2025 (4) TMI 293 - HC - Income Tax

Section 148A reassessment proceedings quashed due to mismatch between initial notice and final order grounds

Ernst And Young Emeia Services Limited Versus Assistant Commissioner Of Income Tax Circle-International Tax-1-2-2, Delhi

Delhi HC set aside reassessment proceedings initiated under Section 148A(b) against the petitioner. The AO contended that the assessee's income was ... Reassessment proceedings initiated against the petitioner u/s 148A(b) - AO observed that prima facie the Assessee’s income was taxable under Clause 2(k) of the India-UK DTAA where managerial services were taxable as PE in the State, if they were rendered for more than ninety days in a year - HELD THAT:- Once apparent from the above that the reasons as set out in the impugned order passed u/s 148A (d) was not the information as set out in the notice under Section 148A (b). There was no allegation in the said notice that the Assessee had a PE in India, which forms the entire basis of the order u/s 148A (d). The decision to issue notice u/s 148 of the Act cannot be based on information and grounds that were not set out in notice u/s 148A (b). In view of the above, the impugned notice issued u/s 148A (b) of the Act; the impugned order passed u/s 148A (d) of the Act and the impugned notice u/s 148 of the Act are set aside. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether the reassessment proceedings initiated against the petitioner under Sections 148A(b), 148A(d), and 148 of the Income Tax Act, 1961, for the Assessment Year 2018-19 were validly initiated. The core legal questions include:Whether the notice under Section 148A(b) was based on sufficient information suggesting that the petitioner's income had escaped assessment.Whether the proceedings for reassessment could be initiated based on the information and reasons provided in the notice under Section 148A(b).Whether the order under Section 148A(d) was justified in concluding that the petitioner's income was taxable under the India-UK DTAA.Whether the reasons provided in the order under Section 148A(d) were consistent with the information set out in the notice under Section 148A(b).ISSUE-WISE DETAILED ANALYSIS1. Validity of Notice under Section 148A(b)Relevant Legal Framework and Precedents: Section 148A(b) of the Income Tax Act requires the Assessing Officer (AO) to provide a notice to the assessee if there is information suggesting that income has escaped assessment. The precedent set in Banyan Real Estate Fund Mauritius v. ACIT & Anr. emphasizes that the initiation of reassessment proceedings must be based on concrete information indicating income escapement.Court's Interpretation and Reasoning: The Court found that the notice under Section 148A(b) did not provide any specific information suggesting that the petitioner's income had escaped assessment. The notice merely stated that the petitioner had claimed its income as exempt without providing reasons for suspecting the claim.Key Evidence and Findings: The notice lacked any substantive allegation or information that could lead to a belief that the petitioner's income for AY 2018-19 had escaped assessment.Application of Law to Facts: The Court applied the legal requirement that a notice under Section 148A(b) must be based on information suggesting income escapement, which was absent in this case.Treatment of Competing Arguments: The Court rejected the Revenue's argument that the petitioner's claim of exemption itself was sufficient to initiate reassessment proceedings.Conclusions: The notice under Section 148A(b) was invalid as it did not meet the statutory requirement of being based on information suggesting income escapement.2. Justification for Order under Section 148A(d)Relevant Legal Framework and Precedents: Section 148A(d) allows the AO to pass an order deciding whether it is a fit case for issuing a notice under Section 148 based on the information and response received. The decision must be based on the grounds mentioned in the notice under Section 148A(b).Court's Interpretation and Reasoning: The Court observed that the order under Section 148A(d) was based on a new ground, namely, the existence of a Permanent Establishment (PE) in India, which was not mentioned in the notice under Section 148A(b).Key Evidence and Findings: The order under Section 148A(d) relied on Clause 2(k) of the India-UK DTAA, suggesting the petitioner's income was taxable due to managerial services rendered for more than ninety days, which was not part of the original notice.Application of Law to Facts: The Court held that the decision to issue a notice under Section 148 cannot be based on new grounds not mentioned in the initial notice under Section 148A(b).Treatment of Competing Arguments: The Revenue's argument for sustaining the order under Section 148A(d) was dismissed as it relied on grounds not initially disclosed to the petitioner.Conclusions: The order under Section 148A(d) was unjustified as it introduced new reasons not previously communicated to the petitioner, violating procedural fairness.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Court emphasized that 'a decision to reopen or reassess cannot be based or sought to be justified either on additional reasons or those which may be supplied subsequently while disposing of objections preferred by an assessee.'Core Principles Established: The initiation of reassessment proceedings must strictly adhere to the information and reasons provided in the notice under Section 148A(b). Any deviation or introduction of new grounds in subsequent orders is impermissible.Final Determinations on Each Issue: The impugned notice under Section 148A(b), the order under Section 148A(d), and the notice under Section 148 were set aside. However, the Court clarified that the Revenue could initiate fresh proceedings if permissible under the law.