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TMI Blog2024 (8) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exigibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the assumption that the petitioner had not filed its Return of Income for the AY in question. 3. Responding to the said notice, the petitioner submitted a detailed response dated 04 April 2023. The petitioner at the outset disclosed that it had in fact filed its return for AY 2016-17, and which had been duly acknowledged. Insofar as the issue of remittance to a non-resident or a foreign company was concerned, it was disclosed that in the year under consideration, the petitioner had in fact sold shares of Landmark Hi Tech Development Private Limited [Landmark Hi-Tech] and Safari Retreats Private Limited [Safari Retreats] leading to capital gains which too were duly disclosed in the return which had been furnished. The petitioner, however, sought and claimed exemption from taxation by virtue of Article 13 (4) of the India-Mauritius Double Taxation Avoidance Agreement [DTAA], and which had grandfathered all transactions in respect of shares acquired prior to 01 April 2017. 4. Proceeding further to deal with the allegation of acquisition of shares itself, the petitioner disclosed that it had originally purchased 1,41,47,150 equity shares of Treasured Developers Private Limited and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween India and Mauritius. The assessee has not provided the audited financial of the Indian entities whose shares were sold during the year from A.Y 2016-17, details of directors, share holding pattern of Indian entities, minutes of board meeting, valuation report as per section 50 of Income Tax Act read with Income Tax Rule 11UA. The benefit of DTAA between India and Mauritius has already been denied to the assessee in its own case for A.Y 2014-15, kindly consider the following findings below as- (i) BREF has a management company namely Banyan Real Estate Venture ( BREV ), Landmark Banyan Real Estate Advisors LLC ( LBREA ) has 100% share holding of BREV. (ii) Banyan Real Estate Fund (herein: BREF) is operated and managed by Landmark Banyan Real Estate Advisors LLC (herein: LBREA). Further Es Purandar Das is the owner and managing member of the LBREA. Nowhere it was found that LBREA is just an advisor to BREV. BREV and LBREA are the same entities with different name in different jurisdictions. (iii) Landmark Banyan Real Estate Advisors owned by Es Purandar Das is a private equity company based in New York, United States. They have less than $150 million in assets under management a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares of 2,12,20,725 shares of M/s Treasured Developers Pvt Ltd. The 1,01,85,948 shares of M/s Suncity Dhoot Colonizers Pvt Ltd held by assessee was valued at Rs. 10 per shares which totaled at Rs. 10,18,59,480/-. The submission of assessee is considered, assessee has failed to provide bank statement of transaction, source of investment is not clearly established and there is no copy of share valuation, confirmation from concerned parties. Thus prima-facie escapement of income under the relevant provisi9n of Income Tax Act . 7. Accordingly, since the assessee has failed to explain the applicability of DTAA benefits and claim of exempt income, and genuineness of the said transactions within the due date as prescribed by Show Cause Notice u/s 148A (b) of the IT Act, 1961. Prima-facie, there is escapement of income under the relevant provision of Income Tax Act, 1961. The amount of income that has escaped assessment exceeds Rs. 50 lakhs. The Explanation to Section 149 (1) provides an inclusive definition of the term asset and since shares has been acquired and shares has been sold during the year, amount remitted outside through a bank account which are held, the income escaping as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is score alone. In support of the aforesaid contention, Mr. Singh sought to rely upon the following observations as rendered by the Court in Catchy Prop-Build Pvt. Ltd. Vs. Assistant Commissioner of Income-tax and Ors 2022 SCC OnLine Del 3457:- 8. This court is further of the opinion that if the foundational allegation is missing in the notice issued under section 148A (b) of the Act, the same cannot be incorporated by issuing a supplementary notice. 11. Proceeding further, Mr. Singh submitted that as would be ex facie evident from a reading of the Section 148A (b) notice, the respondents sought to initiate reassessment based on a purported remittance to a non-resident or foreign company. Mr. Singh contended that the aforesaid assumption too was incorrect since in the year in question the petitioner had sold a tranche of shares and the amounts which fell for notice were in fact revenues generated from those sales. Insofar as the aforesaid revenue is concerned, the petitioner, Mr Singh pointed out, had sought exemption in terms of Article 13 (4) of the DTAA. It was then urged that ultimately and when the final order under Section 148A (d) came to be passed, the same was sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to either seek to buttress or improve upon the reasons on which reassessment was originally proposed to be initiated by seeking to sustain that action on the basis of a wholly new or novel set of reasons. 15. Mr. Singh also assailed the conclusions appearing in the order disposing of objections and insofar as it pertained to the allotment of shares to the petitioner pursuant to a Scheme of Arrangement coming to be approved by this Court. According to learned senior counsel, once the petitioner had been able to establish that the allotment of shares was pursuant to a stipulation comprised in a Scheme of Arrangement which stood duly approved by the jurisdictional High Court, there clearly existed no justification for the respondent to undertake a further exercise of examining the source of investment or seeking to continue the proposed reassessment based upon additional documentation which was demanded. 16. It was then contended by Mr. Singh that the primary condition to assume jurisdiction under Section 148 of the Act is escapement of income. It was contended that the aforesaid precondition was clearly not met since the reassessment action was itself premised on the factually incorr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge in W.P.(C) 4652/2022, the interim orders operating thereon did not denude the AO of the jurisdiction to take cognizance of the various conclusions which had come to be recorded in the said assessment order. 21. Mr. Rai lastly submitted that even if the Court were to come to the ultimate conclusion that the order under Section 148A (d) of the Act was liable to be set aside on acceptance of any or some of the contentions addressed on behalf of the writ petitioner, the ends of justice would warrant the matter being remitted to the AO for consideration afresh. 22. Having noticed the rival contentions which were addressed, we find that the notice under Section 148A (b) of the Act undoubtedly suffers from certain fundamental factual errors. As was pointed out by the writ petitioner, and which fact has been tacitly admitted by the respondents, the 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid order of assessment presently forms subject matter of challenge in W.P.(C) 4652/2022 and on which an interim order operates restraining the respondents from giving effect to the same. 25. 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 under Section 148A (b) came to be issued. 26. Insofar as the allotment of shares pursuant to the Scheme of Arrangement is concerned, 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in our recent decision in ATS Infrastructure Limited Vs. Assistant Commissioner of Income Tax Circle 1(1) Delhi Ors. 2024:DHC:5474-DB and where we had an occasion to deal with a similar challenge. While ruling on these aspects, we in ATS Infrastructure Limited had observed as follows:- 6. Our Court in Commissioner of Income Tax-II Vs. Living Media India Ltd. had pertinently observed that additional reasons cannot be provided or recorded by the Assessing Officer4 subsequent to the issuance of a notice under Section 148 of the Act. We deem it apposite to quote the following passage from that decision:- 13. With regard to the additional reasons which were recorded subsequent to the issuance of notice under section 148 of the said Act, we have already observed that this could not have been done by the Assessing Officer. The validity of the proceedings initiated upon a notice under section 148 of the said Act would have to be judged from the stand point of the reasons which existed at the point of time when the section 148 notice was issued. The additional reasons cannot be provided or recorded subsequent to the issuance of notice under section 148. It is, of course, open to the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether there was relevant material on which a reasonable person could have formed a requisite belief (Rajesh Jhaveri (supra). At that stage, an established fact of the escapement of income does not have to be proved, since it is not necessary that the Assessing Officer should have finally ascertained that income has escaped assessment. The nature of the jurisdiction of the Assessing Officer which was dealt with by the judgment of the two learned judges of the Supreme Court in Rajesh Jhaveri's case was revisited in a decision of three learned judges in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). The Supreme Court has held that though after April 1, 1989, a wider power has been conferred upon the Assessing Officer to reopen an assessment, the power cannot be exercised on the basis of a mere change of opinion nor is it in the nature of a review. The Supreme Court has laid down the test of whether there is tangible material on the basis of which the Assessing Officer has come to the conclusion that there is an escapement of income. The Supreme Court held thus (page 564): However, one needs to give a schematic interpretation to the words 'reason to believe' fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities were not liable to tax in India. The only basis on which the assessment is sought to be reopened is on the assumption that the provisions of section 115AD would stand attracted. That is on the assumption that the assessee is an FIL Though the attention of the Assessing Officer was drawn to the fact that the assessee is not an FII and that the provisions of section 115AD would not be attracted, the Assessing Officer persisted in rejecting the objections to the reopening of the assessment. In the order disposing of the objections which were raised by the assessee, the succeeding Assessing Officer has clearly attempted to improve upon the reasons which were originally communicated to the assessee. The validity of the notice reopening the assessment under section 148 has to be determined on the basis of the reasons which are disclosed to the assessee. Those reasons constitute the foundation of the action initiated by the Assessing Officer of reopening the assessment. Those reasons cannot be supplemented or improved upon subsequently. While disposing of the objections of the assessee, the Assessing Officer has purported to state that the assessee had filed only sketchy detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenable. 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. In fact the petitioner was not even made aware of the view which the AO was inclined to take in this regard. The AO then sought to salvage the reopening by requiring the petitioner to furnish further particulars with respect to the allotment of shares in terms of the Scheme of Arrangement. Suffice it to note that the original SCN not only failed to refer to this Scheme, a reading thereof leaves us with the definite impression that the AO was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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