AI Drafter 
TaxTMI 
TaxTMI 
2024 (8) TMI 371
X X X X Extracts X X X X
X X X X Extracts X X X X
....ollowing allegations came to be laid:- "This case has been picked up by the Risk management Strategy of Insight for Non-Filing of Income Tax Return for the subject year, despite information available with the department of income in the year the assessee has not filed its ITR for the subject year. On perusal of the AIR information and Form 26AS available with the systems, it is observed that the assessee during the A.Y 2016-17 has entered into the following transactions:- S.No. Description Amount (Rs.) 1 Remittance to a non-resident or to a foreign company (Form 15CA) 367031500 2 Paid Rs. 1,00,000 or more for acquiring shares 101859480 3 Remittance to a non-resident or to a foreign company (Form 15CA) 89887560 2. However on perusal of the records/data available with ITD data base, it is seen that the assessee has not filed its return of income for the AY 2016-17. Hence in the absence of the same the source of the funds and the tax liability on the income to the tune of Rs.5,58,778,540/- could not be ascertained and transaction remains unexplained. 3. You are therefore required to show cause why the amount of Rs.5,58,778....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order under Section 148A (d) of the Act on 27 April 2023. Dealing firstly with the sale of shares of Landmark Hi Tech and Safari Retreats, the AO observed as follows:- "3. In view of the above information available with this office and verification of status of return of income filed by the assessee from e-filing portal, it is found that the assessee has filed its return of income for the A.Y. 2016-17. No assessment has been made earlier u/s 143 (3)/147/144 of the I.T. Act. It is seen that during the year under consideration, the assessee under took above mentioned transaction wherein gross financial implication is Rs. 55,87,78,540/-. However, no income related to above high value transactions has been offered for taxation. After due analysis of the relevant information and verification from the Department's database, it is observed that the income corresponding to the above tabulated financial transactions has escaped assessment as the assessee has not declared the said transactions in its Return of Income for the year under consideration. As in this case, the assessee has not declared the said transaction in its return of income but no income is offered to tax, therefor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Capital Gain in India-USA DTAA hence, the Capital Gain will be dealt in accordance with the provisions of section 48 of Income Tax Act, 1961. In view of the discussion above, in earlier years, the DTAA benefits were denied to assessee as the beneficial ownership and management/control of the assessee company lies in USA. In the instant year, the assessee has earned revenue on sale of shares in Indian entity and the claim the capital gain as exempt under the DTAA between India and Mauritius. The claim of assessee for DTAA benefits needs thorough investigation and examination, further, assessee has not filed any supporting documents such as audited financial, details of directors, share holding pattern for subject year. Thus, in absence of documents and evidence supporting the contention of the assessee, prima-facie, the high value transactions in respect of sale of shares and claim of assessee for exempt income is not explained and there is escapement of income under the relevant provision of Income Tax Act, 1961." 6. In respect of the acquisition of shares pursuant to the Scheme of Arrangement, the AO observed:- "6. As per the information available, du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resident or foreign companies. 8. The respondents further appear to have drawn an adverse inference from a failure on the part of the petitioner to provide audited financials of the Indian entities whose shares had been sold in AY 2016-17 apart from other details such as composition of their respective Board of Directors, shareholding pattern of Indian entities and the absence of a valuation report as per Section 50 of the Act read along with Rule 11UA of the Income Tax Rules, 1962 [7 Rules]. 9. It was also observed that although the petitioner had alluded to the Scheme of Arrangement sanctioned by this Court, it had failed to provide the requisite bank statements and the source of investment. The AO observed that the petitioner had also failed to provide adequate documentation such as copy of the share valuation reports, confirmation from concerned parties and bank statements pertaining to those transactions. 10. Appearing for the writ petitioner, Mr. Balbir Singh, learned senior counsel, assailed the impugned orders contending that the original notice under Section 148A (b) had itself proceeded on the premise that the petitioner was a non-filer for the AY in question. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ii) Further it is also clear that as per ITR filed by the assessee in response to the 148 notice, BRESS is the beneficial owner of the Fund which is controlled by the Fund therefore it can safely be held that the control and management of the assessee always lied in USA. In these circumstances, the assessee is not entitled to the benefit claimed under Article 13 (4) of India-Singapore DTAA for exemption of capital gain. The assessee is treated as a tax resident of USA as there is no benefit on Capital Gain in India-USA DTAA hence, the Capital Gain will be dealt in accordance with the provisions of section 48 of Income Tax Act, 1961." We are further informed that the aforesaid interim order dated 31 March 2022 was ultimately made absolute in terms of an order of the Court dated 23 January 2023. 13. In view of the orders passed by this Court on the aforenoted writ petition and which, according to learned senior counsel, restrained the respondent from giving effect to the assessment orders framed for AY 2014-15, they have acted wholly arbitrarily in seeking to justify the initiation of reassessment action for AY 2016-17 based on the above. 14. Mr. Singh then urged us to strik....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proposed to take. Mr. Singh submitted that the aspect of whether the petitioner could claim benefit of Article 13 (4) of the DTAA was neither doubted in the original show cause notice nor was the petitioner afforded an opportunity to explain why it would not be entitled to claim benefits of that Article. In view of the aforesaid, Mr. Singh submitted that the impugned reassessment action is liable to be quashed on the aforesaid grounds. 18. Controverting the aforenoted submissions, Mr. Rai, learned counsel appearing for the respondents, submitted that as would be evident from the ultimate order which came to be passed under Section 148A (d) of the Act, the petitioner had not denied any of the transactions which had formed the basis for commencement of reassessment action. In view of the aforesaid, Mr. Rai, contended that the error in the original SCN and which had proceeded on the premise that the petitioner had failed to file its return would not be fatal. 19. It was further submitted by Mr. Rai that as long as the AO is able to justify that sufficient reasons do exist and which would support its belief that income had escaped assessment, the reassessment action would not mer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting 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. Regard must also be had to the fact that undisputedly the financial transactions which were spoken of were duly disclosed in the return which had been submitted for AY 2016-17. 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 exigibility to tax. In order to sustain a proposed reopening, it was incumbent upon the respondent to have formed an opinion that the financial transaction was in fact liable to be taxed under the Act and thus, resulting in income having escaped assessment. However, and as is manifest from a reading of the original SCN, no such allegation stood levelled against the petit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s respect. 28. Before concluding, and in our considered opinion, the impugned action is liable to be faulted since it clearly suffers from the following foundational illegality. As was rightly contended by Mr. Singh, the reasons which weigh upon an Assessing Officer proposing to reopen an assessment and form the bedrock of a notice under Section 148A (b) of the Act alone are germane for the purposes of evaluating the validity of that action. It is those set of reasons and which form the basis for the Assessing Officer forming an opinion that income liable to tax has escaped assessment alone which would merit examination and evaluation. 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. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e stand point of the reasons which formed the basis for the formation of opinion with respect to escapement of income. That opinion cannot be one of changing hues or sought to be shored upon fresh reasoning or a felt need to make further enquiries or undertake an exercise of verification. Ultimately, the Court would be primarily concerned with whether the reasons which formed the bedrock for formation of the requisite opinion are tenable and sufficient to warrant invocation of Section 148 of the Act. 8. We in this regard find the following pertinent observations which appear in a decision of the Bombay High Court in Indivest Pe. Ltd. Vs. Additional Director of Income-tax and Ors. "11. Reading the reasons of the Assessing Officer, it is evident that there is absolutely no tangible material on the basis of which the assessment for the assessment year 2006-07 could have been reopened. Upon the return of income being filed by the assessee both in the electronic form and subsequently in the conventional mode, the assessee received an intimation under section 143 (1). The Assessing Officer would have been legitimately entitled to issue a notice under section 143 (2) wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ange of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 'reason to believe', Parliament reintroduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. 12. If the test of whether there exists any tangible material were to be applied in the present case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sons which were disclosed to the assessee. For all these reasons, we are of the view that the exercise of the jurisdiction under section 147 and section 148 in the present case is without any tangible material. The notice of reopening does not meet the requirements as elucidated in the judgment of the Supreme Court in Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) For these reasons, we make the rule absolute by quashing and setting aside the notice dated March 16, 2011, and the order passed by the Assessing Officer on December 20, 2011." xxxx xxxx xxxx 11. We also find merit in the submission of Mr. Kantoor who drew our attention to the First Proviso to Section 148 which reads as under:- "148. Issue of notice where income has escaped assessment -Before making the assessment, reassessment or recomputation under Section 147, and subject to the provisions of Section 148A, - xxxx xxxx xxxx Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the....