2025 (2) TMI 89 - HC - Income Tax

Income Tax Department must reconsider section 148 notice case after taxpayer filed manual return following DTAA exemption claim

Madras HC set aside the speaking order dated 18.03.2022 and remanded the matter back to the Income Tax Department. The court held that despite a ... Reopening of assessment - issuance of no valid service of notice within the statutory period of limitation - liability to file a return of income despite claiming exemption under India-Singapore DTAA HELD THAT:- Challenge to the impugned notice issued u/s 148 of the IT Act cannot be countenanced merely because there is an typographical error in the address mentioned therein, notice has not been served to the petitioner's address i.e., M/s.Verizon Services Singapore Pte Ltd., instead of which, the same has been served to the incorrect address i.e., “Visteon Tax Office, One Village Centre Drive, Van Baren Township, Michigan, USA”. Without filing of proper Return of Income, the petitioner has claimed exemption under India-Singapore Double Taxation Avoidance Agreement. Hence, the respondent/Income Tax Department has issued Notice under Section 148 of the IT Act to the petitioner, which was culminated in the impugned Speaking Order as per the decision of GKN Driveshafts (India) Ltd [2002 (11) TMI 7 - SUPREME COURT] Income Tax Department has passed the impugned Speaking Order dated 18.03.2022 without considering the CBDT Circular No.3/2016 dated 26.02.2016 and taking note of the fact that the petitioner had subsequently filed its Return of Income manually on 02.03.2022, the petitioner can be given a reasonable opportunity to explain its case afresh in the light of CBDT Circular No.3/2016 dated 26.02.2016. Therefore, the impugned Speaking Order dated 18.03.2022 can be set aside by way of remand. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment include:Whether the notice issued under Section 148 of the Income Tax Act, 1961, for the reassessment of escaped income for the Assessment Year 2014-15 was validly issued and served.Whether the petitioner was liable to file a return of income despite claiming exemption under the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.Whether the reassessment proceedings initiated by the Income Tax Department were justified in light of the alleged failure of the petitioner to disclose fully and truly all material facts necessary for the assessment.Whether the impugned order dated 18.03.2022, overruling the objections of the petitioner against the reopening of the assessment, was valid and legally sustainable.Whether the reassessment proceedings were in compliance with the directives of the Central Board of Direct Taxes (CBDT) and relevant judicial precedents.ISSUE-WISE DETAILED ANALYSISValidity of Notice under Section 148The legal framework under Section 148 of the Income Tax Act allows for the issuance of a notice for reassessment if the Assessing Officer has reason to believe that income has escaped assessment. The petitioner challenged the validity of the notice on grounds of improper service and typographical errors in the address. The Court noted that the notice was digitally signed and served via electronic mail, and any typographical error did not invalidate the notice. The Court emphasized that the petitioner was required to take steps to file the return upon receiving the notice.Liability to File Return of IncomeThe petitioner argued that they were not liable to file a return due to the exemption under the DTAA with Singapore. However, the Court highlighted that even if the petitioner was exempt from tax on capital gains under Section 46A of the IT Act, they were still required to file a return declaring nil income under Section 139(1). The Court found that the petitioner failed to fulfill this obligation, justifying the reopening of assessment.Justification for Reassessment ProceedingsThe reassessment was based on the alleged failure of the petitioner to disclose all material facts related to the buyback of shares and the resultant income. The Court examined the reasons provided by the Assessing Officer, which included discrepancies in share valuation and the absence of a filed return despite income receipts from India. The Court found that the reasons provided constituted a valid basis for reassessment under Section 147, as the petitioner did not fully disclose material facts.Validity of the Impugned OrderThe petitioner contested the impugned order on multiple grounds, including the lack of a valid reason to believe income had escaped assessment and procedural lapses. The Court addressed these objections, noting that the Assessing Officer had complied with the procedural requirements, including providing reasons for reopening and addressing objections in a Speaking Order. The Court found that the impugned order was procedurally sound but required reconsideration in light of the CBDT Circular.Compliance with CBDT Circular and Judicial PrecedentsThe petitioner argued that the reassessment was contrary to CBDT Circular No.3/2016, which clarified the tax treatment of buyback transactions. The Court acknowledged that the Circular provided guidance on treating buyback consideration as capital gains and directed that no fresh notices should be issued for transactions before 01.06.2013. The Court found that the respondent failed to consider the Circular adequately and remanded the matter for fresh consideration.SIGNIFICANT HOLDINGSThe Court held that the impugned Speaking Order dated 18.03.2022 was to be set aside and the matter remanded for fresh consideration, taking into account the CBDT Circular No.3/2016. The Court emphasized the need for the respondent to provide the petitioner with a reasonable opportunity to present their case in light of the Circular. The Court directed the respondent to pass a fresh order on merits within three months, ensuring compliance with procedural fairness and the directives of the Supreme Court in GKN Driveshafts (India) Ltd vs. ITO.