The Bombay High Court has invalidated the reassessment notices on the grounds that there were no alterations detected in the beginning and ending stock of non-convertible debts (NCDs).

Justices K. R. Shriram and Neela Gokhale, presiding over the bench, noted that the decision to reopen the assessment through the notice was solely due to a shift in the assessing officer's opinion. They emphasized that a mere change in opinion does not provide sufficient grounds or reasons to believe that taxable income has been overlooked in the assessment process.

The petitioner, a company established under Cyprus law, operates as an investment holding firm and is recognized as a tax resident of Cyprus. Additionally, it is registered as a foreign portfolio investor (FPI) with the Securities and Exchange Board of India (SEBI). The approval required from the Jurisdictional Assessing Officer (JAO) and Commissioner of Income Tax (International Taxation) is pertinent in this context.

The assessment of the petitioner for Assessment Year (AY) 2015-2016 was finalized on October 30, 2017, under Section 143(3), with the declared income being 'Nil'. Subsequently, the petitioner received a notice under Section 148, stating that there were grounds to suspect that the petitioner's taxable income for AY 2015-2016 had not been properly assessed, as per the provisions of Section 147 of the Act. The petitioner was furnished with the reasons behind this belief that tax had escaped assessment.

The petitioner argued that according to Article 11 of the Double Taxation Avoidance Agreement (DTAA), interest income is taxable only when it is actually received by the recipient. As the petitioner did not receive any interest income on the non-convertible debt (NCD) during Assessment Year (AY) 2015-2016, they contended that no tax was liable to be paid.

The department maintained that the inquiries raised during the assessment proceedings did not specifically pertain to the issue of undisclosed interest on the non-convertible debt (NCDs), thus asserting that there was no alteration in opinion.

The court ruled that when a query is raised during assessment proceedings and the assessee provides a response, it implies that the query was duly considered by the Assessing Officer (AO) during the assessment process. The court further emphasized that it is not mandatory for an assessment order to explicitly reference or discuss queries to demonstrate satisfaction with the responses provided. Therefore, the decision to reopen the assessment was solely based on a change in the AO's opinion, which does not constitute valid grounds to believe that taxable income has escaped assessment.

Counsel For Appellant: Madhur Agrawal

Counsel For Respondent: Ahileshwar Sharma

Case Title: Upesi Ventures Ltd. Versus The Assistant Commissioner of Income Tax

Case No.: Writ Petition No. 2234 Of 2022