Delhi High Court: In a writ petition filed by Genpact India Pvt. Ltd. (‘Genpact’) to challenge the reassessment action related to the Assessment Year (‘AY’) 2015-16 that was initiated after an order dated 30-07-2022 was passed as per Section 148A(d) of the Income Tax Act, 1961 (‘Act’) as well as the consequential notice under Section 148 dated 30-07-2022, a Division Bench of Yashwant Varma and Ravinder Dudeja, JJ. found themselves unable to sustain the impugned action and quashed the impugned notice dated 27-05-2022 under Section 148A(b), the order dated 30-07-2022 under Section 148A(d) of the Act, and the notice dated 30-07-2022 under Section 148 of the Act.
Background
Genpact was engaged in the business of providing a host of business process outsourcing services, data modelling and analytics support, managed IT services, software solutions, and e-learning.
The reassessment action, in the present matter, was initiated based on information received pursuant to a survey carried out at the premises of Genpact between 25-02-2019 to 27-02-2019. In the course of that survey, various remittances made to foreign entities came to light.
Based on those remittances, the Assistant Commissioner of Income Tax (‘ACIT’) contended that they would fall within the meaning of ‘royalty’ or ‘fee for technical services’ and would be covered by Section 195 of the Act. The failure on the part of Genpact to deduct tax at source was the first limb of the reassessment action.
The second subject of the proposed reassessment was the transfer of shares and the capital gains which accrued on them. The Assessing Officer (‘AO’) noted that the shares of Genpact India held by Headstrong Consulting (Singapore) Pte. Ltd. and Genpact India Holding Mauritius were transferred to Empower Research Knowledge Services Pvt. Ltd. (‘ERKS’) (earlier form of Genpact) vide transfers dated 28-01-2015 and 25-03-2015. It was alleged that the transactions had no underlying financial support and were done to avoid tax.
The AO also took note of ERKS subsequently amalgamating with Genpact India after a Scheme of Arrangement that came to be sanctioned by the High Court of Hyderabad and Telangana as per an order dated 17-08-2015.
The ACIT contended that funds were remitted in the form of principal of liabilities and a declaration of dividend was avoided. This resulted in deviation of taxes and dividend payout being camouflaged as principal payments. It was alleged that since no dividend distribution tax had been deducted, Genpact had evaded taxes that were liable to be paid.
Genpact submitted that a reassessment action for AY 2015-16 could have been initiated only up to 31-03-2022 and that the action for reassessment that commenced pursuant to the Section 148A(b) notice dated 27-05-2022 could not be permitted and was liable to be quashed.
The ACIT contended that the reassessment action was commenced due to a notice referable to Section 148 of the Act dated 30-06-2021 and that since ACIT was obliged to undertake a course correction as per the decision of the Supreme Court in Union of India v. Ashish Agarwal (2023) 1 SCC 617, the subsequent notice under Section 148A(b) came to be issued and would be deemed to be in continuation and substitution of the original Section 148 notice. It was contended that the action stood saved by the directions framed by the Supreme Court.
Analysis and Decision
The Court noted that challenges came to be raised before various High Courts with respect to assessment notices that had been issued after 01-04-2021 following and adhering to the procedure that prevailed before the enforcement of the Finance Act, 2021.
The Court said that in Ashish Agarwal (supra), the Supreme Court opined that instead of quashing the reassessment notices issued under the unamended provisions of the Act, the High Courts should have modulated their directions by providing that those notices be treated as notices under Section 148A(b).
The Court noted that while proceeding on the aforesaid reasoning, the Supreme Court held that the impugned Section 148 notices should be deemed to be under Section 148A and treated to be Show Cause Notices as contemplated under clause (b) thereof.
The Court said that ACIT had proceeded to issue a notice on 27-05-2022 in compliance and implementation of Ashish Kumar (supra). However, by the time the said notice came to be issued, the terminal point for the commencement of reassessment, i.e. 31-03-2022, had already passed.
The Court referred to the first proviso to sub-section (1) of Section 149 and stated that a reassessment notice related to any AY before 01-04-2021 would have to be in accordance with the time limit specified under Section 149(1)(b) as it stood prior to the amendments enforced by virtue of Finance Act, 2021. In the present matter, the Court said that the time limit would constitute a maximum of six years from the end of the relevant assessment year bearing in mind the language in which Section 149(1)(b) existed before 01-04-2021.
The Court said that Genpact had not instituted any legal proceedings before any court to assail the notice dated 30-06-2021 and thus, no declaration of invalidity came to be rendered in respect of the notice issued to Genpact.
The Court stated that in Ashish Kumar (supra), the Supreme Court was clearly cognizant of the new time frames that came to be introduced by Section 149 as well as the first proviso to Section 149(1) which governed all assessment years before 01-04-2021 and found themselves unable to recognize the notice dated 27-05-2022 as a continuation of the original Section 148 notice.
The Court also took note of the fact that once an assessee had chosen to flow along with a notice issued as per the erstwhile regime, participate in those proceedings by filing a return, or suffer an assessment, it would have been legally impermissible for it to assail the reassessment action subsequently on grounds which were taken note of in Man Mohan Kohli v. Assistant Commissioner of Income Tax 2021 SCC OnLine Del 5250.
The Court said that after testing the present matter on the principles laid down in Manju Somani v. Income Tax Officer 2024 SCC OnLine Del 5292, it became apparent that the impugned action of reassessment could not be sustained. The Court found that the notice of 27-05-2022 could not be viewed to be in continuation or substitution of the original notice dated 30-06-2021.
The Court noted that although Genpact had alluded to the amended statutory regime that had come into existence while responding to the original Section 148 notice dated 30-06-2021, and had informed the AO of an obligation to follow the procedure as prescribed under Section 148A, however, no legal challenge to impugn the action commenced by virtue of the notice dated 30-06-2021 was ever instituted. Thus, the Court stated that this was not a case where the subsequent notice under Section 148A(b) could be accepted to be in continuance or substitution of the original notice.
Further, the Court noted that Genpact had merely asserted that the notice dated 30-06-2021 was liable to be withdrawn as opposed to being suspended. Thus, the Court allowed the present writ petition and quashed the impugned notice dated 27-05-2022 under Section 148A(b), the order dated 30-07-2022 under Section 148A(d) of the Act, and the notice dated 30-07-2022 under Section 148 of the Act.
[Genpact India Pvt. Ltd. v. Assistant Commissioner of Income Tax, 2024 SCC OnLine Del 6329, Decided on 09-09-2024]
Advocates who appeared in this case:
For Petitioner — Advocate Sachit Jolly, Advocate Disha Jham, Advocate Soumya Singh, Advocate Rishabh Malhotra, Advocate Devansh Jain, Advocate Raghav Dutt, Advocate Aditya Rathore, Advocate Abhudaya Shankar
For Respondent — SSC Gaurav Gupta, Advocate Shivendra Singh, Advocate Yojit Pareek
