Different View taken by AAR cannot be Sufficient Basis for Income Tax Officer to Believe Escapement of Income: Bombay HC quashes Assessment Notice [Read Order]

The Bombay High Court quashed assessment notice and observed that the different view taken by AAR cannot be sufficient basis for Income Tax Officer to believe escapement of income.

The petitioner, Mrs. Usha Eswar, was a non-resident Indian and was regularly assessed to tax in India in respect of income that accrued or arose to him in India or arisen in India or received by him in India. Petitioner was a resident of Dubai for several years and was carrying on business as a sole proprietor of two concerns. He had invested in shares and debentures issued by Indian Companies as well as units issued by mutual funds registered in India

The petitioner is challenging the legality and validity of notices issued under Section 148 of the Income Tax Act, 1961 issued by the Income Tax Officer for Assessment Years 1997-98, 1998-99, 1999-200 and 2000-2001. It is the petitioner’s case that these notices had been issued without satisfying the jurisdiction condition necessary to make a re-assessment.

In order to ensure finality and certainty as to the taxability of income that he earned from sources in India, Petitioner made an application to the Authority for Advance Ruling (AAR), seeking a ruling to the taxability as well as the rate at which tax payable on income earned by him by way of dividends, interest and capital gains from sources in India.

The Counsel for the petitioner submitted that prior to the issuance of the notices, the Assessing Officer must have reasons to believe that income chargeable to tax has escaped assessment. The belief must be formed on the basis of certain materials and the material which is relied on must have live link and make rational nexus to the formation.

Section 245-S of the Income Tax Act provides that an advance ruling pronounced under Section 245-R of the Act by the AAR shall be binding on the applicant who had sought it in respect of the transactions in relation to which the ruling had been sought and, on the Commissioner, and the Income Tax Authorities subordinate to him, in respect of the applicant and the said transactions.

A Division Bench of the Bombay High Court comprising Justices KR Shriram and Firdosh P Pooniwalla observed that “In our view, merely because the AAR in the case of another Applicant has taken a different view, cannot be sufficient basis on which Respondent No.1 could ever have any reason to believe that income chargeable to tax has escaped assessment.”

“Therefore, it can also be stated that Respondent No.1 has not personally formed the belief that income liable to tax has escaped assessment and has abdicated her jurisdiction. The re-opening therefore is invalid” the Court noted.

To Read the full text of the Order CLICK HERE

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