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of <h1>Reassessment notices under Section 148A quashed for investment entities in loan diversion case lacking prima facie evidence</h1> <h3>Kunte And Drabu Consultants Pvt. Ltd. Versus Income Tax Officer, Ward 14 (3), Delhi And Ors.</h3> Delhi HC quashed reassessment notices u/s 148A against three investment entities. The Revenue alleged that Videocon Industries diverted credit facilities ... Reopening of assessment u/s 147 - Videocon Industries Ltd. [Videocon] had utilised financing and credit facilities granted to it to provide interest free loans to various entities, including Top Most Investment, YK Securities and Glider Investment - HELD THAT:- On a more fundamental plane, it appears to have been asserted that even if it were assumed that the allegation of Videocon having diverted credit facilities received by it to provide interest free loans were accepted to be correct, there could be no plausible or justifiable reason to hold that income assessable in the hands of Top Most Investment, YK Securities or Glider Investment could be said to have escaped assessment. The various objections which were made were ultimately negated in terms of the final order u/s 148A(d) which came to be passed by the respondents. This since the solitary allegation which is levelled is a diversion of funds by Videocon to YK Securities, Top Most Investment and Glider Investment. Even if it were assumed to be correct that the Videocon had diverted funds and credit facilities provided by banks and financial institutions to third party entities, it would have at best and perhaps led to the deletion of any claims towards interest paid that may have been made by that entity. We fail to comprehend how such a diversion of funds could have led to the formation of opinion that income taxable in the hands of Top Most Investment, YK Securities and Glider Investment could have escaped assessment. The notice u/s 148A (b) dated 31 March 2023 and the order u/s 148A (d) dated 20 April 2023 fails to provide any clue as to how such an opinion could have been formed even on a prima facie basis. We find ourselves unable to sustain the impugned order of reassessment. The High Court considered the writ petitions challenging the reassessment actions initiated for the Assessment Year 2016-17. The core legal questions addressed in the judgment include the validity of the reassessment notice, the computation of alleged escaped income, and the justification for initiating proceedings against the petitioners. The Court analyzed the allegations made in the reopening notice, which were based on information received from the Director General of Income Tax (Investigation). The notice highlighted high-value transactions within various entities, including Top Most Investment Pvt. Ltd., YK Securities Pvt. Ltd., and Glider Investment Pvt. Ltd. (now known as Kunte & Drabu Consultants Pvt. Ltd.). The Assessing Officer observed discrepancies in the transactions and lack of rationale behind them, leading to the presumption that a significant amount had escaped assessment for the AY 2016-17.The Court examined the contentions raised by the petitioners, emphasizing the vagueness and unfounded nature of the allegations. The petitioners argued that even if funds were diverted by Videocon Industries Ltd., there was no basis to conclude that income assessable in the hands of the petitioners had escaped assessment. The Court noted the approval of a Scheme of Amalgamation involving the petitioners and the entities in question, which came into effect after the relevant assessment year.In its analysis, the Court found the reasoning of the respondents flawed and unsupported by the facts presented. The Court highlighted the lack of clarity in how the alleged diversion of funds by Videocon could lead to the conclusion that income had escaped assessment in the hands of the petitioners. The Court ultimately quashed the impugned reassessment order and the consequential notice, ruling in favor of the petitioners.The significant holdings of the judgment include the Court's disapproval of the reassessment order based on insufficient grounds and lack of connection between the alleged diversion of funds and the assessment of income in the petitioners' hands. The Court emphasized the importance of a valid and reasoned basis for initiating reassessment proceedings, which was found lacking in this case.
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