Introduction
In the case of Satluj Credit & Holdings (P.) Ltd. v. Income-tax Officer[i], the Satluj Credit & Holdings (P.) Ltd. (‘Appellant’) filed writ appeals before the High Court of Madras (‘HC’) against the orders passed in the writ proceedings wherein orders issued under s. 148A(d) of the Income-tax Act, 1961 (‘Act’) and the consequential notices under s. 148 of the Act were challenged. This appeal, therefore, centres on the legal and procedural propriety of the notices and orders issued under the aforementioned sections and the broader implications for the appellants’ tax liability arising from the Hon’ble Supreme Court’s (‘SC’) order permitting the buyout of shares of the appellants for which it received certain payments.
Brief Facts
The appellants and other entities were involved in litigation that reached the SC due to disputes among six shareholders. On 17.05.2018, the SC mandated a Rs. 100 crore buyout of the appellant’s shares, with Rs. 18,62,03,348 received by the appellants.
The dispute concerned the tax liability of the consideration received from the buyout under the Act. Notices were issued by the respondents regarding the shortfall in TDS for A.Y. 2019-20, followed by summonses under s. 131(1A) of the Act in April 2022.
Notices under s. 148A(b) of the Act was issued, stating that income chargeable to tax for the A.Y. 2019-20 had escaped assessment. The notices highlighted that the SC’s order did not suggest treating the receipt as exempt income under the Act.
The appellants responded by citing the SC’s order and highlighting that other entities involved in similar transactions had not been served notices or had their proceedings dropped.
Thereafter, the impugned orders under s. 148A(d) of the Act was passed, which stated that the SC did not exempt the receipt of money and that s. 56(2)(x)(a) of the Act would apply.
The appellants contended that the reasons in the notices under s. 148A(b) and the orders under s. 148A(d) of the Act differed, denying them a fair opportunity to respond.
The HC dismissed the writ, holding that the notice under s. 148A(b) only needed to broadly outline the issue for reassessment, not be as detailed as the assessment order itself.
Aggrieved by the same, this writ appeal was filed following the order dated 17.05.2018 issued in the writ petition.
Held
The HC held in favour of the assessee and disposed of the appeals, with directions that the impugned orders passed under s. 148A(d) of the Act be treated as notice(s) under s. 148A(b) and allowing the appellants to put forth their objections within a period of six (6) weeks from the date of receipt of a copy of the judgment.
The HC observed that the object behind issuing a notice under s. 148A(b) is a mandatory requirement to inform the assessee of the reason for issuing a notice under s. 148. It held that the notice must contain the reasons to which the noticee must respond, and a deviation between the notice and the order would reduce the process to an empty formality.
It noted that the proceedings under s. 148A(d) of the Act does not conclude the reassessment but provides an opportunity for the assessee to respond after receiving a notice under s. 148 of the Act. It referred to various SC judgments emphasising the importance of notice and the inadmissibility of deviations from it.
Our Analysis
This decision highlights the necessity for clarity and consistency in tax notices to ensure taxpayers have a fair opportunity to respond to the authorities' contentions. The SC has consistently emphasised that the notice forms the foundation of proceedings and has disapproved of any departures from the initial reasons stated in the notice. In cases such as CIT v. ICICI Bank Ltd.[ii], CCE v. Champdany Industries Ltd.[iii], and CCE v. Shital International,[iv] the SC has held that the reasons for reopening an assessment must remain consistent from the initial notice to the final order. If the grounds for assessment change, a fresh notice must be issued to provide the taxpayer with a clear and fair opportunity to address the new basis of assessment.
End Notes
[i] [2024] 164 taxmann.com 285 (Madras).
[ii] 2012 SCC OnLine Bom 917.
[iii] (2009) 9 SCC 466.
[iv] (2011) 1 SCC 109.
Authored by Pratima Ajmera, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion
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