While reopening the case U/S 148, the AO must be subjectively satisfied that income which was taxable has in fact escaped assessment: Delhi HC
COMPONENTSOURCE COMPANY LTD. (W.P.(C) 7753/2024)
Facts:
1. A notice referable to Section 148A(b) of the Income Tax Act came to be issued against the petitioner. The same was based on material gleaned from the Non-Filing Monitoring System of the Department and pertaining to AY 2020-21.
2. The respondents took the position that on the basis of the information appearing on the Insight Portal it appears that various payments were made to the writ petitioner and in respect of which tax had been deducted at source by various entities. It, accordingly, alleged that income amounting to INR 6,52,46,913/- remained unexplained and appears to have escaped assessment.
3. In response, the petitioner in terms of its reply explained that it was an overseas entity incorporated in Japan and is engaged in the supply of software. It procures software from its vendors on a principal-to-principal basis for purposes of sale/re-sale to its customers situated across the globe including India. The petitioners further asserted that in the course of that sale no right to reproduce, sub-licence, modify or translate any software is transferred.
4. In so far as the question of taxability of income was concerned, the petitioner asserted that even if the income so generated were to be viewed as business income, the same would not be taxable in the absence of a Permanent Establishment [“PE”] of the petitioner existing in India. Benefit was thus claimed of the provisions contained in the India-Japan Double Taxation Avoidance Agreement.
5. The writ petitioner impugns the reassessment action initiated in terms of notice issued under Section 148 of the Income Tax Act.
Hon. Delhi HC held as below:
1. In our considered opinion, the respondent has clearly failed to deal with objections which struck at the very root of assumption of jurisdiction.
2. Findings on the aspect of royalty and PE could not have been deferred or made subject matter of further verification. This, since at the stage of initiating action under Section 148, the respondent must be subjectively satisfied that income which was taxable has in fact escaped assessment. This aspect of criticality has clearly been ignored by the respondent while passing the impugned order.
3. Accordingly, and for all the aforesaid reasons, we allow the instant writ petition and quash the order passed under Section 148A(d) and notice under Section 148 of the Act.
The copy of the order is as under:
