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Delhi HC quashes reassessment notice as investment in shares of Indian subsidiary couldn’t be treated as income

August 20, 2019[2019] 108 237 (Delhi)

IT : Re-assessment notice issued on a Swiss Company on basis that investment by said company in shares of its subsidiary amounted to 'income' which had escaped assessment was to be set aside as share purchase was a 'capital account' transaction and could not be treated as income


• Assessee a Swiss company was world's largest food and beverage company. It had its subsidiary in India. It had received approximately Rs. 419 crores from Nestle India as dividend and interest over past three years. It was further noted that assessee had purchased further shares of its Indian subsidiary for Rs. 280 crores approximately from open market as per SEBI regulations.

• Assessing Officer after expiry of four years before expiry of six years from end of relevant assessment year issued reopening notice on ground that owing to non-filing of return for subject assessment year by assessee, source of its investment could not be substantiated.

• On being requested assessee was furnished with the reasons for reopening of the assessment in which it was stated that a list of 'non-filers' had been generated by the Non-filers Monitoring System (NMS) module of, in which it was found that the assessee had not filed its return income for assessment year 2011-12. It was stated that in the absence of details for non-filing of return of income, source of income of investment made by assessee could not be substantiated. Accordingly, the respondent stated that he had reason to believe that income which was chargeable to tax, escaped assessment by reason of the failure on part of assessee to fully introduce all material facts.

• On appeal to the High Court:


• Assessee's income in India only comprised of dividend and interest income on which TDS was deducted. Further, assessee was not required to file any return of income under section 139(1) for subject assessment year in terms of section 115A(5) which has to be read together with CBDT Instruction No.14 of 2013 which sets down SOP for cases under NMS. The principal objection of assessee that its investment in shares of its subsidiary cannot be treated as income was well founded. Share purchase was a 'capital account' transaction not giving rise to income was accepted by CBDT. Merely because notice issued to assessee was a system generated notice since NMS detected assessee as a non-filer does not automatically mean that assessee had to be issued a notice under section 147. The fundamental premise of respondent that above investment by assessee in shares of its subsidiary amounted to 'income' which had escaped assessment was flawed. The said transaction in question did not form a live link for 'reasons to believe' that assessee's income had escaped assessment. Accordingly the impugned notice was to be set aside.

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