Facts of the Case

  • The petitioners (Mauritius-based companies) challenged notices dated 30 March 2021 issued under Section 148 for AY 2016–17 and 2017–18.
  • The reassessment was initiated based on NMS data indicating financial transactions and alleged non-filing of returns.
  • It was alleged that remittances were made without deduction of TDS and claimed as tax-exempt under DTAA.
  • The Assessing Officer concluded that income had escaped assessment.

Issues Involved

  1. Whether reassessment notices under Section 148 were validly issued based on NMS information.
  2. Whether the requirement of “reason to believe” under Section 147 was satisfied.
  3. Whether exemption claims (dividend income and capital gains) could be examined at the notice stage.

Petitioner’s Arguments

  • The notices were without jurisdiction and based on vague and bald assertions.
  • Dividend income was exempt under Section 10(34).
  • Long-term capital gains from sale of listed shares (e.g., Just Dial Ltd.) were exempt under Section 10(38).
  • Long-term capital loss was not taxable.
  • No proper material existed to form “reason to believe” under Section 147. 

Respondent’s Arguments

  • The income was prima facie chargeable to tax, and exemption claims required verification.
  • Reassessment proceedings are the appropriate stage to examine such claims.
  • Notices were issued within four years and hence legally valid.

Court Findings / Order

  • The Court held that:
    • Notices were issued within four years and no scrutiny assessment had been conducted earlier.
    • The test is whether there exists “reason to believe” that income escaped assessment.
  • Reliance was placed on Raymond Woollen Mills Ltd. vs ITO (2008) 14 SCC 218, which states:
    • At the notice stage, only prima facie material is required.
    • Sufficiency or correctness of material is not to be examined.
  • The Court concluded:
    • The threshold for reopening was satisfied.
    • However, petitioner’s contentions must be considered during reassessment proceedings.
  • Final Order:
    Writ petitions disposed of with liberty to the assessee to raise all contentions before the Assessing Officer.

Important Clarification

  • “Reason to believe” does not require conclusive proof at the notice stage.
  • Courts will not interfere if prima facie material exists, even if the assessee disputes the merits.
  • All factual disputes and exemption claims must be adjudicated during reassessment, not in writ jurisdiction.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1112-DB/MMH23032022CW46502022_165444.pdf

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