2023 (7) TMI 1403 - HC - Income Tax

Reopening of assessment u/s 147 - income chargeable to tax in India or not? - as argued purchased since Petitioner has only purchased equity shares in the subsidiary and there has been no sale of shares and the subsidiary having not declared or paid any dividend and also Petitioner has not earned any India-sourced income during the year under consideration - HELD THAT - Respondent No.1 has not applied mind to the matter at hand. Respondent No.1 has not considered the fact that Petitioner has the necessary permission from the Reserve Bank of India and if the Reserve Bank of India had any doubts about Petitioner s genuineness or the source of funds, Reserve Bank of India would have red flagged Petitioner or the subsidiary. As stated in the Petition that at no stage Respondent No.1 even called upon Petitioner to explain the source of fund and has straight away passed the order impugned, saying that Petitioner has not submitted any documentary evidence to verify the source of investment. Respondent No.1 has failed to appreciate Petitioner is a company organized under the relevant laws of USA and is subject to tax in USA, with income running into billions of dollars. Petitioner has been filing its financial results with the Federal Reserve as per Bank Holding Company Act which is in public domain and indicates Petitioner had sufficient funds to make the investments in the subsidiary during the year in consideration. We hereby quash and set aside the order passed u/s 148A(d). We remit the matter back to Respondent No.1 but the officer who shall consider the matter will be someone different from said Ms. Monica Pande who has passed the impugned order. Respondent No.2 may assign the matter to any other officer as he/she deems fit. The consequential notice issued under Section 148 is also hereby quashed and set aside.

Summary

Issues involved:
The issues in this case involve challenging notices and orders issued under the Income Tax Act, 1961 for Assessment Year (AY) 2019-20, related to re-assessment of income tax and compliance with foreign exchange regulations.

Impugned Notices and Orders:
The petitioner, a US-based company with a subsidiary in India, contested notices and orders issued under the Income Tax Act, including notices under Section 148A(a) & (b) for AY 2019-20, rejecting objections and upholding re-assessment for income tax.

Compliance with RBI Regulations:
The petitioner subscribed to equity shares in its Indian subsidiary during AY 2019-20, complying with Reserve Bank of India (RBI) regulations and submitting necessary details. The petitioner emphasized strict adherence to Foreign Exchange Management Act, 1999 (FEMA) and RBI rules.

Challenged Notice under Section 148A(b):
The respondent issued a notice under Section 148A(b) alleging high-risk non-filer status and lack of substantiating evidence for share transactions. The petitioner replied, explaining the absence of taxable income and providing supporting documents.

Order and Lack of Consideration:
The impugned order upheld re-assessment without due consideration of the petitioner's explanations and compliance with RBI regulations. The court noted the failure to verify the source of investment and overlooked the petitioner's financial standing and compliance history.

Quashing of Orders and Remittal:
The court quashed the impugned order and remitted the matter for reconsideration by a different officer. The consequential notice under Section 148 was also set aside, allowing the petitioner to submit further documents if desired within a specified timeframe.

Procedural Directions:
The court directed a fresh consideration by a designated officer, ensuring a personal hearing for the petitioner and submission of written responses post-hearing. The new order under Section 148A(d) was mandated to be comprehensive and address all petitioner submissions.

Disposition:
The petition was disposed of with no order as to costs, emphasizing the need for a fair and thorough reconsideration of the matter by the tax authorities.