2024 (12) TMI 1178 - HC - Income Tax

Reopening of assessment - reasons to believe - proceedings initiated against the company purchasing the shares which is the subsidiary of the petitioner - HELD THAT - A reading of the reasons communicated u/s 143(2) makes it clear that there were sufficient reasons for reopening of the assessment under Section 148 read with Section 147 of the Income Tax Act, 1961 as it stood on 01.04.2021. That apart, the petitioner has suffered Speaking Order. Therefore, there is no justification in challenging the Impugned Notice issued under Section 148 of the Income Tax Act, 1961 and the Impugned Communication/Impugned Scrutiny Notice giving reasons for reopening the assessment and the Impugned Show Cause Notice dated 10.01.2022. Also petitioner has not cooperated with the respondents Department by furnishing the required informations. Therefore, on this count also there is no basis on which, the Impugned Notices/Communications can be quashed. Department are empowered to pass the Assessment Orders based on best judgment method under Section 144 of the Income Tax Act, 1961 in absence of proper informations by the petitioner to the above communications calling upon the petitioner to furnish the required informations/documents. Under these circumstances, these Writ Petitions are liable to be dismissed and are accordingly dismissed. The respondents are directed to complete the assessment preferably, within a period of 3 months from the date of receipt of a copy of this order or such other extended period that may be required subject to the petitioner filing its reply objections, if any, to the Show Cause Notice.

Issues Involved:

1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Applicability of the India-Singapore Double Taxation Avoidance Agreement (DTAA) to exempt capital gains from tax.
3. Legitimacy of the valuation method used for assessing capital gains.
4. Procedural compliance regarding the issuance of notices and approvals under the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Reopening of Assessment:

The petitioner, a Singapore-based company, challenged the reopening of its assessment for the Assessment Year 2016-17, contending that there were no fresh and tangible materials justifying the issuance of the Impugned Notice under Section 148 of the Income Tax Act, 1961. The petitioner argued that the reopening was based on a mere change of opinion, as there were no adverse findings in prior proceedings. However, the court found that there were sufficient reasons for reopening the assessment, as communicated in the Impugned Scrutiny Notice dated 15.11.2021 under Section 143(2) of the Act. The court noted that the petitioner had not cooperated with the respondents by providing the required information, which justified the reopening of the assessment.

2. Applicability of the India-Singapore DTAA:

The petitioner claimed exemption from tax on capital gains arising from the sale of shares under the India-Singapore DTAA, asserting that such income was taxable only in Singapore. The court examined the reasons provided by the respondents, which questioned the applicability of the DTAA based on the limitations of benefit clause and the lack of evidence supporting the exemption claim. The court concluded that the petitioner's claim of exemption under the DTAA was not substantiated with sufficient evidence, thereby justifying the reassessment proceedings.

3. Legitimacy of the Valuation Method:

The petitioner contested the valuation method used by the respondents, which applied Rule 11UA of the Income Tax Rules, 1962, under the Net Asset Valuation (NAV) method. The petitioner argued that the valuation should have considered the shares of the company being sold, not the purchasing company. The court found that the valuation method and the reasons for reopening, as detailed in the Impugned Communication dated 15.11.2021, were appropriate and justified the reassessment.

4. Procedural Compliance:

The petitioner argued that the Impugned Notices were issued without the necessary approvals under Section 151 of the Income Tax Act, 1961. The respondents countered that the reopening was approved by the Additional Commissioner of Income Tax, and the assessment was initially completed under Section 143(1), negating the claim of a change of opinion. The court upheld the procedural compliance by the respondents, noting that the petitioner had not cooperated with the department, which further justified the issuance of notices and the subsequent proceedings.

In conclusion, the court dismissed the writ petitions, finding that the respondents had sufficient grounds to reopen the assessment and that the petitioner failed to provide the necessary cooperation and information. The court directed the respondents to complete the assessment within three months, allowing them to invoke Section 144 for best judgment assessment if the petitioner continued to be uncooperative.

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