Reassessment beyond four years is impermissible absent failure to fully and truly disclose material facts.

The petitioner-company filed its return for A.Y. 2012–13 declaring total income of ₹1,64,59,510.

After scrutiny under Section 143(3) of the Income Tax Act, 1961 (“the Act”), an assessment order was passed on 23 March 2015.

On 29 March 2019, nearly four years after the original assessment, the Assessing Officer issued a notice under Section 148 proposing to reopen the assessment on the basis that a common shareholder, Pushpak Realities Private Limited, allegedly held 90% of the petitioner’s shares and 49.88% of Amber Enclaves Private Limited, thereby attracting the deemed-dividend provisions of Section 2(22)(e).

The petitioner clarified that Pushpak Realities held only 4.60% of its shares and that the petitioner was not a registered shareholder of Amber Enclaves Private Limited.

It also relied on CIT v. Ankitech (P.) Ltd. and CIT v. Daisy Packers (P.) Ltd. in its objections.

Despite these objections, the Assessing Officer passed an assessment order under Sections 143(3) read with 147 and issued a demand notice under Section 156 on 10 December 2019.

The petitioner challenged the reopening and consequential orders under Article 226 of the Constitution.

1. Whether the High Court should entertain the writ petition despite the petitioner having an alternative statutory remedy of appeal under Section 246A of the Act?

2. Whether the reopening of the assessment after four years was invalid in the absence of any failure by the petitioner to fully and truly disclose material facts, as required by the first proviso to Section 147 of the Act?

3. Whether the alleged loan or advance attracted Section 2(22)(e) of the Act when Pushpak Realities held only 4.60% of the petitioner’s shares and the petitioner was not a registered shareholder of Amber Enclaves Private Limited?

The Court applied Section 147 and its first proviso, under which an assessment completed under Section 143(3) cannot be reopened after four years from the end of the relevant assessment year unless the assessee failed to disclose fully and truly all material facts.

Section 2(22)(e) treats certain loans or advances by closely held companies as deemed dividends where the statutory shareholding, substantial-interest, accumulated-profit and other conditions are satisfied.

Relying on CIT v. Ankitech (P.) Ltd., 340 ITR 14 (Delhi) and CIT v. Daisy Packers (P.) Ltd., (2014) 220 Taxman 331 (Guj.), the Court held that the legal fiction under Section 2(22)(e) enlarges the meaning of “dividend” but does not deem the recipient concern to be a shareholder or member of the payer company.

The Court also applied the exceptions to the alternative-remedy rule recognised in CIT v. Chhabil Dass Agarwal, (2013) 36 taxmann.com 36 (SC), particularly where the impugned action is contrary to statutory provisions, settled legal principles, or principles of judicial procedure.

The Court held that the writ petition was maintainable notwithstanding the appellate remedy because the assessment order ignored the binding legal principles cited by the petitioner and proceeded on materially incorrect shareholding facts.

The reopening was beyond four years from the end of A.Y. 2012–13, while the Revenue did not allege or establish any failure by the petitioner to disclose material facts.

The petitioner had furnished its computation, audited balance sheet, audit report, shareholding details and relevant information during the original scrutiny assessment.

On the merits, the alleged common shareholder held only 4.60% in the petitioner-company, which was below the statutory threshold relied upon by the Revenue.

Further, the petitioner was not a registered shareholder of Amber Enclaves Private Limited; therefore, under Ankitech and Daisy Packers, a loan or advance to the petitioner could not be treated as deemed dividend merely through an extended legal fiction under Section 2(22)(e).

The conditions for invoking Section 2(22)(e) were consequently not satisfied.

It held that the reopening was impermissible under the first proviso to Section 147 because it occurred beyond four years without any failure of full and true disclosure, and that Section 2(22)(e) was inapplicable on the established shareholding and shareholder status facts.

The writ petition was allowed, and the notice under Section 148, the consequential assessment order dated 10 December 2019, and the demand notice under Section 156 were quashed and set aside.