14. Nestle SA vs. ACIT;
[2019] 417 ITR 213 (Del.) Date of order: 7th
August, 2019 A.Y.: 2011-12
Reassessment – Validity
of notice – Sections 115A, 147 and 148 of ITA, 1961 – Non-filing of return in
respect of alleged taxable income – Notice not automatic – Filing of return not
an admission that notice is valid – Assessee exempted from filing return u/s
115A – Investment of shares in subsidiary did not give rise to taxable income –
Notice not valid
The assessee was a company incorporated in Switzerland. A notice of
reassessment u/s 148 of the Income-tax Act, 1961 was issued to it for the A.Y.
2011-12 for the reason that it had entered into a share transaction. The
assessee filed the return and raised the following objections: (i) that the
assessee’s income from India consisted only of dividend and interest on which
tax had been deducted at source in accordance with the Act or the DTAA; and
(ii) that the share transaction was with its subsidiary and no taxable income
had been generated. The objections were rejected.
The assessee filed a writ petition and challenged the notice. The Delhi
High Court allowed the writ petition and held as under:
‘(i) Under Explanation (2) to
section 147 of the Income-tax Act, 1961 a notice of reassessment can be issued
in case of non-filing of return of taxable income. The Income-tax Department
has set up a non-filers monitoring system. The CBDT instruction sets down the
standard operating procedure that is required to be adopted in this regard. A
system-generated notice detecting the assessee as a non-filer does not
automatically mean that the assessee has to be issued a notice u/s 148 of the
Act. Even assuming that at the time the notice was issued the AO was perhaps
not fully aware of all the relevant facts, once the assessee submits its
objections, it is obligatory for the AO to apply his mind to those points.
(ii) The averment of the assessee
that during the A.Y. 2011-12 its receipts from its Indian subsidiary was
comprising only of dividend and interest on which tax was deductible at source
and had been deducted in accordance with the provisions of the Act, had not
been disputed by the Revenue. It was also not disputed that the assessee was
specifically exempted from filing the return u/s 115A(5).
(iii) The principal objection of
the assessee that its investment in the shares of its subsidiary could not be
treated as income was well founded. Therefore, the fundamental premise that the
investment by the assessee in the shares of its subsidiary amounted to “income”
which had escaped assessment was flawed. The question of such a transaction
forming a live link for reasons to believe that income had escaped assessment
was entirely without basis. The notice was not valid.’
