Dept. Failed To Produce New Or Tangible Information To Justify The Reopening Of Assessment Against IDFC: Madras High Court

The Madras High Court has quashed the reassessment proceedings against the IDFC as the department failed to produce any new or tangible information to justify the reopening of the assessment.

The bench of Justice Anita Sumanth has observed that the information already on file that was examined in the first instance cannot satisfy the legislative requirement under Section 148 Explanation 1, which calls for the department to have such evidence that implies the income has escaped assessment.

The petitioner/assessee, Bank, was subject to reassessment proceedings for AY 2014–15 and 2017–18 under the old re-assessment scheme, which was revived under the new regime by relying on the decision of the Supreme Court in the case of Ashish Agarwal. A slew of directions had been issued to enable the department to proceed further with re-assessment as per the substituted provisions under Section 147, complying with all statutory and procedural requirements. The Central Board of Direct Taxes (CBDT) issued an Instruction dated May 11, 2022, paving the way for the implementation of the judgment in Ashish Agarwal.

The assessee contended that the department had overplayed their hands in the issuance of the order and notice, noting that liberty granted by the Supreme Court was subject to all defenses available to the assessee under the newly substituted scheme of re-assessment.

The assessee argued that all material in regard to the issues sought to be re-assessed had already been supplied to the respondents at the time of the original scrutiny assessment, and there is thus no justification for the present re-assessment. That apart, unrealized loss of foreign currency devaluation assumes the nature of a revenue deduction and provision of Rs. 51.11 crore, which was sought to be added back to taxable income, had already been disallowed by the petitioner. The proposal to tax the sum would only result in double taxation of the same amount.

The department contended that the new scheme, with the omission of the phrase reason to believe', has done away with the requirement that the officer must establish ‘escapement of tax’, prima facie, at the stage of assumption of jurisdiction.

The court noted that Section 149 provides that the department shall possess books of accounts or other documents or evidence that reveal that income chargeable to tax, represented in the form of an asset, has escaped assessment to be able to issue the reassessment notice beyond three years from the end of the relevant AY.

The court held that a profit and loss account does not form part of the books of accounts and held that the books of accounts or other documents possessed by the Revenue do not form an asset to conclude that income has escaped assessment under Section 149.

Counsel For Petitioner: Niraj Sheth

Counsel For Respondent: Hema Muralikrishnan

Case No: W.P. Nos.23284 & 22737 of 2022 and WMP.Nos.21769, 21776, 22231, 22233, 29114 & 30379 of 2022

Case Title: IDFC Limited Versus The Deputy Commissioner of Income Tax

Citation: 2023 LiveLaw (Mad) 308

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