Reassessment Initiated on New Grounds Not in Notice u/s 148A(b) for AY 2018-19: Delhi HC Quashes Order against E&Y Emeia Ltd [Read Order]

The Delhi High Court set aside an order initiating reassessment proceedings under Section 148 of the Income Tax Act, 1961 and held that the decision was based on new grounds that were not mentioned in the original notice issued under Section 148A(b) of the Act.

Ernst and Young EMEIA Services Limited, (Petitioner) challenged a notice dated 20.06.2024 issued under Section 148A(b), an order dated 29.08.2024 passed under Section 148A(d) , and a notice dated 29.08.2024 issued under Section 148 of the Act, which initiated reassessment proceedings for the Assessment Year (AY) 2018-19.

The assessee had filed Income Tax Return for AY 2018-19, declaring an income of ₹5,14,21,33,981/- and claiming it as exempt under the India-UK Double Taxation Avoidance Agreement (DTAA).

The assessee maintained it had no Permanent Establishment (PE) in India and its receipts for services rendered to the EY Network did not constitute 'fees for included services' (FIS) or 'royalty' under the DTAA.

The notice under Section 148A(b) only cited information received as "High Risk Cases" on the Portal and mentioned a remittance of ₹10,63,384/- received by the Assessee for professional services.

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The Notice primarily questioned the Assessee’s claim of exemption for its entire income of ₹5,14,21,33,981/-, concluding that prima facie the remittance could be in the nature of Royalty/FTS or Business income.

The Bench comprising Justice Vibhu Bakhru and Justice Tejas Karia observed that the notice under Section 148A(b) did not refer to any information suggesting that the Assessee's income had escaped assessment.

The Court clarified that simply because an assessee claimed their income was exempt, absent any other reason, it is "not suggestive of the assessee's income for AY 2018-19 escaping assessment".

The court cited its earlier decision in Banyan Real Estate Fund Mauritius v. ACIT & Anr., which held that merely taking the position that income wasn't taxable wouldn't constitute a basis for forming the opinion that income had escaped assessment.

The assessee had disclosed its income in its return, and the information regarding remittances in Form 15CA was also conceded to have been disclosed in the income tax return.

Crucially, the subsequent order passed under Section 148A(d) of the Act, which held the case fit for reassessment, introduced a new ground. The High Court held that this reason, concerning the existence of a PE, was not the information as set out in the notice under Section 148A(b) of the Act.

The original notice contained no allegation that the assessee had a PE in India. Citing its prior judgment, the Court reiterated that a decision to reopen cannot be based on grounds that were not set out in the notice under Section 148A(b) of the Income Tax Act.

The Court set aside the impugned notice under Section 148A(b), the order under Section 148A(d), and the notice under Section 148 of the Act. However, the court clarified that the order would not preclude the Revenue from initiating fresh proceedings, if otherwise permissible in law. The writ petition was allowed

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