'Reason To Believe' Sufficient To Issue Notice U/S 148 Income Tax Act, Sufficiency/ Correctness Of Material Not Considered At This Stage: Delhi HC

The Delhi High Court has observed that the sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice for reassessment under Section 148 of the Income Tax Act.

A division bench comprising of Justice Manmohan and Justice Dinesh Kumar Sharma was dealing with a bunch of pleas challenging the notices dated 30th March, 2021 issued under sec. 148 and the orders disposing of the objections dated 11th February, 2022 for the Assessment Years 2016-17 and 2017-18.

The notices dated 30th March, 2021 were issued to the petitioner under sec. 148 on the ground that the assessee's transactions for the Financial Years 2015-16 & 2016-17 were flagged in the Non-Filers Monitoring System (NMS). As per Form 15CA, the assessee had made a remittance to its head office without deducting TDS thereof and claimed the same to be tax free as per DTAA between India and USA.

The impugned orders stated that despite the receipts, the assessee had not filed any return of income for the Assessment Years 2016-17 & 2017-18 and that the said receipts had not been offered to tax by the assessee.

It was further stated in the impugned order that the plea of the petitioners' (assessee) is covered under Para 1(B)(iii)(c) of the CBDT instruction regarding selection of potential cases for issue of notice under sec. 148 of the Act.

It was argued on behalf of the petitioners that the impugned notices and orders were patently illegal, bad in law and without jurisdiction, as the same were issued based on bald assertions by the Assessing Officer which do not satisfy the requirement of law as per sec. 147 of the Act.

It was further stated that the assessee had remitted long term capital gain of Rs.14.54 crores on the sale of listed shares of Just Dial Limited which was exempt under sec. 10(38) of the Act.

On the other hand, the respondents submitted that the income was chargeable to tax and the petitioner had claimed exemption and therefore, the issue will have to be examined during the re-assessment proceedings.

Noting that sec. 148 notices had been issued within four years from the end of the relevant Assessment Years, the Court said that no scrutiny assessment had taken place in the present cases.

"Consequently, the test to be applied for re-assessment in the present cases is whether there is 'reason to believe' that income chargeable to tax has escaped assessment," it said.

The Court referred to the Supreme Court judgment in Raymond Woollen Mills Ltd. vs. Income-tax Officer, Centre Circle XI, Range Bombay and Ors., (2008) 14 SCC 218, wherein it was held that the expression 'reason to believe' means that there is some prima facie material on the basis of which the Department can reopen the case.

"The sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice under Section 148 of the Act," it said.

The bench thus observed:

"Consequently, this Court is of the view that the aforesaid test stipulated in Raymond Woollen Mills Ltd. (supra) is satisfied in the present case. However, the contentions and submissions raised by the petitioner are relevant and must be examined by the Assessing Officer while passing the reassessment order. It will also be open to the assessee to show in the re- assessment proceedings that the assumption of facts made in the notice is erroneous."

The pleas were accordingly disposed of.

Case Title: SAIF II MAURITIUS COMPANY LIMITED v. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE INT TAX 3(1)(2) DELHI & ANR. and other connected matters

Citation: 2022 LiveLaw (Del) 330

Click Here To Read Order