Sufficiency or Correctness of Material based on which Re-Assessment is Initiated need not be considered during Issue of Notice: Delhi HC [Read Order]

The Delhi High Court has held that the sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice under Section 148 of the Income Tax Act, 1961.

The department has initiated re-assessment proceedings against the assessee by holding that despite the aforesaid receipts the assessee had not filed any return of income for the Assessment Years 2016-17 & 2017-18 and the said receipts had not been offered to tax by the assessee. It is further stated in the impugned order that the plea of the petitioners’-assessee is covered under Para 1(B)(iii)(c) of the CBDT instruction regarding selection of potential cases for issue of notice under Section 148 of the Act issued vide F. No. 225/40/2021/ITA-II dated 15 March, 2021 were issued to the petitioner under Section 148 on the ground that the assessee’s transactions for the Financial Years 2015-16 & 2016-17 were flagged in the Non-Filers Monitoring System (NMS). As per Form 15CA, the assessee had made a remittance to its head office without deducting TDS thereof and claimed the same to be tax free as per DTAA between India and USA.

While disposing the writ petitions, Justice Manmohan and Justice Dinesh Kumar Sharma observed that Section 148 notices have been issued within four years from the end of the relevant Assessment Years.

“Also no scrutiny assessment has been taken place in the present cases. Consequently, the test to be applied for re-assessment in the present cases is whether there is ‘reason to believe’ that income chargeable to tax has escaped assessment. In Raymond Woollen Mills Ltd. vs. Income-tax Officer, Centre Circle XI, Range Bombay and Ors., (2008) 14 SCC 218, the Supreme Court has held that the expression ‘reason to believe’ means that there is some prima facie material on the basis of which the Department can reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of issue of notice under Section 148 of the Act,” the Court said.

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