consideration it is noticed that assessee company, despite earning huge profit, has not declared any dividend. It is also observed that three directors of promoter family, also own over 99.3% of share holding of assessee company have received Bonus. details of same is tabulated below: Sr.No. Name Percentage Bonus paid in shareholding Rs. 1 B.L.Agrawal 52.16% 7,70,000/ 2 Laxmidevi Agawal 32.21% 2,10,000/ 3 Nirmaladevi Agarwal 13.97% 2,10,000/ Total 99.34% 14,90,000/ As per section 36(1)(ii) of Act, any sum paid to employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission is deductible. One of condition is that amount payable to employees as bonus or commission is Page 5 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT deductible. One of condition is that amount payable to employees as bonus or commission should not otherwise have been payable to them as profit or dividend. plain reading if this clause means that profit of business will not be allowed to be dwindled by merely describing payment as bonus or commission, if payment is in lieu of dividend or profit. In instant case, assessee has earned huge profit and same could have been distributed as dividend; however, decision of shareholder directors to pay bonus instead of declaring dividend was obviously with intention to reduce profit for avoiding payment of taxes as assessee company had derived tax advantage. In light of these facts, it is ample clear that he bonus paid by assessee company was in lieu of dividend or profit and therefore cannot be allowed as deduction u/s 36(1)(ii) of Act. 3.Analysis of Information collected/received: As per Section 40(a) (ia) of Act no deduction shall be allowed from Profits and Gains of Business or Profession for any interest, commission or brokerage, etc. payable to resident, on which tax is duductible at source under Chapter XVII B and such tax has not been deducted or after deduction has not been paid before due date of furnishing return. It has already been dealt in preceding para that assessee is liable to deduct TDS on following payment: Sr.No Nature of Payment Amount of Payment in Rs. 1 Wharfag Expenses 5,86,487/ 2 Import expenses 1,64,109/ 3 O&M charges 97,593/ Total 8,48,189/ Page 6 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT Despite fact that assessee was liable to deduct TDS on above mentioned expenditure, assessee without deducting applicable TDS has made payment. Thus, it is clear that there is failure on part of assessee to comply provision of Chapter XVII B of I.T.Act and therefore expenditure claimed to tune of Rs.8,48,149/ is not allowable as deduction. 3.1 In so far as bonus amounting to Rs.14,90,000/ paid three directors is concerned, same is not allowable in view of Section 36(1)(ii) of Act. As per section 36(1)(ii) of Act, Bonus or Commission paid to employee for services rendered allowable subject to condition that payment is not made in lieu of dividend. It is well settled facts that if bonus or commission is paid to shareholders in lieu of profit or dividend then impugned bonus/commission will not be allowed as deduction within meaning of section 36(1)(ii) of Act. In present case, assessee company has paid bonus to employee directors (as mentioned supra), who owned almost all of shares of assessee company and also are decision making authorities of assessee company. During year under consideration, assessee company has earned substantial profits however it has not declared dividend. Instead of declaring/distributing dividend, substantial shareholder directors decided to pay bonus to above mentioned persons in order to avoid tax payments by reducing its profit. In light of facts mentioned above, it is ample clear that payment of bonus is in lieu of dividend or profit and thus cannot be allowed as dedution. 4. Enquiries made by AO as sequel to information collected/received: facts Page 7 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT enumerated above have been found out on examination on case records of assessee and are self explanatory. Therefore, no further enquiry is required in this case. On basis of same there are reasons to believe that income chargeable to tax has escaped assessment. 5. Findings of AO: While examination of case records, it is noticed that assessee was required to deduct TDS on payment made to tune of Rs.8,48,189/ (as discussed supra). However, assessee has not deducted TDS thereon and therfore it is ample clear that assessee has violated provision laid down in Chapter XVII B of I T Act. In such circumstances, expenditure claimed by assessee to extent of Rs.8,48,189/ is not allowable in view of Section 40(a)(ia) of Act. Section 40(a)(ia) of Act evidently emphasis that failure to comply wit provisions of TDS on sum covered of Profit and Gains of Business or Profession. In view of facts narrated above and considering provision of Section 40(a)(ia) of Act it can explicitly be concluded that deduction on account of impugned expenditure cannot be allowed. 5.1 With respect to bonus paid by assessee company to employee directors, owning almost all of shares of assessee company, it has already been established in preceding paras that bonus paid by assessee company is in lieu of dividend or profit. It is settled legal position that any expenditure on account of payment of bonus/commission to employee/share holder is allowable subject to condition that payment is not in lieu of dividend or profit. In instant case, assessee company, with intention to diminish the profit has paid bonus to its employee directors. entire arrangment was Page 8 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT made only to avoid tax liability, and therefore, it can reasonably be concluded that there is failure on part of assessee to disclose true facts in respect of impugned issue. In light of facts discussed above and considering provision of section 36(1)(ii) of Act, payment of bonus claimed by assessee as deduction is not allowable. 6. Basis of forming reason to believe and details of escapement of income: During course of examination of case records of assessee company for year under consideration above enumerated facts and issues have been found. While examination of case records, it is noticed that assessee was required to deduct TDS on payment made to tune of Rs.8,48,189/ . However, assessee has not deducted TDS thereon and therefore it is ample clear that assessee has violated provision laid down in Chapter XVIII B of I T Act. In such circumstances, expenditure claimed by assessee to extent of Rs.8,48,189/ is not allowable in view of section 40(a)(ia) of Act. Further, with respect to bonus paid by assessee company to employee directors, owing almost all shares of assessee company, it has been established that bonus was paid is in lieu of dividend or profit with intention to diminish profit. employee directors, to whom impugned bonus was paid, are decision making authority and decision of shareholder directors to pay bonus instead of dividend was obviously with intention to reduce profit for avoiding payment of taxes as assessee company had derived tax advantage and therefore, cannot be allowed as deduction in view of Section 36(1)(ii) of Act. facts enumerated above amply Page 9 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT substantiate that there is escapement of income to tune of Rs.23,38.189/ . Therefore, I have reasons to believe that income chargeable to tax to extent of Rs.23,38,189/ has escaped assessment within meaning of section 147 of I.T.Act for AY 2011 12 and it is fit case to issue notice u/s 148 of Act. 4.3 petitioner filed objection before respondent on 22.06.2018 with request to drop reopening proceedings contending that there was no failure on part of petitioner to disclose truly and fully all material facts and reasons refer to material already on record. 5. However, objections raised by petitioner were rejected by Assessing Officer Vide order dated 07.08.2018. 6. Learned advocate for petitioner Mr. Sudhir Mehta, submitted that impugned notice under Section 148 of Act was issued by respondent only on basis of information received from audit party. It was pointed out that respondent, without considering material on record, issued impugned notice by recording reasons with regard to issues which are already considered during course of regular assessment proceedings and as such there was no failure on part of petitioner to disclose truly and fully all material facts. 6.1 Learned advocate for petitioner, thereafter, pointed out that for each of reasons recorded by respondent, there was inquiry made by Page 10 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT Assessing Officer during regular assessment proceedings. 6.2 Attention of this Court was invited with regard to particulars called for by Assessing Officer in notices dated 10.10.2012 and 26.10.2012 issued under Section 142(1) of Act to point out that details of TDS and income related which was credited in profit and loss account and names, addresses etc. of Directors and relatives of Directors to whom remuneration/salary was paid along with details of service rendered by them was called for. 6.3 It was pointed out from materials on record that as per Point No.19 of notice dated 26.10.2012 copy of TDS return in Form 26Q was also called for. petitioner provided such information on 22.10.2012 and 02.08.2013. On 17.02.2014, copies of bills of wind mill maintenance were also provided by petitioner. petitioner also explained in letter dated 17.02.2014 with regard to TDS not deducted on amount of Rs.5,86,487/ paid for wharfage expenses. petitioner also tendered justification for remuneration paid to directors in said letter. Therefore, it was submitted that petitioner has disclosed truly and fully all material facts during course of assessment and Assessing Officer, after considering explanation tendered by petitioner, passed assessment order under Section 143(3) of Act. 6.4 Learned advocate for petitioner further Page 11 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT submitted that reasons recorded are on perusal of assessment record for year under consideration, and therefore, there is change of opinion on part of respondent for reopening of reassessment which is not permissible in view of settled legal position. 6.5 It was submitted that notice for reopening is issued beyond period of 4 years on basis of verification of material available during scrutiny assessment and there is no allegation against petitioner of failure to disclose truly and fully all material facts, and therefore, impugned notice is required to be quashed and set aside. 6.6 Learned advocate for petitioner, in support of his submissions, relied upon following decisions : A. Commissioner of Income Tax Vs. Eicher Ltd reported in (2007) 294 ITR 310 (Delhi) B. Commissioner of Income tax, Delhi Vs. Kelvinator of India Ltd. reported in (2010) 320 ITR 561 (SC). C. Patel Alloy Steel (P) Ltd. Vs. Assistant Commissioner of Income Tax (OSD) Circle 5, Ahmedabad reported in (2013) 35 taxmann.com 353 (Gujarat) D. Commissioner of Income Tax 1 Vs. Convertech Equipments (P.) Ltd. reported in (2013) 36 Page 12 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT taxmann.com 314 (Delhi). E. Shree Sayan Vibhag Sahkari Vs. Deputy Commissioner of Income Tax reported in (2016) 69 taxmann.com 245(Gujarat) 7. On other hand, learned counsel Mrs. Mauna Bhatt for respondent relied upon following averments made in affidavit in reply and submitted that notice for reopening is just and valid: 5. At outset, I humbly submit that impugned notice has been issued on four grounds. first ground of reopening is that petitioner failed to deduct TDS on Wharf age expenses of Rs.5,86,487/ paid to M/s. Damani Shipping Pvt. Ltd. and therfore said amount was not allowable in view of Section 40(a)(ia) of Act. second ground of reopening is that petitioner had not deducted TDS on payment of import expenses of Rs.1,64,109/ to M/s to Damani Shipping Pvt Ltd, and therefore, said amount was not allowable in view of Section 40(a)(ia) of Act. third ground of reopening is that petitioner debited sum of Rs.97,593/ payable to Gujarat Energy Transmission Commission for Operation and Maintenance of its Windmills (O & M charges for transmission lines). However, petitioner did not deduct TDS, and therefore, said expenditure was not allowable under Section 40(a)(ia) of Act. fourth ground of reopening is that petitioner paid bonus amounting to Rs.14,90,000/ to three directors having 99.3% shareholding instead of declaring dividend despite earning huge profits. bonus paid to directors was in lieu of dividend, and therefore, cannot be allowed Page 13 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT as deduction u/s 36(1)(ii) of Act. I submit that assessment is reopened after recording reasons to believe that income chargeable to tax has escaped assessment due to failure on part of petitioner to disclose fully and truly all material facts necessary for assessment. 8. Having heard learned advocates for respective parties and having gone through material on record, it appears that impugned notice under Section 148 of Act for reopening of assessment for Assessment Year 2011 12 is admittedly issued beyond period of four years from end of relevant assessment year. Therefore, only short question which arises for consideration is whether income chargeable to tax has escaped assessment for failure on part of assessee to disclose fully and truly all material facts, is emerging from reasons recorded? 9. For each reason recorded by respondent in Paragraph No.2, expression used on perusal of assessment records for year under consideration... or During course of examination of case records for year under consideration... in Paragraph No.2.1 to 2.3, While examination of case records... in Paragraph No.5, and During course of examination of case records of assessee company... in Paragraph No.6. Thus, respondent has recorded reasons on verification of material already on record during original assessment proceedings. Moreover, it is not alleged in reasons recorded that there was failure on part of petitioner to disclose Page 14 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT truly and fully all material facts. It is noticed that during original assessment proceedings, petitioner had furnished requisite details pertaining to payment of Rs.5,86,487/ towards wharfage expenses. Therefore, reasons recorded with regard to applicability of Section 40(a)(ia) of Act was already considered by Assessing Officer during course of assessment proceedings. 10. Similarly, details of bonus and remuneration paid to directors and details with regard to payment of dividend and profit etc. to directors of petitioner were also furnished during course of assessment, and therefore, issue with regard to propose disallowance in view of Section 36(1)(ii) of Act would not arise. 11. With respect to issue of TDS, respondent has recorded reason that while examination of case record, it is noticed that assessee was required to deduct TDS on payment made to tune of Rs.8,48,189/ . However, it was pointed out by learned advocate for petitioner that details of TDS were furnished during course of assessment proceedings. 12. With regard to similar question of reopening of assessment ,the Delhi High Court in case of Eicher Ltd (supra) has held as under: 16. Applying principles laid down by Full Bench of this Court as well as observations of Punjab and Haryana High Court, we find that if entire material had been placed by Page 15 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT assessed before Assessing Officer at time when original assessment was made and Assessing Officer applied his mind to that material and accepted view canvassed by assessed, then merely because he did express this in assessment order, that by itself would not give him ground to conclude that income has escaped assessment and, thereforee, assessment needed to be reopened. On other hand, if Assessing Officer did not apply his mind and committed lapse, there is no reason why assessed should be made to suffer consequences of that lapse. 17. In so far as present appeal is concerned, we find that assessed had placed all material before Assessing Officer and where there was doubt, even that was clarified by assessed in its letter dated 8th November, 1995. If Assessing Officer, while passing original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office reason to reopen assessment of assessed or to contend that because facts were not considered in assessment order, full and true disclosure was not made. Since facts were before Assessing Officer at time of framing original assessment, and later different view was taken by him or his successor on same facts, it clearly amounts to change of opinion. This cannot form basis for permitting Assessing Officer or his successor to reopen assessment of assessee. 13. Supreme Court in case of Kelvinator of India Ltd (supra) has held as under: 4. On going through changes, quoted above, made to Section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re opening could be done under above two conditions and fulfillment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 of Act [with effect from 1st April, 1989], they are given go by and only one condition has remained, viz., that where Assessing Officer has reason to believe that income has escaped assessment, Page 16 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT confers jurisdiction to re open assessment. Therefore, post 1st April, 1989, power to re open is much wider. However, one needs to give schematic interpretation to words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to Assessing Officer to re open assessments on basis of "mere change of opinion", which cannot be per se reason to re open. We must also keep in mind conceptual difference between power to review and power to re assess. Assessing Officer has no power to review; he has power to re assess. But re assessment has to be based on fulfillment of certain pre condition and if concept of "change of opinion" is removed, as contended on behalf of Department, then, in garb of re opening assessment, review would take place. One must treat concept of "change of opinion" as in built test to check abuse of power by Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re open, provided there is "tangible material" to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to Section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words "reason to believe" but also inserted word "opinion" in Section 147 of Act. However, on receipt of representations from Companies against omission of words "reason to believe", Parliament re introduced said expression and deleted word "opinion" on ground that it would vest arbitrary powers in Assessing Officer. We quote herein below relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by Amending Act, 1989, to reintroduce expression `reason to believe' in Section 147. number of representations were received against omission of words `reason to believe' from Section 147 and their substitution by `opinion' of Assessing Officer. It was pointed out that meaning of expression, `reason to believe' had been explained in number of court rulings in past and was well settled and its omission from section 147 would give arbitrary powers to Assessing Page 17 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT Officer to reopen past assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended section 147 to reintroduce expression `has reason to believe' in place of words `for reasons to be recorded by him in writing, is of opinion'. Other provisions of new section 147, however, remain same." 5. For afore stated reasons, we see no merit in these civil appeals filed by Department, hence, dismissed with no order as to costs. 14. This Court in case of Patel Alloy Steel (P) Ltd (supra)has held as under: 7. impugned notice has been issued beyond period of 4 years from end of relevant Assessment Year. Question of income chargeable to tax escaping assessment for failure of assessee to disclose truly and fully all material facts, would therefore, assume significance. 8. In all four reasons recorded by us herein above, Assessing Officer starts with expression that on verification of record. Thus, Assessing Officer has based his reasons on verification of material already on record during original assessment. In reasons recorded, or notice issued for reopening it is not even alleged that there was failure on part of assessee to disclose truly and fully all material facts. On this short ground, we are inclined to allow petition. 9. Additionally, we notice that during assessment proceedings, assessee had brought to pointed notice of Assessing Officer that assessee had paid interest of amount of Rs.12,80,617/ to IDBI. Along with such answer in correspondence, copy of ledger account of interest paid was already enclosed. Thus full details of borrowing, interest paid, etc. were part of assessment proceedings. 10. With respect to disallowance of expenditure relatable to tax free income in terms of section 14A of Act, it is undoubtedly true that rule 8D of Income Tax Rules, 1962 was not in operation Page 18 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT at that time. determination, therefore, could not have been based on such formula. This is, however, not to suggest that there could be no disallowance at all under section 14A of Act if it was found that expenditure was incurred for earning tax free income. However, in this case also crucial question is, did assessee withhold true and full facts during course of assessment leading to escapement of income chargeable to tax? Answer has to be in negative. 11. With respect to question of TDS, Assessing Officer himself has recorded that tax was deducted and return was duly filed. He only required to reconcile expenditure and tax deducted at source which may lead to possible disallowance under section 40(a)(ia) of Act. Surely, for such fishing inquiry reopening of assessment could not be permissible that too assessment beyond period of four years from end of relevant assessment year when it is not even case of Department that assessee had not disclosed truly and fully all material facts. 15. Delhi High Court in case of Convertech Equipments (P) Ltd (supra) has held as under: 7. This Court is of opinion that in view of fact that no fresh circumstances have come to notice to take different view, no substantial question of law arises on point of disallowance under section 36(1)(ii). decisions of income tax authorities involved concurrent findings on pure questions of fact. Moreover, Division Bench of this Court in Metplast Pvt. Ltd. v. DCIT, (2012) 341 ITR 563, after referring to judgment of Bombay High Court in Loyal Motors Services Company Ltd. v. CIT, (1946) 14 ITR 647 opined that commission, if found to be paid for services rendered by director as per terms of appointment, cannot be said to be distribution of dividend or profits in guise of commission. It was noticed that while commission was paid as form of remuneration for actual services rendered, dividend is return of investment and is paid to all its shareholders equally. It was thus held that if commission is Page 19 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT paid for actual services rendered, section 36(1) (ii) will not apply. This decision was followed by this Court in CIT v. Career Launcher India Ltd. (2012) 250 CTR 240 (Del). These decisions apply to present case. substantial question of law in ITA No.669/2012 is answered in favour of assessee. 16. This Court in case of Shree Sayan Vighag Sahkari (supra)has held as under: 7. In facts of present case, impugned notice under section 148 of Act has been issued on 25.03.2015 for reopening assessment for assessment year 2008 09, which is clearly beyond period of four years from end of relevant assessment year. Under circumstances, in view of first proviso to section 147 of Act, Assessing Officer is required to record twin satisfaction, viz., that income chargeable to tax has escaped assessment and that such escapement is by reason of failure on part of petitioner to disclose fully and truly all material facts necessary for its assessment for year under consideration. On perusal of reasons recorded it is amply clear that there is nothing stated therein to effect that there was any failure on part of petitioner to disclose fully and truly all material facts. Thus, second condition precedent for exercise of powers under section 147 of Act is clearly not satisfied. Moreover, even as regards first condition, namely, that Assessing Officer should record satisfaction that income chargeable to tax should have escaped assessment, in light of reasons recorded by this court in case of Shri Chalthan Vibhag Khand Udhyog Sahakari Mandali Ltd. v. Deputy Commissioner of Income Tax (supra), it cannot be said that on reasons recorded for reopening assessment, Assessing Officer could have formed belief that income chargeable to tax has escaped assessment. Therefore, even first condition precedent for exercise of powers under section 147 of Act, is not satisfied. Under circumstances, impugned notice issued under section 148 of Act cannot be sustained. Page 20 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT 17. In view of above settled legal proposition and in facts of case, when impugned notice issued under Section 148 of Act is clearly beyond period of four years from end of relevant assessment year, in view of first proviso to Section 147 of Act, respondent has to record reason as to whether income chargeable to tax has escaped assessment for failure on part of assessee to disclose truly and fully all material facts for its assessment for year under consideration. 18. On perusal of reasons recorded as well as material on record, it is evident that there was no failure on part of petitioner to disclose truly and fully all material facts. It is settled proposition of law that for fishing inquiry, reopening of assessment is not permissible, that too, reopening beyond period of four years from end of relevant assessment year when it is not even case of respondent that there is failure on part of petitioner to disclose truly and fully all material facts. 19. In view of aforesaid fact situation, there is no tangible material for respondent to come to conclusion that there is escapment of income from assessment. Moreover, there is no live link for formation of such belief while recording reasons for reopening assessment. In such circumstances, when entire material had been placed by petitioner before Assessing Officer, who accepted Page 21 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 C/SCA/16127/2018 CAV JUDGMENT view canvassed by assessee then merely because he did not record such acceptance in assessment order would not be ground to conclude that income has escaped assessment, and therefore, assessment is required to be reopened. 20. For foregoing reasons, petition succeeds and is accordingly allowed. impugned notice dated 29.03.2018 issued by respondent under Section 148 of Income Tax Act 1961 is hereby quashed and set aside. Rule is made absolute. No order as to cost. Sd/- (J. B. PARDIWALA, J) Sd/- (BHARGAV D. KARIA, J) GIRISH Page 22 of 22 Downloaded on : Tue Mar 17 12:03:19 IST 2020 Asian Tubes Pvt. Ltd. v. Dy. Commissioner of Income-tax, Circle (1)(1)