The Delhi High Court has quashed the reassessment order on the grounds that no income was earned on funds remitted in India used for subscription in securities.
The court ruled that proceedings initiated under Section 148-A of the Income Tax Act, 1961 pertain to certain investments made in shares by the petitioner, which is an /Foreign Portfolio Investor (FPI), having received remittances in India for the purpose of subscribing to securities. The subscription of share capital in India would undoubtedly be a “Capital Account Transaction”. Since the funds remitted in India were used for subscription in securities, no income was earned in AY 2019-20 and therefore petitioner was under no requirement to file return of income in India.
The court stated that the basis of order passed under Section 148A(d) of the Income Tax Act is the alleged discrepancy noticed between the share prices as provided by the petitioner from the exchange rate (NSE). The noticee or the assessee should not be prejudiced or be taken by surprise. The uncontroverted fact is that in the notice under Section 148A(b), there is no mention of any discrepancy in the share price.
The court noted that the validity of the proceedings initiated upon a notice under Section 148 of the Act would have to be adjudged from the standpoint of the reasons which formed the basis for the formation of opinion with respect to escapement of income. The opinion cannot be one of changing hues or sought to be shored upon fresh reasoning or a felt need to make further enquiries or undertake an exercise of verification. Ultimately, the Court would be primarily concerned with whether the reasons which formed the bedrock for formation of the requisite opinion are tenable and sufficient to warrant invocation of Section 148 of the Income Tax Act.
Facts
The petitioner/income tax assessee is a fund managed by Tosca Fund Asset Management, LLP, which is a foreign Company incorporated under the laws of Cayman Islands. Petitioner is registered with the Security & Exchange Board of India (SEBI) as a Foreign Institutional Investor (FII)/Foreign Portfolio Investor (FPI) in India.
The petitioner received inward remittances in India for the purpose of subscribing to the securities and carried out certain transactions on the recognized Stock Exchange in India in relation to purchase of listed securities
The petitioner has not earned income of any nature accruing or arising in India or taxable in India. Petitioner only used the funds remitted into India for subscription of the above mentioned securities and made outward remittance of the excess funds
The department issued notice under Section 148A(a) for conducting enquiry in respect of transactions pertaining to the petitioner during the impugned AY.
Petitioner filed submissions in response to the notice dated 09.03.2023, furnishing all the details of the transactions along with the requisite documents/information, clarifying that no income was earned by the petitioner in India during the impugned AY and that petitioner was not required to file any return of income in India.
Submissions
The petitioner has argued that respondent has failed to take note that no income had accrued or was received in India in the impugned AY by the petitioner and thus the petitioner was not obligated to file a return and thus no income had escaped from assessment.
The department argued that documentary proof having not been submitted by the petitioner with regards the source of investment, there is due justification for issuance of notice under Section 148A(b) of the Income Tax Act and that petitioner would get ample opportunity during the course of proceedings before the appropriate statutory forum to show that the finding of fact arrived at by the Assessing Officer was erroneous.
Conclusion
The court allowed the writ petition and held that the reasons recorded for issuance of notice under Section 148 cannot be sustained. The notices issued under Section 148A(b), order passed under Section 148A(d) and consequential notice under Section 148 issued by the respondent/department for the Assessment Year 2019-20 are quashed.
Case Details
Case Title: Tosca Master V/S The Deputy Commissioner Of Income Tax
Citation: W.P.(C) 10507/2023 & CM APPL. 40707/2023 (stay)
Judges: Justice Yashwant Varma And Justice Ravinder Dudeja
Date of Order / Judgment: 09/08/2024
