Claim That Investment In Shares Was A Capital Account Transaction, Non-Application Of Mind By AO: Delhi High Court Quashes Reassessment Notice

The Delhi High Court has quashed the reassessment notice as the AO failed to apply his mind as to whether an investment in shares was a capital account transaction.The division bench of Justice Rajiv Shakdher and Justice Tara Vitasta Ganju has observed that the principal allegation against the assessee is that it purchased shares of an Indian company and that this led to the escapement of income chargeable to tax. The central issue to which the AO should have applied his mind is whether the investment in shares by the assessee was a capital account transaction, given the fact that there is no allegation of round-tripping. There is no reference to Section 115A either in the show-cause notice or in the order passed by the AO.The principal allegation against the petitioner was that it purchased shares of an Indian company going by the name Agile Electric Sub-Assembly Pvt. Ltd. According to the respondent or department, it has led to the escapement of income chargeable to tax.The assessee contended that no income has accrued or arisen in India, the subject transaction is a capital account transaction, and the remittance was made to the seller after adjusting the withholding tax, as ascertained by the respondent. Neither the provisions of Section 139 nor Section 115A of the Act are applicable to the petitioner.The department contended that it is a case where the petitioner chose not to file a return, and therefore, in terms of Explanation 2 to Section 147 of the Act, the fact of non-filing of a return would by force of law result in deeming escapement of income. In the case of the petitioner, Section 139 of the Act, as well as Section 115A of the Act, must be read in conjunction with the requirement to file an income return.The court held that the AO would carry out a de novo exercise. The AO will, inter alia, deal with the petitioner’s contention that the transaction in issue is a capital account transaction and that no income whatsoever chargeable to tax accrues or arises in India."The AO will accord personal hearing to the authorized representative of the petitioner. For this purpose, the AO will issue a notice fixing the date and time of hearing," the court ordered.Case Title: Blackstone Capital Partner Versus ACITCitation: 2023 LiveLaw (Del) 92Date: 18.01.2023Counsel For Petitioner: Advocates Porus Kaka, Divesh Chawla, Vishal Kalra, S.S. TomarCounsel For Respondent: Advocate Sunil AgarwalClick Here To Read The Order

Claim That Investment In Shares Was A Capital Account Transaction, Non-Application Of Mind By AO: Delhi High Court Quashes Reassessment Notice

Mariya Paliwala

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