No Reopening of Income Tax Assessment on Entirely New Material: Delhi HC upholds Right of Assessee to Challenge Re-Assessment [Read Order]

In a recent ruling of Delhi High Court the right of assessee to challenge reassessment was upheld allowing the writ petition of the petitioner.The petitioner, Banyan Real Estate Funds Mauritius filed a writ petition. A reassessment was proposed to the non resident foreign company ( petitioner ) along with payment of over INR 1,00,000/ for acquisition of shares. The main issue of this case revolves around a notice in question which proceeded on the assumption that the petitioner has not filed Return of Income for the AY 2016-17. Get a Copy of Income Tax Rules, Click here Responding to the notice the petitioner represented by Advocates Balbir Singh,Shyam Gopal,Karan Sachdev and Pragya Kaushik, submitted that it had in fact filed its return for AY 2016-17 and the same was duly acknowledged. In the remittance to a non resident country the petitioner had sold shares of Landmark Hi Tech Development Private Limited and Safari Retreats Private Limited, which too were duly disclosed. The petitioner had sought exemptions from taxation by virtue of Article 13(4) ) of the India-Mauritius Double Taxation Avoidance Agreement in respect of shares acquired prior to 01 April 2017. Get a Copy of Income Tax Rules, Click here In response to the allegation of acquisition of shares, the petitioner disclosed that it had purchased 1,41,47,150 equity shares of Treasured Developers Private Ltd. followed by further allotment of 70,73,575 bonus shares. Pursuant to an arrangement between Treasured Developers Private Limited and Suncity Dhoot Colonizers Limited, sanctioned by the court 1,01,85,948 shares of Sun City Dhoot Colonizers Private Limited in the exchange ratio of 4800 shares of that entity for every 10,000 shares held in Treasured Developers Private Limited was allotted. The petitioner stated that the shares had been received pursuant to a Scheme of Arrangement, the same would not constitute a transfer as per Section 47(vii) of the Act. The petitioner sought and claimed exemption from taxation by virtue of Article 13(4) of the India-Mauritius Double Taxation Avoidance Agreement. Which had grandfathered all transactions in respect of shares acquired prior to 01 April 2017. Get a Copy of Income Tax Rules, Click here The respondent, Assistant Commissioner of Income Tax Circle International Tax, represented by Advocates Puneet Rai, Ashvini Kumar and Rishabh Nangia, passed an order under Section 148A(d) of the Act, dealing with the sale of shares of Landmark Hi Tech and Safari Retreats. The Assessment officer ( AO ) observed that the claim of assessee for Double Taxation Avoidance Agreements ( DTAA ) benefits needs thorough investigation and examination, further, the assessee has not filed any supporting documents. It was clearly established that a return had been filed and duly acknowledged, further the petitioner did not make any remittance to a third party. In fact it had earned revenue from the sale of shares which were claimed exempt from taxation by virtue of Article 13(4) of the DTAA. Get a Copy of Income Tax Rules, Click here AO held that the petitioner was not entitled to treaty benefits, AO then sought to salvage the reopening by requiring the petitioner to furnish further particulars with respect to the allotment of shares in terms of the Scheme of Arrangement. The division bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that impugned action when tested in light of the legal principles reassessment won't sustain. Therefore, the writ petition is allowed, quashing the impugned order under Section 148A(d) of the Act. Get a Copy of Income Tax Rules, Click here The Provison ties the initiation of action to the existence of information which already exists or is in the possession of the AO and on the basis of which it comes to form the opinion that income liable to tax has escaped assessment. The provision thus fortifies the view that the foundational material alone would be relevant for the purposes of evaluating whether reassessment powers were justifiably invoked. Due to which impugned order cant be sustained. Hence original SNC also stands set aside, considering the liberty of respondents they may initiate fresh proceedings if permissible by law. Get a Copy of Income Tax Rules, Click here Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates