2024 (1) TMI 855 - AT - Income Tax

Reopening of assessment - investment made by the Appellant towards subscribing to equity shares treated as undisclosed business income earned in India and should be taxed at the rate of 40% as per the provisions of the Act - HELD THAT - We find that the assessee has remitted an amount Rs. 28.82 crores and also filed form 15CA from which the Revenue came to know the information pertaining to the remittances. From the above reasons nothing could be deciphered has to how the AO come to conclusion of escapement of income. The case has been reopened just because of assessee made remittances which is from the sale of investments made by the assessee. Though the merits of the matter is relevant at the time of reopening, the Assessing Officer at the stage of reopening is required to form only a prima facie believe are satisfaction that income chargeable to tax has escapement assessment. In this case we don t find any such prima facie satisfaction from the reasons recorded. Hence it can be concluded that there was no escapement of income during the year and hence, the notice issued u/s. 148 is considered to be void ab initio and consequently the assessment is treated as nullity. Appeal of the assessee is allowed.

Summary

Issues involved:
The issues involved in the judgment are related to jurisdiction of the Assessing Officer under section 147, validity of directions issued by the Dispute Resolution Panel, assessment of undisclosed business income earned in India, taxation of investments made by the appellant, initiation of penalty proceedings under sections 270A and 271F of the Income Tax Act.

Jurisdiction of Assessing Officer under section 147:
The appellant challenged the order passed under section 147 read with section 144 and section 144C of the Act, claiming it to be beyond jurisdiction, bad in law, and void ab initio. The Assessing Officer had issued notice under section 148 based on the belief that income had escaped assessment as the appellant had not filed a return for the relevant year. However, the Tribunal found that the reasons recorded did not establish a prima facie satisfaction of income escapement, leading to the conclusion that the notice issued under section 148 was void ab initio and the assessment was treated as nullity.

Validity of directions issued by the Dispute Resolution Panel:
The appellant contended that the directions issued by the Dispute Resolution Panel were non est and invalid due to the absence of Document Identification Number ('DIN'). The Tribunal noted that the appellant had made foreign remittances to Mauritius, triggering the issuance of notice under section 148. Upon examination, it was found that the reasons recorded for reopening the case did not provide a sufficient basis for concluding income escapement. As a result, the notice issued under section 148 was considered void ab initio, rendering the assessment null.

Assessment of undisclosed business income earned in India:
The Assessing Officer had treated the entire investments made by the appellant towards subscribing to equity shares and Compulsorily Convertible Debentures in Skeiron Renewable Energy Private Limited as undisclosed business income earned in India, subject to taxation at the rate of 40%. The appellant disputed this assessment, arguing that the investments were made from income earned outside India and were eligible for benefits under the India-Mauritius DTAA. The Tribunal upheld the appellant's position, stating that the capital gains earned were taxable only in Mauritius under the DTAA, thereby negating the tax implications in India.

Initiation of penalty proceedings under sections 270A and 271F:
The Assessing Officer had initiated penalty proceedings under sections 270A and 271F of the Act against the appellant. However, in light of the Tribunal's findings regarding the invalidity of the notice issued under section 148 and the consequent nullity of the assessment, the appeal of the assessee was allowed, indicating that the penalty proceedings were not sustainable in this case.

This judgment highlights the importance of establishing a prima facie satisfaction of income escapement before issuing notices under section 148 of the Income Tax Act. It also emphasizes the need for proper documentation and compliance with legal procedures, such as the presence of a Document Identification Number ('DIN') for valid directions issued by authorities. Additionally, the judgment clarifies the tax implications of investments made by non-residents under Double Taxation Avoidance Agreements (DTAA) and underscores the significance of adhering to the provisions of international tax treaties for determining tax liabilities.