Facts of the Case

The petitioner, Ernst and Young U.S. LLP, challenged the order dated 14 July 2022 passed under Section 148A(d) of the Income Tax Act, 1961 for Assessment Year 2018–19.

The reassessment proceedings were initiated on the ground that the petitioner had not offered to tax professional service receipts amounting to ₹1.92 crore received from S.R. Batliboi & Associates LLP.

The petitioner contended that such income was not taxable in India due to the applicability of Article 15 of the Double Taxation Avoidance Agreement (DTAA). It was further submitted that similar claims were accepted by the Revenue in Assessment Year 2019–20.

Earlier, the High Court had set aside a previous order under Section 148A(d) and directed the Revenue to pass a fresh reasoned order after considering the petitioner’s reply. Subsequently, the impugned order was passed again holding that reassessment proceedings should be initiated.

Issues Involved

  1. Whether reassessment proceedings under Section 148A can be initiated without fresh tangible material when the original return was processed under Section 143(1).
  2. Whether the benefit of Article 15 of DTAA accepted in a subsequent assessment year can be automatically applied to a previous year.
  3. Whether lack of documentary evidence justifies reopening of assessment.

Petitioner’s Arguments

  • The petitioner argued that the income in question was not taxable in India under Article 15 of DTAA.
  • It was submitted that the Revenue had already accepted the same position in Assessment Year 2019–20.
  • The petitioner emphasized that the return had already been accepted under Section 143(1), which constituted an assessment with consequences.
  • It was contended that reopening of assessment without fresh tangible material was invalid.

Respondent’s Arguments

  • The Revenue contended that acceptance of DTAA benefits in one assessment year does not automatically apply to another year.
  • It was argued that the petitioner failed to provide sufficient documentary evidence such as agreements, invoices, and details of services rendered.
  • The Revenue maintained that the petitioner did not establish that the services rendered in AY 2018–19 were identical to those in AY 2019–20.

 

Court’s Findings / Order

The Delhi High Court dismissed the writ petition and upheld the reassessment proceedings.

  • An intimation under Section 143(1) is not an “assessment”; therefore, the doctrine of “change of opinion” does not apply.
  • No fresh tangible material is required for reopening when the original return was processed under Section 143(1).
  • The petitioner failed to provide documentary evidence to establish similarity of services across assessment years.
  • Consequently, the Court found no infirmity in the order passed under Section 148A(d).

Important Clarification by the Court

  • The Court clarified that reassessment proceedings could still be dropped if the petitioner subsequently proves that the services rendered in AY 2018–19 were identical to those in AY 2019–20.

Sections Involved

  • Section 148A(d), Income Tax Act, 1961
  • Section 148, Income Tax Act, 1961
  • Section 147, Income Tax Act, 1961
  • Section 143(1), Income Tax Act, 1961
  • Section 143(3), Income Tax Act, 1961
  • Article 15, Double Taxation Avoidance Agreement (DTAA)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3191-DB/MMH22082022CW118622022_183233.pdf

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