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2024 (8) TMI 371 - HC - Income TaxValidity of reopening of assessment - remittances purported to have been made to a non-resident or foreign company and a payment of more than INR 1,00,000/- for acquisition of shares - as argued original notice u/s 148A (b) never proceeded on the formation of a prima facie opinion by the respondents that the petitioner was disentitled from claiming benefits under the DTAA - HELD THAT - We find that the notice u/s 148A (b) of the Act undoubtedly suffers from certain fundamental factual errors. SCN had proceeded on the premise that the petitioner had not filed its Return of Income for AY 2016-17. Once this was established to be factually incorrect, the respondent while passing the order under Section 148A (d) sought to overcome this mistake by observing that although a Return of Income had been submitted, it had not been subjected to assessment as contemplated under Sections 143 (3), 147 or 144 of the Act. It while passing the order disposing of the objections taken by the writ petitioner, also observed that the income relating to the transactions in question had not been offered to tax. It is on the aforesaid basis alone that the AO proceeded to observe that income earned in the concerned AY appeared to have escaped assessment. Aforesaid reasoning as adopted is rendered wholly unsustainable since undisputedly prior to the petitioner submitting its reply to the SCN, the AO was not only totally oblivious of a return having been submitted, it had not even examined the same in order to form an opinion that income liable to tax had escaped assessment. The original show cause notice was neither reflective of nor based on a due evaluation of the return as submitted. Merely because the petitioner had taken the position that the income was not taxable under the Act, would not constitute a basis for the respondent forming the opinion that income had escaped assessment. The question of income being voluntarily offered to taxation would ultimately depend upon an assessee conceding to its exigibility to tax. In order to sustain a proposed reopening, it was incumbent upon the respondent to have formed an opinion that the financial transaction was in fact liable to be taxed under the Act and thus, resulting in income having escaped assessment. However, and as is manifest from a reading of the original SCN, no such allegation stood levelled against the petitioner. Whether the petitioner would be entitled to the benefits of the DTAA was one which came to be alluded to only in the order framed under Section 148A (d) of the Act ? - Suffice it to note that the original notice u/s 148A (b) was not even founded on the allegation that the petitioner was not entitled to claim the benefit of that Article. It was only in the course of framing of the final order under Section 148A (d) that the respondent ultimately sought to draw sustenance from a separate order of assessment which had come to be framed for AY 2014-15. The material on the record further establishes beyond a measure of doubt that not only did the respondents fail to base the original show cause notice on a purported ineligibility of the petitioner to treaty benefits, even the order impugned in this writ petition is not based on any independent evaluation of whether the petitioner could be said to be disentitled to claim the exemptions contemplated under Article 13 (4) of the DTAA. The order, in this regard, is based entirely upon the findings and conclusions which underlie the order of assessment for AY 2014-15. This was also not a case where the order of assessment for AY 2014-15 was non-existent on the date when the original notice u/s 148A (b) came to be issued. Allotment of shares pursuant to the Scheme of Arrangement - Undisputedly the original show cause notice had neither noticed nor taken into consideration the Scheme in terms of which the allotment of shares came to be made in favour of the petitioner. We also find sufficient merit in the contention of the writ petitioner addressed in this respect, bearing in mind the provisions contained in Section 47 (vii) of the Act and which in unequivocal terms excludes a charge of capital gains in case of transfer of shares pursuant to a Scheme of Arrangement that may come to be approved. While we desist from rendering any definitive opinion in this regard, we do deem it apposite to observe that the ultimate order under Section 148A (d) fails to either examine or render any finding in this respect. The statutory scheme of reassessment neither sanctions vacillation nor can a decision to trigger reassessment be sustained based upon an attempted supplementation aimed at bolstering or buttressing the original opinion. The reasons on the basis of which a reassessment is proposed to be initiated is not a field of shifting sand and which authorises the AO to continually alter the basis on which the action is sought to be initiated. While the original SCN had proceeded on the basis that the petitioner was a non-filer and the subject income constituting remittances made to a foreign entity, it was clearly established that a return had in fact been filed and duly acknowledged. The petitioner had not made any remittances to third parties. In fact it had earned revenue from the sale of shares which were claimed exempt from taxation by virtue of Article 13 (4) of the DTAA. Once the aforesaid explanation was proffered, the AO then proceeded to hold that the petitioner was not entitled to treaty benefits, a charge which was not even laid in the original SCN or which could be said to have constituted the basis for the formation of opinion that reassessment was warranted. Stand enunciated in respect of the authority to reassess cannot sustain. Decided in favour of assessee.
Issues Involved:
1. Validity of the reassessment action under Section 148 of the Income Tax Act, 1961. 2. Allegations of non-filing of Income Tax Return for AY 2016-17. 3. Transactions involving remittances to a non-resident or foreign company. 4. Acquisition and sale of shares and applicability of the India-Mauritius Double Taxation Avoidance Agreement (DTAA). 5. Examination of transactions pursuant to a Scheme of Arrangement. 6. Procedural and jurisdictional errors in the issuance of the notice under Section 148A (b) and the order under Section 148A (d). Detailed Analysis: 1. Validity of the reassessment action under Section 148 of the Income Tax Act, 1961: The petitioner challenged the reassessment action initiated under Section 148, asserting that the original notice was based on the incorrect premise that the petitioner had not filed its return for AY 2016-17. The court found that the notice under Section 148A (b) suffered from fundamental factual errors, as the petitioner had indeed filed its return, and the transactions were duly disclosed. The court held that the reassessment action could not be sustained on incorrect or subsequently altered reasons. 2. Allegations of non-filing of Income Tax Return for AY 2016-17: The original notice under Section 148A (b) alleged that the petitioner had not filed its return for AY 2016-17. The petitioner responded by providing evidence of the filed return. The court noted that the Assessing Officer (AO) was unaware of the filed return when issuing the notice, rendering the reassessment action unsustainable. The court emphasized that the AO must form an opinion based on accurate and evaluated information. 3. Transactions involving remittances to a non-resident or foreign company: The reassessment notice was based on alleged remittances to non-residents or foreign companies. The petitioner clarified that the transactions involved the sale of shares, not remittances. The court observed that the original notice did not reflect an accurate understanding of the transactions, leading to an incorrect basis for reassessment. 4. Acquisition and sale of shares and applicability of the India-Mauritius Double Taxation Avoidance Agreement (DTAA): The petitioner claimed exemption from taxation on capital gains under Article 13 (4) of the India-Mauritius DTAA. The AO, in the final order under Section 148A (d), denied the DTAA benefits based on findings from AY 2014-15, which were under challenge. The court noted that the original notice did not question the DTAA benefits, and the AO's reliance on the 2014-15 assessment was improper without independent evaluation. 5. Examination of transactions pursuant to a Scheme of Arrangement: The AO questioned the acquisition of shares pursuant to a Scheme of Arrangement. The petitioner argued that the shares were allotted under a court-approved scheme, making the transactions non-taxable under Section 47 (vii) of the Act. The court found that the original notice did not consider the Scheme of Arrangement, and the AO failed to examine this aspect in the final order. 6. Procedural and jurisdictional errors in the issuance of the notice under Section 148A (b) and the order under Section 148A (d): The court highlighted procedural errors, including the AO's failure to base the original notice on accurate information and the improper supplementation of reasons in the final order. The court underscored that reassessment must be based on the reasons recorded in the original notice and cannot be justified by additional or altered reasons. Conclusion: The court concluded that the reassessment action was unsustainable due to fundamental errors in the original notice and the improper basis for the final order. The court quashed the impugned order under Section 148A (d) and the notice under Section 148, granting liberty to the respondents to initiate proceedings afresh if permissible by law. The court emphasized that the decision would not impact the pending writ petition for AY 2014-15.
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