Revenue Department Can't Take Fresh Ground Which Was Not Disclosed To Taxpayer, While Passing Re-assessment U/s 148A(D): Delhi HC

Observing that foundational material alone would be relevant for the purposes of evaluating whether reassessment powers were justifiably invoked, the High Court clarified that Revenue Department cannot take a fresh ground while passing order u/s 148A(d).

As per Section 148A of Income tax Act, if an income tax officer believes that a taxpayer attempted to avoid paying taxes for any assessment year, the officer may notify the taxpayer that there will be a reassessment.

The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “the basis of order passed u/s 148A(d) is the alleged discrepancy noticed between the share prices as provided by the petitioner from the exchange rate (NSE). Undoubtedly, this aspect of the matter was never taken up with the petitioner in the notice issued u/s 148A(b). The noticee or the assessee should not be prejudiced or be taken by surprise”. (Para 21)

Facts of the case:

The Petitioner/ Assessee (FPI), a fund managed by Tosca Fund Asset Management, LLP, received inward remittances in India for purpose of subscribing to the securities and carried out certain transactions on the recognized Stock Exchange in India in relation to purchase of listed securities. The petitioner has not earned income of any nature accruing or arising in India or taxable in India, and had only used the funds remitted into India for subscription of the securities and made outward remittance of the excess funds. The AO/ Respondent however issued notice u/s 148A(a) seeking to initiate reassessment, pursuant to the information flagged by the Risk Management Strategy, alleging that in the absence of return of income, the source of income of the investment remained unexplained.

Observations of the High Court:

The Bench found that proceeding initiated u/s 148-A pertain to certain investments made in shares by the petitioner, which is an FPI, having received remittances in India for the purpose of subscribing to securities.

The Bench also found that the subscription of share capital in India would undoubtedly be a “Capital Account Transaction”.

Since the funds remitted in India were used for subscription in securities, no income was earned in AY 2019-20 and therefore petitioner was under no requirement to file return of income in India, added the Bench.

Referring to decision in case of Banyan Real Estate Fund Mauritius Vs. Assistant Commission of India Tax Circle International Tax [W.P.(C) 10485/2023], the Bench reiterated that the validity of proceedings initiated upon a notice u/s 148 would have to be adjudged from the 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, added the bench.

The High Court therefore allowed Assessee's petition and concluded that the reasons recorded for issuance of notice u/s 148 cannot be sustained.

Counsel for Assessee/ Petitioner: Senior Advocate Percy Pardiwalla along with Advocates Vishal Kalra and Snigdha Gautam

Counsel for Revenue/ Respondent: Advocate Ruchir Bhatia and Deeksha Gupta

Case Title: Tosca Master vs. Deputy CIT

Case Number: W.P.(C) 10507/2023

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