2025 (3) TMI 99 - HC - Income Tax

Reassessment proceedings quashed as revenue failed to establish independent inquiry basis under Section 148

GE Grid (Switzerland) Gmbh Versus Assistant Commissioner Of Income Tax & Anr., Assistant Commissioner Of Income Tax International Taxation Circle 1 (3) (1) & Anr.

The Delhi HC ruled in favor of the assessee challenging reassessment proceedings for AYs 2013-14 to 2017-18. The revenue authorities failed to establish ... Validity of reassessment proceedings - although the petitioner was deriving profits from the supply of equipment and spares to Indian companies and entities, it had failed to acknowledge the said income asserting that it had no Permanent Establishment [PE] in India - HELD THAT:- Respondents have woefully failed to establish, that the formation of opinion was based on any independent inquiry or material that the AO may have collated for the purposes of forming an opinion as to whether income in AYs 2013-14 to 2017-18 had escaped assessment. As is ex facie evident from a reading of the reasons which stood assigned for invoking Section 148, the solitary basis was the survey conducted on 06-07 June 2019. Accordingly, and for all the reasons assigned by us in our judgment rendered on Grid Solutions OY [2025 (1) TMI 911 - DELHI HIGH COURT] we find ourselves unable to sustain the impugned action. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issue considered was whether the reassessment actions initiated by the respondents under Section 148 of the Income Tax Act, 1961, for Assessment Years 2013-14 to 2017-18, were valid. This involved examining whether the Assessing Officer (AO) had sufficient grounds and evidence to form a belief that income had escaped assessment, justifying the reopening of assessments for those years.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involved Section 148 of the Income Tax Act, which allows for the reopening of assessments if the AO has reason to believe that income has escaped assessment. The judgment also referenced the India-Switzerland Double Taxation Avoidance Agreement (DTAA) concerning the existence of a Permanent Establishment (PE) in India.Precedents considered included the Court's previous judgment in Grid Solutions OY v. Assistant Commissioner of Income Tax International Taxation, where similar issues of reassessment based on survey findings were examined. The Court also referred to principles established in cases such as Raymond Woollen Mills Ltd. v. ITO and National Petroleum Construction Co. v. Dy. CIT, emphasizing that each assessment year is distinct and requires independent evaluation.Court's Interpretation and ReasoningThe Court scrutinized whether the AO's reasons for reopening the assessments were based on independent inquiry or merely on the findings of a survey conducted in June 2019. The Court emphasized that for a reassessment to be valid, the AO must demonstrate a clear application of mind to the specific facts of each assessment year in question, rather than relying solely on past survey findings.Key Evidence and FindingsThe AO's reasons for reopening the assessments were primarily based on the survey conducted on June 6-7, 2019, which allegedly revealed that the petitioner, a Swiss company, had a Dependent Agent PE and Fixed Place PE in India. However, the Court found that the AO's reasoning lacked specific evidence or inquiry related to the assessment years in question. The AO had not demonstrated that the facts from the survey were applicable to the years under reassessment.Application of Law to FactsThe Court applied the principle that each assessment year is distinct and requires independent evaluation of facts. It found that the AO failed to provide specific evidence or conduct an independent inquiry for each assessment year to justify the belief that income had escaped assessment. The reliance on past survey findings without further investigation was deemed insufficient.Treatment of Competing ArgumentsThe respondents argued that the AO was justified in assuming that the business model and facts had remained unchanged since the survey. However, the Court rejected this argument, emphasizing the need for independent examination of each assessment year. The Court reiterated that assumptions based on past findings without specific evidence for the years in question could not justify reassessment.ConclusionsThe Court concluded that the reassessment actions were not sustainable as they were based solely on the survey findings without independent inquiry or specific evidence for the assessment years in question. The AO's failure to demonstrate a clear application of mind to the facts of each year rendered the reassessment actions invalid.SIGNIFICANT HOLDINGSThe Court held that the reassessment actions initiated under Section 148 for the years 2013-14 to 2017-18 were invalid due to the lack of specific evidence or independent inquiry by the AO. The reliance on past survey findings without further investigation was insufficient to justify the belief that income had escaped assessment.Core Principles EstablishedThe judgment reinforced the principle that each assessment year is distinct and requires independent evaluation. It emphasized that reassessment actions must be based on specific evidence or inquiry related to the year in question, rather than assumptions based on past findings.Final Determinations on Each IssueThe Court quashed the impugned orders for the reassessment of Assessment Years 2013-14 to 2017-18, allowing the writ petitions. The reliance on the survey conducted in June 2019 without further evidence or inquiry for each year was deemed insufficient to justify the reassessment actions.