Reassessment notice quashed due to lack of clarity about its recipient

Home Credit India B.V  Vs ACIT (Delhi High Court)

The Delhi High Court recently quashed a reassessment notice in the case of Home Credit India B.V. Vs ACIT, ruling that the Assessing Officer (AO) was unclear whether the notice was issued to an individual or a corporate entity.

In this case, the petitioner pointed out several issues with the reassessment notice, arguing that it had been issued without proper application of mind. The main contentions were that the notice included requests for information that could not be provided by a corporate entity, such as a copy of the passport reflecting travel, and a tax residency certificate. The notice also made allegations concerning investment in shares, without establishing that this would constitute income chargeable to tax which had escaped.

Furthermore, the notice sought to apply Section 50CA, which the petitioner argued applies only to transfer of shares, not investment in shares. After considering these arguments, the Court agreed with the revenue’s proposal to set aside the impugned notice and order, and to remit the matter to the AO for a de novo exercise.

Conclusion: This judgment by the Delhi High Court is significant because it emphasizes the importance of clear and accurate communication in tax notices. It illustrates the importance of AOs understanding the nature of the entity they are dealing with and tailoring their requests and allegations appropriately. The Court’s decision to remit the matter back to the AO for a fresh investigation underlines the necessity of thorough groundwork and application of mind before issuing notices. This case serves as a reminder for all AOs to issue their notices with clarity and precision.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Allowed, subject to just exceptions.

W.P.(C) 7397/2023 & CM No.28775/2023 [Application filed on behalf of the petitioner seeking interim relief]

2. Issue notice.

2.1 Mr Sanjay Kumar, learned senior standing counsel, accepts notice on behalf of the respondents/revenue.

3. Given the directions that we propose to issue, Mr Kumar says that he does not wish to file a counter-affidavit in the matter, and he will argue the matter based on the record presently available with the court.

3.1 Therefore, with the consent of learned counsel for the parties, the matter is taken up for hearing and final disposal at this stage itself.

4. This writ petition concerns Assessment Year (AY) 2019-20.

5. Mr Sachit Jolly, who appears on behalf of the petitioner, has drawn our attention to the notice dated 04.03.2023 issued under Section 148A(b) of the Income Tax Act, 1961 [in short, “Act”].

5.1 It is Mr Jolly’s contention that the notice had been issued without application of mind. In this context, Mr Jolly has broadly made the following submissions:

(i) First, the allegation concerns investment in shares and, as correctly put by him, at this stage, it could not have been said, without material on record, that it would constitute income chargeable to tax, which had escaped assessment.

(ii) Second, the notice seeks a copy of the passport reflecting travel Once again, Mr Jolly correctly states that the petitioner, i.e., the notice, is a company, therefore, this information could not have been sought from it.

(iii) Third, the Assessing Officer (AO) also asked for a tax residency certificate and, therefore, it appears he is completely unclear whether he is issuing notice to an individual or a corporate entity.

(iv) Fourth, to a query concerning applicability of Section 50CA , Mr Jolly submits that this provision applies to transfer of shares, and not investment in shares.

6. We have put these aspects to Mr Kumar. Mr Kumar says that the best way forward would be to remit the matter to the AO, to conduct a de novo exercise.

7. We tend to agree with Mr Kumar.

8. Accordingly, the impugned notice and order are set aside.

9. Liberty is, however, given to the AO to recommence the proceeding, if deemed necessary, albeit, after gathering the relevant material which would show that income chargeable to tax has escaped assessment qua the petitioner.

10. In case, the AO deems it fit to recommence the proceeding, he/she will issue notice to the petitioner.

11. The AO will also, in that event, accord personal hearing to the authorized representative of the petitioner.

12. Needless to add, in such a situation, the AO will pass a speaking order; a copy of which will be furnished to the petitioner.

13. The writ petition is disposed of, in the aforesaid terms.

14. Consequently, the pending application shall stand closed.

15. Parties will act based on the digitally signed copy of the order.