Ferra Engineering PTY Limited Vs ACIT (Delhi High Court)
Delhi High Court in Ferra Engineering PTY Limited vs. ACIT (Writ Petition, 2025) addressed the petitioner’s challenge to notices issued under Sections 148, 148A(1), and 148A(3) of the Income Tax Act, 1961. The petitioner, a non-resident company incorporated in Australia, had transferred its equity shares in Ferra Aero Space Pvt. Ltd. to its UK subsidiary during the Assessment Year (AY) 2020-21 for ₹7,43,27,348. Apart from this transaction, the petitioner conducted no other activities in India during the relevant financial year.
The petitioner contested the issuance of the notice under Section 148A(1), arguing that the Assessing Officer (AO) had erroneously invoked reassessment proceedings without first determining that the amount of escaped income exceeded ₹50 lakh, as required under Section 149(1)(b) of the Act. The petitioner submitted detailed replies on 06.06.2025 and 28.06.2025, providing a computation of capital gains from the share transfer, which showed a long-term capital loss of ₹1,03,33,852 and a short-term capital gain of ₹39,49,342. Based on these figures, the petitioner contended that the tax liability did not exceed the ₹50 lakh threshold, making the issuance of a notice under Section 148A(1) legally unsustainable.
The petitioner also argued that the AO’s order under Section 148A(3), which rejected its computation, was passed without considering the documents submitted in response to the notice. The AO had further requested supporting documentation, including the share purchase agreement, bank statements, and Tax Residency Certificate (TRC), which were either not executed or not required at that stage. The petitioner emphasized that the assessment should have been initiated only if the AO had concrete evidence that taxable income exceeding ₹50 lakh had escaped assessment.
The petitioner relied on several judicial precedents to support its arguments. In BBC World News v. Assistant Director of Income Tax (2014) 42 Taxman.com 456, it was held that reassessment under Section 148 must be preceded by reasonable satisfaction regarding the amount of escaped income. Similarly, in Nitin Nema v. Principal Chief Commissioner of Income Tax (2023) 155 Taxman.com 276, and Sanat Kumar Murli v. ITO (Karnataka High Court, 2023; , courts emphasized that the AO must have preliminary satisfaction based on concrete material before initiating reassessment proceedings.
The Revenue, represented by Senior Standing Counsel Mr. Vipul Agrawal, argued that the petitioner was a non-filer and that the only information available to the AO was the share transfer transaction. Therefore, issuance of the notices and reassessment proceedings was justified. The AO had requested additional documentation to verify the transaction, including TRC, bank statements, and foreign exchange reconciliation. In the absence of such material, the AO could only conclude that the taxability of the transaction needed further examination.
During the proceedings, the petitioner clarified that it was willing to submit the TRC, bank statements, and reconciliation, and noted that the share purchase agreement had not been executed. Consequently, the High Court, without deciding the legality of the original notice under Section 148A(1), set aside the notices dated 30.06.2025 and remanded the matter to the AO for fresh consideration. The AO was directed to review the submissions and any additional documentation, issue prior notice to the petitioner, and pass a reasoned, speaking order within 12 weeks from the date of the judgment. The court emphasized that the petitioner would not raise objections regarding limitation or the legality of the original notice during this reconsideration.
The petition was disposed of with the remand, and pending applications were dismissed as infructuous. The judgment reinforces that reassessment under Section 148 and notices under Section 148A must be based on a clear preliminary satisfaction regarding escaped income and that the taxpayer must be provided an opportunity to submit supporting documentation for verification.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
