Case Law Details
Banyan Real Estate Fund Mauritius Vs ACIT (Delhi High Court)
Introduction: The Delhi High Court’s recent judgment in the case of Banyan Real Estate Fund Mauritius vs ACIT (Assessment Year 2016-17) brings focus on discrepancies in Section 148 Notice of the Income Tax Act, 1961. The court examined incorrect allegations, muddled facts, and apparent lack of application of mind by the Assessing Officer (AO). This article offers a comprehensive examination of the case, providing insights into the background, the detailed analysis, and conclusions drawn from the judgment.
Detailed Analysis:
- Background of the Case: The petitioner was issued a notice under Section 148A(b) of the Income Tax Act, related to the remittance of monies to non-resident/foreign companies, and paying ₹1 lakh or more for acquiring shares. The allegations were found to be erroneous, leading to the writ petition.
- Discrepancies in Notice: The petitioner demonstrated the mistakes in the allegations, proving that the money was received upon the sale of shares, not as alleged. The explanation included intricate details concerning the sale of shares and the acquisition of bonus shares.
- Lack of Application of Mind by AO: The court pointed out the Assessing Officer’s failure to correct the course after the petitioner’s response, showing no application of mind in understanding the transactions.
- Stay Granted: The court stayed the operation of the impugned order and consequent notice until further hearings, observing prima facie incorrect allegations.
- Pending Matters: The court noted the pending adjudication related to Double Tax Avoidance Agreement (DTAA) between India and Mauritius, an aspect that may affect the case further.
- Future Course of Action: The judgment set the stage for further legal proceedings, including counter-affidavits and rejoinders, with the next hearing scheduled on 12.02.2024.
Conclusion: The judgment in Banyan Real Estate Fund Mauritius vs ACIT illustrates the critical importance of precision and diligence in issuing notices under the Income Tax Act. It emphasizes the accountability of Assessing Officers in making correct allegations and underscores the court’s willingness to grant interim relief when procedural anomalies are evident. The case serves as a precedent for future assessments and highlights the importance of accurate understanding and interpretation of financial transactions in legal proceedings. The ruling’s implications extend to the broader legal discourse on transparency, fairness, and procedural correctness in tax assessments.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Allowed, subject to just exceptions.
W.P.(C) 10485/2023 & CM APPL. 40640/2023[Application filed on behalf of the petitioner seeking interim relief].
2. This writ petition concerns Assessment Year (AY) 2016-17.
3. The record, as presently made available to us, shows that there has been no application of mind by the Assessing Officer (AO).
4. Evidently, the petitioner was issued a notice dated 24.03.2023 under Section 148A(b) of the Income Tax Act, 1961 [in short, “The Act”].
5. The allegation levelled against the petitioner concerned the following two aspects:
(i) First, it had remitted monies to non-resident/foreign company.
(ii) Second, it had paid Rs.1 lakh or more, for acquiring shares.
5.1 Insofar as remittances were concerned, in the notice under Section 148A(b) of the Act, there are two amounts mentioned i.e. Rs. 36,70,31,500/& Rs. 8,98,87,560/-.
5.2. Insofar as the allegations concerning the monies paid by the petitioner for acquiring shares was concerned, it was pegged at Rs. 10,18,59,480/-.
6. As required in the aforesaid notice, the petitioner filed a response dated 04.04.2023, whereby it was conveyed that a serious error was committed by the AO.
7. It was pointed out that the petitioner had, in fact, received monies upon the sale of shares, and not, as alleged, remitted monies through a non-resident/foreign company.
7.1. In this regard, the petitioner indicated that it had sold shares of two entities i.e., Landmark Hi Tech Development Private Limited and Safari Retreats Private Limited.
7.2. Insofar as the amount received on sale of share of Landmark Hi Tech Development Private Limited was concerned, it was asserted that the petitioner had received Rs. 36,70,31,500/-, and, likewise upon sale of shares of Safari Retreats Private Limited, it was averred that the petitioner had received Rs. 8,98,87,560/-.
7.3 Therefore, the cumulative amount that the petitioner claimed it had received on sale of the shares was Rs. 45,69,19,060/-.
8. As regards the other allegation, which is that it had paid Rs.10,18,59,480/- for acquiring shares, the petitioner submitted that it had, in the first instance, acquired 1,41,47,150 shares from a company going by the name Treasured Developers Pvt. Ltd. (TDPL).
8.1. The petitioner further averred that, against these shares, it was allotted 70,73,575. bonus shares. Thus, at the given point of time, the petitioner held 2,12,20,725 equity shares in TDPL.
8.2. he petitioner claims that an amalgamation took place between TDPL and another company, namely, Suncity Dhoot Colonizers Private Limited. It is stated that the scheme of amalgamation concerning these companies was sanctioned via an order dated 22.06.2015 passed by the Delhi High Court in Company Petition No. 417/2015.
8.3 The petitioner claims that, consequent to the amalgamation, it was allotted 1,01,85,948 shares of Suncity Dhoot Colonizers Private Limited, bearing a face value of Rs. 10 per share.
8.4. Thus, the explanation given was that the amount which was flagged by the AO, was nothing but the face value of the aforementioned shares amounting to Rs.10,18,59,490/-.
9. The petitioner also brought to the notice of the AO that the allotment of shares in a scheme of amalgamation was not construed as transfer under the Act. In this regard, the provisions of Section 47(vii) of the Act was mentioned by the petitioner.
10. According to the petitioner, the allegations stemmed from the erroneous assumption in the notice dated 24.03.2023 issued under Section 148A(b) of the Act that the petitioner had not filed its Return of Income(ROI).
11. Mr Indruj Singh Rai, learned counsel, who appears on behalf of petitioner, says that the entire transaction was disclosed by the petitioner in the ROI.
12. In this behalf, our attention was drawn to the copy of the ROI placed on record by the petitioner. A perusal of the ROI shows that the petitioner had disclosed the sale of shares and had also claimed exemption on the long term capital gain earned by it.
13. The AO, while noticing the reply filed by the petitioner, seems to have continued on the course embarked upon by him i.e., continuing with the reassessment proceedings, without any course correction.
13.1 It is quite obvious that the AO has muddled up the facts and thus made allegations which, prima facie, don’t appear to be correct.
14. Furthermore, as pointed out by the Mr Indruj Singh Rai, for the first time, in the Section 148A(d) order, the AO seems to have flagged the issue that the petitioner was attempting to take benefit of the Double Tax Avoidance Agreement (DTAA) executed between India and Mauritius, and, in this context, stated that it had failed to provide the audited balance sheets of Indian entities, whose shares were sold in the AY in issue.
15. Furthermore, on this aspect, the AO also made observations that the details concerning the Directors, shareholding patterns of the Indian entities, the Minutes of Board Meeting and the valuation report as per Section 50 of the Act, read with rule 11UA, had not been submitted.
16. A bare perusal of the notice dated 24.03.2023 issued under Section 148A(b) of the Act would show that these aspects were not adverted to by the AO.
17. However, on being queried, Mr Indruj Singh Rai, did concede that the benefit of the DTAA has been denied to the assesee for AY 2014-15. It is, however, stated by the Mr Indruj Singh Rai that this aspect is pending adjudication before this Court in W.P(C) No. 4652/2022.
18. Mr Puneet Rai, learned senior standing counsel, who appears on behalf of respondent/revenue says that he would have to file a counter-affidavit in the matter.
19. Accordingly, issue notice.
19.1 Mr Puneet Rai, learned senior standing counsel accepts notice on behalf of the respondents/revenue.
20. Counter affidavit will be filed within six weeks.
20.1 Rejoinder thereto, if any, will be filed, at least five days before the next date of hearing.
21. List the matter on 12.02.2024.
22. In the meanwhile, operation of the impugned order dated 27.04.2023 passed under Section 148A(d) of the Act and the consequent notice of even date i.e., 27.04.2023 issued under Section 148 of the Act shall remain stayed.
23. Parties will act based on the digitally signed copy of the order.
