[Opinion] Reassessment – Analysis of Two Recent Pathbreaking Judgments Under Income Tax

Arjun Gupta – [2023] 154 taxmann.com 519 (Article)

Introduction

On August 25th, 2023, the Bombay High Court delivered judgment in the case of Siemens Financial Services (P.) Ltd. v. Dy. CIT. The judgment has become a landmark in reassessment law inasmuch as a complete analysis pursuant to various grounds raised by counsel for both the assessee as well as the Department, was carried out. On 14th September, 2023, the Telangana High Court delivered judgment on a vital issue in reassessment law as well. The said judgment has caused a rippling effect amongst the tax fraternity in India. The said judgment has tremendous potency inasmuch as several pending cases may now be decided in favour of the assessee. As such, the matter will not rest there and shall mostly be carried further by the Department to the Apex Court. In this article, an attempt is made to analyse both the judgments threadbare and to observe the repercussions on the taxpayer and the Department as emanating from them.

Siemens Financial Services (P.) Ltd. v. Dy. CIT

Facts

The facts have largely been borrowed from the judgment itself as they have been laid down by the learned judge in a very concise and lucid style.

• The Petitioner is registered with the Reserve Bank of India (RBI) as a Non-Banking Finance Company(NBFC) and is classified as an Asset Finance Company. On 28th November 2016, the petitioner filed its return of income for A.Y.-2016-2017 declaring a total income of Rs. 44,92,46,370/-. Later the petitioner filed a revised return of income on 28th March 2018 declaring a total income of Rs. 50,67,32,580/-. The return of income was selected for scrutiny and a notice dated 5th September 2018 under section 143(2) of the Income-Tax Act 1961 (“Act”) was issued. This was followed by notice dated 5th December 2018 under section 142(1) of the Act. Petitioner responded by its letter dated 6th December 2018 and submitted the transaction wise summary on expenditure on software consumables. Respondent no.1 passed an assessment order dated 23rd December 2018 under section 143(3) of the Act without making any adjustments to the total income as reported by petitioner in its revised return of income.
• Almost three years later, petitioner received notice dated 25th June 2021 under section 148, stating that there was reason to believe, petitioner’s income chargeable to tax for A.Y. 2016-2017 has escaped assessment within the meaning of section 147 of the Act. The impugned notice mentioned that necessary satisfaction of Range 8(2), Mumbai has been obtained. Petitioner was also provided with the reasons recorded for reopening the assessment in response to the request made by petitioner. Petitioner by its letter dated 22nd July 2021 replied to the notice issued under section 148 and submitted that the notice has been issued as per the provisions of sections 147 to 151 of the Act as they stood prior to their substitution vide Finance Act, 2021 and respondent no.1 should assume jurisdiction post 1st April 2021 in terms of the amended provisions. Petitioner pointed out that the notice dated 25th June 2021 is bad in law and requested respondent no.1 to drop the assessment proceedings. Petitioner was served with the notice dated 26th November 2021 under section 142(1) of the Act. Petitioner responded vide its letter dated 20th December 2021. Thereafter, respondent no.1 issued the letter/show cause notice dated 31st May 2022 under section 148A(b) of the Act, wherein respondent no.1 had referred to the notice issued on 25th June 2021 under section 148 of the Act.
• In the said notice dated 31st May 2022, respondent no.1 referred to various writ petitions that had been filed in Bombay High Court as well as the other courts challenging the validity of the notices issued under section 148 of the Act and also referred to the order of the Apex Court in Union of India v. Ashish Agarwal and stated that the notice under section 148 of the Act shall be deemed to be issued under section 148A of the Act as substituted by the Finance Act 2021 and shall be treated as show cause notice in terms of section 148A(b) of the Act. Respondent no.1, therefore, treated the notice issued under section 148 of the Act as show cause notice in terms of section 148A(b) of the Act. Respondent no.1 also relied on information and material annexed to the show cause notice suggesting that the income chargeable to tax has escaped assessment within the meaning of section 147 of the Act and also relied on the approval of the competent authority annexed to the impugned show cause notice.
• Petitioner responded vide its communications dated 9th June, 2022 and 7th July, 2022. Various grounds were taken in its response. Respondent no.1, by an order dated 31st July 2022 passed under section 148A(d) of the Act, rejected the submissions of petitioner and simultaneously issued the section 148 notice.

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