Ruling Of Apex Court In Ashish Agarwal Case Is Not Applicable To Taxpayers Who Didn't Assail Original Reopening Notice U/s 148, Clarifies Delhi HC
While examining the ratio laid down by the Apex Court in landmark judgment of Union of India and Ors. vs Ashish Agarwal [(2023) 1 SCC 617], the Delhi High Court clarified that the said decision was principally concerned with the correctness of judgments rendered by various High Courts on challenges raised by Assessees to the initiation of reassessment in accordance with the unamended procedure and which had existed prior to April 01, 2021.
Opining that Ashish Agarwal case neither intended nor mandated concluded assessments being reopened, the High Court held that the Respondent/ Revenue clearly erred in proceedings along lines contrary to the above as would be evident from the reasons which follow.
Firstly, Ashish Agarwal case was principally concerned with judgments rendered by various High Courts' striking down Section 148 notices holding that the Revenue had erred in proceeding based on the unamended family of provisions relating to reassessment, added the Court.
The Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “The directions in Ashish Agarwal case intended to resolve the impasse which ensued in light of the conflicting views expressed by different High Courts, the assessees being deprived of the salutary safeguards which Finance Act, 2021 had introduced in respect of reassessment as well as the element of public interest which warranted the Revenue being enabled to take curative action and thus saving the reassessment notices which High Courts had struck down”. (Para 30)
Since the petitioner/Assessee had not instituted any legal proceedings before any court to assail the notice, the Bench added that there was no declaration of invalidity which came to be rendered in respect of the notice issued to the petitioner.
Facts of the case:
The reassessment action was initiated based on information received pursuant to a survey carried out at the premises of the petitioner between Feb 25 to 27, 2019, wherein, various remittances made to foreign entities came to light. It was in respect of those remittances that the respondents/ Revenue alleged that they would clearly fall within the meaning of “royalty” or alternatively as “fee for technical services” and consequently be covered by Section 195 of the Act. A failure on the part of the writ petitioner to deduct tax at source constituted the first limb of the reassessment action.
The second subject of the proposed reassessment was the transfer of shares and the resultant capital gains which accrued pursuant thereto. The AO noted that in order to avoid tax, the shareholding of Genpact India held by Headstrong Consulting (Singapore) Limited and Genpact India Holding Mauritius was transferred to ERKS vide share transfers dated Jan 28, 2015 and Mar 25, 2015. It was alleged that the transaction had no underlying financial support and lacked commercial substance. It was thus alleged that the aforesaid share transfer was a ploy to avoid tax.
The AO also took note of ERKS subsequently amalgamating with Genpact India pursuant to a Scheme of Arrangement which came to be sanctioned by the High Court of Hyderabad and Telangana in terms of an order dated Aug 17, 2015. The AO also picked up aspects pertaining to repayments made by ERKS in respect of Non-Convertible Debentures as well as interest thereon over the course of several years. It was in this connection alleged that funds were remitted in the form of principal payment of liabilities and a declaration of dividend thus avoided. This, according to the AO, resulted in deviation of taxes and dividend payout being camouflaged as principal payments. It was thus alleged that since no dividend distribution tax had been deducted, the petitioner had evaded taxes which were otherwise liable to be paid.
Observations of the High Court:
The Bench noted that directions ultimately framed by Apex Court in Ashish Agarwal case were intended to be a curative measure in respect of challenges which had succeeded.
The Bench further observed that the Apex Court, while ordaining that Ashish Agarwal would apply “PAN INDIA” had observed that it would be applicable to all similar judgments and orders passed by various High Courts irrespective of whether any appeal from those decisions had been preferred.
“We are of the firm opinion that the said decision cannot be read as mandating a continuance or reinvention of notices which had not formed subject matter of challenge or a vacation of assessments which may have been made”, added the Bench.
The Bench went on to observe that ruling in Ashish Agarwal does not apply to taxpayers who did not assail the Section 148 notices in the first round.
In the present case, the Bench found that there was no judgment rendered inter partes which may have struck down the reassessment notice as being invalid or contrary to the statutory regime which came into effect from April 01, 2021 and notice of June 30, 2021 thus remained unscathed and unimpacted, consequently, there arose no need for its revival or resuscitation.
Additionally, the Bench clarified that “the reassessment action also did not come to be interdicted by any order or injunction passed by a court. This was, therefore, clearly not a case where the subsequent notice u/s 148A(b) could be countenanced to be in continuance or substitution of the original notice”.
The High Court therefore quashed the notice referable to Section 148A(b), the order u/s 148A(d) as well as the notice referable to Section 148 and all consequential proceedings.
Resultantly, the High Court allowed Assessee's writ petition.
Counsel for Petitioner/ Assessee: Advocates Sachit Jolly along with Disha Jham, Soumya Singh, Rishabh Malhotra, Devansh Jain, Raghav Dutt, Aditya Rathore, and Abhudaya Shankar.
Counsel for Respondent/ Revenue: Advocates Gaurav Gupta, Shivendra Singh and Yojit Pareek
Case Title: Genpact India Private Limited vs Assistant Commissioner of Income Tax
Case Number: W.P.(C) No. 17364/2022