Introduction
In the recent case of AEP Investments (Mauritius) Ltd. v. The ACIT Circle Int Tax 1(1)(1), Delhi[i], the Income Tax Appellate Tribunal, Delhi Bench (‘Tribunal’), addressed the challenge to the validity of the notice issued under s. 148 of the Income-tax Act, 1961 (‘IT Act’) issued by the Assessing Officer (‘AO’) against the assessee. The Tribunal’s decision emphasizes the need for the AO to have substantial evidence supporting a prima facie belief to justify the reopening of assessments under s. 148 of the IT Act.
Brief Facts
The assessee filed an appeal against the AO’s order dated 29.03.2023 for assessment year (‘AY’) 2017-18. The assessee, a Mauritius tax resident holding a valid tax residency certificate (‘TRC’) from the Mauritius Revenue Authority, was functioning as an investment holding company primarily focusing on environmental services and engaging in investments globally.
During the financial year (‘FY’) 2016-17, the assessee invested Rs. 96,55,88,240 in Skeiron Renewable Energy Private Limited (‘Skeiron’), an Indian company. Accordingly, the assessee availed benefits under the India-Mauritius Double Taxation Avoidance Agreement (‘DTAA’) for capital gains tax.
The assessee received a notice under s. 148 of the IT Act, questioning foreign remittances of approximately Rs. 28,82,35,290 to Mauritius during FY 2016-17. This act by the AO prompted the assessee to contest the notice’s legality, raising questions about the procedural and substantive grounds for the tax authority’s decision to reopen the assessment for the specified period.
The respondent contended that the impugned notice was issued due to the assessee’s failure to file an income tax return (‘ITR’) for AY 2017-18. This was despite engaging in significant transactions, as evidenced by the returns filed only for AY 2019-20 and 2020-21.
It was claimed that the AO initiated reassessment on observing non-compliance with tax filing for AY 2017-18, linking it to undisclosed income and citing s. 139’s filing requirements and potential income evasion under s. 147 of the Act.
The assessee invoked the India-Mauritius DTAA, arguing that under a. 13(4) therein, capital gains from the sale of equity shares in Skeiron, acquired before 01.04.2017, were taxable only in Mauritius. They contended that this exempted them from the alleged tax evasion, challenging the authority and legality of the AO’s actions under ss. 147, 144, and 144C of the IT Act as jurisdictionally overreaching, legally flawed, and null from inception.
Held
The Tribunal ruled in favour of the assessee and held that since the AO had failed to demonstrate that income had escaped assessment sufficiently, the impugned notice was void ab initio, rendering the assessment null and void.
While it was noted that the assessee had indeed remitted funds and filed Form 15CA leading the respondent to discover the remittances, the reasons recorded by the AO did not establish prima facie satisfaction regarding income escapement. The Tribunal emphasized that a prima facie satisfaction of income escapement was necessary at the reopening stage and in this case, the reopening was solely based on remittances without demonstrating any income escapement.
Analysis
The Tribunal’s decision critically examines the legitimacy of the notice under s. 148 of the IT Act and assesses whether the AO provided adequate reasons for reopening the case. It emphasizes the need for the AO to establish a prima facie belief based on concrete evidence, not mere speculation, suspension, or assumption, to validate the reassessment process. This judgment highlights the balance between the procedural requirements for reopening assessments and the substantive evidence to support such actions, reinforcing the principle that reassessments must be rooted in credible grounds.
End Note:
[i] [2024] 158 taxmann.com 472 (Delhi - Trib.) [17-01-2024].
Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute a legal opinion.